- Lynn Whitmore banks DTC brands like Casper and Chewy at Wells Fargo.
- Pandemic-spiked sales have made it more challenging to determine which DTCs are loan-worthy, she said.
- While some DTCs have leaned into pop-up stores, others have put their physical retail plans on ice, she said.
- Visit the Business section of Insider for more stories.
The last year has upended direct-to-consumer brands’ plans, and Lynn Whitmore has had a front-seat view of it all.
A managing director at Wells Fargo, Whitmore banks retail clients from large chains to small startups. Over the years, her clients in the e-commerce world have included Overstock.com and designer apparel retailer Bluefly. More recently, she’s worked with mattress startup Casper and online pet retailer Chewy — both companies that have gotten boosts from consumers’ altered habits during the pandemic. She’s also worked with upstart razor brand Harry’s.
Evaluating DTCs posed a unique puzzle before the pandemic: While traditional retailers tend to have lots of inventory and other assets that can be liquidated if the business goes South, DTCs tend to be asset-light operations. At Wells Fargo, most of Whitmore’s work focuses on asset-backed loans, meaning she and her team have to use other metrics.
Now, growth has skyrocketed at many DTCs focused on food, home goods, and other products that people have been buying more of. That’s good news for the companies, but for creditors funding their next big expansions, it’s made figuring out the terms of loans even harder.
“It’s a challenge, for sure,” Whitmore said. “It is trying to figure out from pre-COVID trends what caused the hockey stick,” she said of DTCs that have seen their sales shoot up. “And if you can’t point to anything other than COVID, you’re going to take it on a more normalized basis and say ‘Is that sustainable?'”
Whitmore, her team, and the appraisers they work with to value DTCs have other ways of looking at potential DTC clients. Enterprise value, which takes into account a company’s debt and cash, has become one important tool, she said. Whitmore also pays attention to the value of a startup’s intellectual property, such as its brand or customer data it has collected, which has become an important part of the process, she said.
The goal, she added, is to answer a fundamental question about a DTC’s underlying business: “How is that [IP] translating into real growth and real opportunity for the retailer?”
About 15 years ago, when Whitmore started working with DTC clients, “a lot of the appraisers and third-party liquidators that we base our valuations on to formulate our loans, they weren’t sure how to do it,” she said.
A hit to DTCs’ store-based ambitions
DTC brands in a variety of categories have benefited from the pandemic. Sales and traffic on many DTC websites has increased, and investors are still writing checks.
That doesn’t mean it’s been easy: Many DTC brands have had to make big changes to their strategies, or at least make some critical adjustments. Prior to the pandemic, DTCs including Casper and Allbirds had ambitious plans to leap into physical storefronts, especially spaces at glitzy downtown shopping centers in major US cities like New York and Los Angeles.
Many of the DTC clients Whitmore works with have gone back to their roots as online companies over the past year, focusing on things like delivery and their websites while putting plans to sign long-term store leases on hold. “The stores are honestly much less of a focus or dependency for the DTCs anyway,” she said.
Casper, which announced plans in 2018 to open 200 stores in North America over three years, had just 67 at the end of 2020, Chief Commercial Officer Emilie Arel told analysts Wednesday during the company’s fourth-quarter earnings call.
The mattress maker still wants to open more stores in the long run, but it’s taking a more cautious approach. “This year, we’re going to be pretty slow to add new doors, but long-term, that’s a core part of our strategy,” CEO and Founder Philip Krim told analysts.
Some DTCs have taken advantage of available mall space to sign leases with terms under a year and opened pop-up shops, Whitmore said. While rents still aren’t “rock bottom” at the prime urban properties that DTCs tend to focus on, they have provided the companies with a chance to try out the format, often at a lower price than they would’ve paid before the pandemic.
It’s also worked out for the smaller mall owners. “If you’re a landlord with two or three properties, one of those three properties, if that’s a third of your income, you desperately want someone in there,” Whitmore said.
“If you can get them in there even for six months, if you’re dark otherwise, it’s also a mutually beneficial arrangement,” she said.
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