Who Invests In Your Favorite Fashion Brand?
A deep dive into the cutthroat world of fashion investment
Good morning everyone, hope you had a nice President’s Day. The amount of people I saw posting Presidential Rolexes was obnoxious but I know if I had one I’d be doing the same. I spent the day working at the Public Hotel, which is a great workspace downtown!
Today I want to dedicate the newsletter to discussing the intersection between fashion brands and the investment world.
Starting a Brand is F*cking Hard
Starting a fashion brand is no small feat. The nature of the businesses requires sheer scale, from production of garments, customer acquisition, and the more success a brand finds, despite benefits from economies of scale, the more money must be invested into sampling, production, public relations, and marketing.
The average markup in the fashion business is around a 2-2.5x markup according to Vogue, which is then marked up additionally by the retailer. This is ultimately why retailer’s like SSENSE can provide significant markdowns during their infamous sale, there’s room to slash if necessary without losing money. You’d be shocked at the price employees can purchase clothes from the brand they work for, I’m talking $2,000 designer jackets for around $200-$400.
Either way, beginning a label does require a substantial investment to even have something to sell to consumers. The Cut recently did a fantastic deep dive into how smaller designers bootstrapped their businesses with side hustles, cutting corners in their lifestyle, or finding alliterative investment sources.
For example, Marcelo Gaia of Mirror Palais began his brand with an initial $10,000 he took from another business venture and reinvested it. This initial sum went to sampling, marketing, and other business costs like forming an LLC (boring)
VC or PE for Fashion?
We see similar beginnings for other small startup fashion brands. The reality is, this type of business does not lend itself to investment from typical firms. In tech, receiving a Venture Capital (VC) or Private Equity (PE) investment is pretty common. VC funds pool money from LPs in order to invest in fledgling businesses, but often with the promise of high returns at a fixed interval on when the fund should start distributing returns. A staggering $170B was invested by VC firms in 2023 alone.
VC funds see potential in tech companies, as they have experienced the most growth over the last two decades. For example, the largest seven stocks on the public markets, are all tech companies. The reality is these companies can offer substantial returns with relatively high margins, and can be quickly restructured based on changing economic conditions.
Last year, Facebook laid off around 20% of their staff and actually experienced revenue growth of 25%, sending the stock soaring. A fashion brand can seldom do this, they become monstrosities with moving parts, bloated marketing costs, and a production cycle linked to their success. The more clothes they sell, the higher the cost to produce them.
So fashion brands often cannot look to VC funds to get started. They are not a good investment match, and a VC firm will quickly cut the ability for a designer to artistically express themselves and push boundaries if it means actually ensuring a return for their investors.
Similarly, private equity funds typically only advance in mature, cash-flowing businesses with the potential for growth depending on some restructuring and increased efficiency. There are examples of this working in the case of Ganni, who received a PE investment from L. Catterton, and later sold the brand for an estimated $700M. But at the time of investment, Ganni was established. We are seeing the same thing happen with other promising brands like APC currently, and it shows. The quality of the designs has been substantially impacted since the investment.
Finding a Family Office
So where can fashion brands look for investment sources? Family offices are proving to be a promising partnership for emerging brands. Moncler’s CEO invested in Itlaian womenswear brand Attico, acquiring a 49% stake. Since then, Attico has been able to expand their scope, finding success worldwide.
Family offices, specifically those from the fashion world, can also offer expertise, production secrets, and best practices used to propel larger brands. But for those who lack any connection to the fashion world, the internet has truly democratized how brand owners can get their start.
Lowering Barriers to Entry
Years ago, the secrets on sampling and production were largely gatekept, and the methods behind distribution were hidden. But today, an emergent group of creators are documenting sample prices from factories at tradeshows, spilling secrets on margins and cost structures, thus reducing the barriers to entry.
Oren John just went to Magic, a tradeshow in Las Vegas, and has created a video breaking down sample costs for a variety of products. Small brands no longer need to cook up screenprints in their apartment. They can lean on creators like OJ to figure out what a minimum order quanity (MOQ) is and the best factories to produce custom denim.
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At the same time, the distribution channels are opening up. New avenues like TikTok Shop have some brands ditching their Shopify accounts all together. Likewise, marketing an upstart brand no longer requires expensive PR to start out. Rather, an aspiring designer can upload content documenting their creation process from designs, sampling, ordering, and ultimately release day. Brands like Minted NY, and Elwood are perfect examples of creator-led brands finding massive success sharing their authentic story. And nowadays, consumers care much more about that authentic content. A brand owner posting up in an aesthetic space, talking about the quality and decisions behind their new drop, will do a lot more for sales than a review in Vogue.
Building a Brand Online
TikTok is offering a vertically integrated network, where you can discover how to create, share your journey through compelling, authentic content, and sell your products all within one platform. The app will have 30M+ buyers on it this year, and a staggering 55% of Gen Z is willing to shop on TikTok Shop.
Typical investment sources like VC and PE are not the route to start a fashion brand these days, and that’s not a bad thing. Brands can bootstrap themselves with smaller direct investments to get started, build their brand organically, and if things work out, partner with a more established family office to take their operation to the next level. Whether you like it or not, the floodgates are open, and amidst all of the ‘perfect boxy tees’ there will be some diamonds in the rough, a true visionary who was otherwise would be working a desk job.
About the Writer
Jake Bell is a content marketing and creative strategist based in NYC. He specializes in content creation, branding, art direction, creative strategy, and making things cool.
To learn more about Jake visit www.jb.studio
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