A.K.A. Brands Brands Holding Corp., a company targeting Gen Z and millennial shoppers with a fast-fashion business model, was facing further pushback from investors on Thursday, a day after a less-than-stellar stock market debut.
Shares ended the day at $9.99, below their issue price of $11. That came after the company’s initial public offering priced at the low end of a range that had already been lowered. Shares fell another 2% in early Thursday trading.
At $11 per share, the company was valued at $1.4 billion, compared with the valuation of $2.5 billion it was originally seeking.
The company’s prospectus identified a key challenge and risk factor: its fast-fashion model at a time of heightened environmental awareness. A.K.A.
launched 500 to 800 new styles each week on average in 2020. Speed and newness are two of the biggest markers of fast-fashion.
However, the company’s target market has increasingly turned to resale and secondhand clothing in an effort to combat fashion’s harmful effects on the environment.
“A perception that introducing a high volume of styles and manufacturing and selling of fast fashion at scale results in lower quality or increased textile waste, or that we are not honoring our commitment to responsible fashion, could harm our reputation,” the company wrote in the risk factors section of its IPO prospectus.
The company expressed further concern about the perception of its brand as the effects of climate change become increasingly apparent.
“For example, weather impacts from global warming could continue to intensify and fuel increased customer sentiment for apparel that is more sustainably produced,” the prospectus said. “While we are increasing our mix of sustainable fabrics, it may not be fast enough to keep up with a rapidly shifting customer sentiment and value system that is being accelerated by the impacts of global warming.”
According to the ThredUp Inc.
2021 Resale Report, one in three consumers cares more about wearing sustainable clothes than they did before the pandemic. The report also found that consumers care more about purchasing items they can resell versus “disposable” clothing, with 43% of those surveyed saying they care more about quality now than before the pandemic.
More than half of millennials and Gen Z (53%) expect to spend more on secondhand clothing over the next five years while only 27% expect to spend more on fast-fashion. Nearly a quarter (24%) expect to spend less over that five year period.
ThredUp shares were slightly higher Thursday, though the stock has fallen 22.7% over the past three months. ThredUp shares began trading in March.
A.K.A. was founded in 2018 and is based in San Francisco. Starting with the acquisition of the Princess Polly brand, A.K.A.’s portfolio now includes Culture Kings, Petal & Pup and Rebdolls. A.K.A. took a 55% interest in Culture Kings on March 31, to mark the company’s biggest acquisition to date, according to the prospectus.
“Acquiring new brands is core to our strategy and an important driver of our future growth,” the prospectus said. “We are evaluating multiple opportunities for such acquisitions in the near term.”
A.K.A. reported net income of $14.8 million for the year ending Dec. 31, 2020, up from $1.4 million the year before. Sales in 2020 totaled $215.9 million, up from $102.4 million in 2019.
The company intends to enter into a new credit facility after it goes public, and may need to use some of the funds raised to service that debt. Overall, it intends to use the proceeds from the IPO to pay its previous senior secured credit facility and other debt, as well as for general corporate purposes. The company doesn’t intend to pay a dividend for the foreseeable future.
Chief Executive Jill Ramsey joined A.K.A. Brands in May 2020 and is currently the only director for the company. She was previously chief product and digital revenue officer at Macy’s Inc.
A.K.A. Brands is a controlled company, with New Excelerate, L.P., a group formed with money from Summit Partners L.P., the principal stockholder. New Excelerate holds about 57% of A.K.A.’s shares.
Of the five candidates slated for the company board, at least two are Summit executives.