Is DTC a winning strategy for the Apparel & Footwear sector?

Firms with DTC strategies outperform peers, but further optimisation of working capital possible.

April 2, 2025

2 mins

Corporate & investment bankingCorporatesRetail & consumer

Jong Boo Yoo

Americas Cluster Lead, Capital Structure & Rating Advisory

Amid continued global geopolitical uncertainty, the USD1.7 trillion Apparel & Footwear sector is showing resilience. Higher liquidity and disciplined capital allocation have been supported by efficient Cash Conversion Cycles (CCC).

Our analysis shows that having a greater share of Direct-To-Consumer (DTC) sales leads to stronger financial performance over time, but striking the right balance is crucial.

A disciplined sector but with an untapped USD20 billion working capital opportunity

Being trend-based and therefore quite volatile, the Apparel & Footwear sector has had to be measured in its capital allocation, averaging 60-70 per cent of operating cash flows. With limited M&A opportunities, shareholder returns are becoming an increasingly important component of Total Shareholder Returns (TSR).

We have seen shortening CCC, especially in the DTC space as companies can manage excess inventory better and receivables are settled quickly – but there is still a lot of work to do.

We estimate that over USD20 billion in potential capital could be unlocked if the 20 companies in our study align their payables and receivables days to those of their best-in-class peers.

Our CSRA team can help you understand what this means for your business and craft tailored strategies that also align with your internal goals, sectoral realities and the broader economic landscape. For further analysis and support, please reach out to us.