Much has been made about how the many, buzzy direct-to-consumer brands will fare in light of the COVID-19 crisis. While the multi-billion dollar success of many of the names that fall within this camp of brands has seen them cut out the middleman, bring formerly outsourced elements of the supply chain in-house, and “lay bare the inadequacies of stale legacy retailers” in the process over the past decade in particular, a number of these market-disruptors were struggling pre-COVID.
As Harvard Business Review’s Len Schlesinger, Matt Higgins and Shaye Roseman wrote recently, “many of those businesses are looking less viable than they once were,” pointing to Casper’s February IPO, which “valued the company approximately $600,000 lower than its last private fundraising round;” Brandless’ shuttering; Glossier’s suspension of “its color cosmetics line Play after lackluster sales;” and Outdoor Voices’ “reported $2 million monthly burn rate on $40 million of annual sales.”
Fast Co. pointed to “venture-backed founders pushing for growth at the expense of profit, throwing cash at sales and marketing but leaving little cushion in case of a downturn,” as a key element in the problem that many were already facing and the trouble in which they now find themselves in. “In some cases, the tactic seemed to work,” and in others, it made for disaster, and that was before the onset of the coronavirus, which has prompted stores to close and sales to fall en masse.
If one DTC player, custom menswear brand J.Hilburn, which recently filed for Chapter 11 bankruptcy, is any indication, COVID-19 will subject this part of the market to the same general transformation and consolidation that more traditional retail segments are bracing for.
In a filing with a U.S. Bankruptcy Court in Dallas on Monday, J.Hilburn listed assets of less than $10 million, and liabilities that top $10 million, with more than half of that debt due to its suppliers. The 13-year old company has made its name as “a direct-to-consumer manufacturer, just like Dell Computer, but for fancy men’s dress shirts,” as TechCrunch put it back in 2011 before DTC was a widely-understood buzzword.
Coming up alongside the likes of “web-only outfits such as Indochino, Biased Cut, and Woodies, which encourage customers to measure themselves and punch in the results online” in order to create perfectly-fitted menswear, Bloomberg reported in 2014, the startup garnered fans for its high-quality, personalized men’s apparel at affordable prices. (Unlike its web-exclusive counterparts, J.Hilburn relies upon sales employees, who will meet customers at their homes or offices, or in its brick-and-mortar showrooms in Dallas, New York, Boston and Bellevue, Washington to take their measurements, which will be used on the garments that a customer selects on the company’s e-commerce site). As of 2014, J.Hilburn was reportedly bringing in $55 million in annual revenue.
The company, which was founded by former equity research analyst Hil Davis and M&A analyst Veeral Rathod, also attracted venture investment, as much as $13.8 million in 2012, after raising $12.25 million in rounds between 2008 and 2011, the majority of which came from Boston-based Battery Ventures.
Now, strapped with debt, particularly after “spending several million dollars to rebuild staff, upgrade technology, and develop marketing” in 2019, with an overarching focus on e-commerce and more casual offerings, according to Dallas Morning News, and with operations coming to a swift halt due to non-essential business bans across the country, J.Hilburn is seeking bankruptcy protection in hopes of reorganizing and emerging “as a stronger and more successful business.”
In connection with the filing, the company stated that while its“core business model is sound and expects that sales volume will increase as the COVID-19 pandemic recedes,” it has suffered from a significant drop in sales over the past couple of month. “Since early March, and coinciding with the exponential spread of COVID-19 in the United States, daily sales volume has dropped” by 53 percent compared with a year earlier. In April, alone, sales dropped by 63 percent, which has created “immediate liquidity constraints.”
In a statement this week, the company’s CEO David DeFeo said, “J.Hilburn has a loyal client base. We believe in our stylists, in the growth potential of the men’s custom market, and in the ability of our management team to lead the company to future success.”