There's an innovative company where technology, innovation, and fashion connect. Meet Digital Brands Group, Inc. (NasdaqGS: DBGI), an innovative, forward-thinking digitally-focused apparel company that is changing the rules for how clothing is offered and sold. And the great news is that, for investors, its business model is designed to deliver maximum profits through its low overhead, high margin business model. Their mission is just getting started.

Digital Brands completed a successful $10 million underwritten public offering last week, selling roughly 2.4 million shares of stock at $4.15 per share. Although the stock is trading approximately 30% lower from its offering price, wise investors recognize that with a public float of around 6.8 million shares, combined with warrants sold as part of its IPO, the pressure on the stock will not last long. 

Consider the recent decline a part of the listing process, where early investors have an opportunity to take money off the table. Don't harbor any ill will, either; these same investors not only want to see their shares move substantially higher but are also the ones that seeded the company's initial capital. Therefore, it's a love-hate relationship, and they deserve a profit as well.

Still, the short-term pain for new investors also exposes massive opportunities to not only recoup current paper losses but to benefit from gains once DBGI provides some market updates. Keep in mind, with only about seven million shares in the float per Yahoo! Finance, buying interest for even small numbers of shares can have a substantial and positive impact on price.

The better news is that the selling should subside, leaving only buyers left to drive the price higher. Investors willing to short a stock with a float the size of DBGI does so at their own peril.

Remember, too, investors saw value when they posted $10 million last week. And if they exercise warrants, they would contribute nearly $10 million more. Why the interest?

The short answer is that DBGI is changing the way apparel buying and selling gets done. And if they can seize upon this niche, they can reap tremendous rewards. Here's why:

Direct To Consumer And Wholesale Model

Although Digital Brands isn't the pioneer of direct-to-consumer sales, the way they are developing their business is. To expedite the process, as part of its ICO, DBGI simultaneously acquired Harper and Jones, LLC., a custom and made-to-measure suiting and sportswear company that provides customers with a range of full-closet customization options. That flagship asset is the initial driver of revenues, but investors should expect several more brands to join the DBGI portfolio.

The better news is that these brands can be sourced, developed, and sold at high margins. In fact, three brands on the company website show products that are fashion-forward and bespoke in design. Those listings, however, also show how DBGI is different.

Its Baily44 line of apparel, for instance, is influenced and inspired by LA's urban architecture and iconic landscapes. More distinguishing, its attire is distinguished by modern details, classic elements, and feminine designs that combine beautiful, luxe fabrics and on-trend designs to create sophisticated ready-to-wear capsules for women on the go. Its Lily Top, a sculpted vegan leather sleeveless top with ponte knit back and zip closure, is a shopper favorite that takes comfort and design to a higher level. And while its designs are compelling and bespoke, investors want bottom-line results. Baily44 is a line that can deliver.

Of course, that's only one brand in a company that has several, with plans to add dozens more in the coming quarters. And the way they plan to grow the company is what attracted investor attention.

A Different Business Model In A Billion-Dollar Sector

Investors may like the apparel, but chances are they invested in DBGI to make money. In that case, they may be comforted to know that Digital Brands is a streamlined, low overhead, vertically integrated business that controls a transaction from procurement to sale. That means there are very limited, if any, intermediaries that touch the product and drive up costs.

Instead, DBGI is leveraging a business model that can offer numerous brands on a direct-to-consumer and wholesale basis by utilizing its founding strategy to be successful as a digitally native-first vertical brand. What does that mean?

Simply put, digital native-first brands are brands founded as e-commerce driven businesses, with online sales being the significant contributor to revenues. As these brands get more popular, they sometimes expand into wholesale or direct retail channels. However, unlike typical e-commerce businesses, like online sellers Naked Brands, Inc. (NasdaqGS: NAKD) and L Brands, Inc. (NYSE: LB), Digital Brands, acting as a digitally native vertical operation, controls its own distribution, sources its products directly from its third-party manufacturers, and sells directly to the end consumer. Thus, the model lends itself to high margin, low overhead sales.

Still, to build the business, DBGI needs to cultivate its base. There, as part of the entire process, they focus on owning the customer's "closet share" by leveraging shared data and purchasing history to create personalized, targeted content and looks for that specific customer. In other words, DBGI is taking steps to increase loyalty and perhaps even become a shopper's personal stylist. 

That may veer off track from providing an investment thesis, but it's an important element to understand how and why DBGI can become a much larger company. And with share price directly related to revenues and net profit, knowing that DBGI has the right plan to maximize sales is critical to investor success.

Still, the model isn't exclusively online. DBGI has made an effort to strategically expand into an OmniChannel brand, offering styles and content online and at selected wholesale and retail storefronts. The strategy here is to capitalize on peripheral opportunities that can successfully drive Lifetime Value ("LTV") while increasing new customer growth.

Added at the right time and right location, these locations can add considerable revenues to the company. Remember, with a public float as small as DBGI's, even small amounts of revenue can have a powerful value-creating effect.

Now, with money in the bank and impressive lines of apparel to sell, DBGI can take advantage of a consumer products and apparel market that is expected to surge in the back half of the year as COVID restrictions finally ease. Analysts expect that pent-up demand, combined with stimulus money, will fuel one of the sharpest and most profitable snap-back rallies ever, with the apparel and hospitality sectors being the prime beneficiaries.

The excellent news is that it is starting to happen already.

A New Approach In A Crazy Year

Indeed, Digital Brands is coming to market at an opportune time. Yes, they have history and have shown success, but as a post-ICO company, investors focus on what the company can do today, tomorrow, and next week. In other words, performance now matters 100% of the time.

Perhaps the best asset to meet those challenges is its experienced management team that understands style, logistics, social media, and its consumers, in general. Consider this scenario to emphasize that point: 

Shoppers endlessly walk past full racks of clothing in department and chain stores because the apparel is commoditized, poorly sized, and is designed to fit multiple preferences instead of one. That's okay and serves a purpose.

In contrast, other stores are tremendously more profitable by offering well-designed, luxe products that cater to more exclusive preferences beyond color and fabric. And with Digital Brands being the latter, they create a socially conscious, personal business that caters to its clients, not to mass crowds of people.

Thus, while there isn't much data to base a valuation just yet, investors that paid $4.15 a share probably know much more than we do about where DBGI is going. Obviously, they believe its share price is going higher. After looking at the brands, the sales model, and its carefully planned strategies, it's hard not to agree.

It may take a week or two for the early investors to take some money off the table through warrant diversification strategies. Until then, the stock may see some pressure. However, for those looking long-term, these erratic price swings should be less concerning. Digital Brands appears to have a good plan in place to take its company to the next level.

And that should be the focus for early investors.

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