Revolve opens strong on Wall Street with $1.3B valuation

Dive Brief:

Revolve Group Inc. reached its targeted $18 per share price in the early hours of its initial public offering Friday.
The day before the apparel retailer had announced the target, which is at the upper end stated in its prospectus. At that price, the company would be valued around $1.3 billion, according to a note from MKM Partners Managing Director Roxanne Meyer emailed to Retail Dive.
As a startup, the apparel retailer, which calls itself a "next-generation fashion retailer for millennial consumers," has relied on social media, particularly Instagram, to fuel marketing and sales.

Dive Insight:

Revolve's common stock debut may have benefited from some early morning sunshine on Wall Street.

After being battered all week by much tariff talk, including new levies on Mexican imports floated by the Trump Administration, stocks in general were faring better on Friday as subdued employment numbers presaged an interest rate cut.

But the retailer also plays in a more upscale realm, which helps it avoid some of the troubles plaguing middle-market apparel retailers like Gap Inc. and Abercrombie & Fitch. The company sells brands like Fendi and Chloe, although for the last couple of years its own private labels have represented seven of its top 10 sellers, the company said in documents filed last July with the Securities and Exchange Commission. Those items account for 20% of its net sales "and three out of the top five brand search terms on external search engines that led to a purchase," the company also said. "Owned brands are significantly more productive on a units sold per style basis and generate meaningfully higher gross margins as compared to third-party brands."

Revolve has also proven how effective social media-based marketing can be, according to Eric Lam, CEO and founder of AspireIQ. "When you think of Revolve, you think of influencers. By becoming one of the very first influencer-driven brands to go public, Revolve is proving that influencer marketing really works," he said in comments emailed to Retail Dive. "Revolve recognized that tastemakers have shifted to social media. The company strategically built relationships with influencers as a way to reach consumers on platforms like Instagram. It's also created an iconic, cool-girl lifestyle and fashion brand that resonates with consumers on a deep level."

Legacy retailers "need to take note and adapt or face irrelevance," he also said, adding that he expects "many more IPOs from disruptive companies that leverage this force."

Beyond its investment fortunes, the company is poised to take share in a troubled apparel market. Those private labels have a lot to do with that, because they allow the company to avoid "participating in the 'race to the bottom' on pricing," in Meyers' view.

"In fact, 79% of sales are at full-price, which is more like the inverse of the industry," she wrote. "This is driven by innovation (1000 new styles per week) and helped by a scarcity value approach to inventory."

Its tech operations and "track record of profitability (14 of 15 years), strong capital discipline and leading return on marketing relative to the peer group" also work in its favor. "We believe [Revolve] is poised to gain share in the $564bn fashion market which is estimated to grow at a rapid 13% pace online," Meyer said.