be how the internet has affected the rate of decline and
demise of weak and orphan brands.
“Technology is facilitating lenders’ understanding
of the value of brands. Today, valuing a brand is
mostly science, not art,” Peress says. “A brand is much
more than a name. Big data surrounding a product’s
velocity through its channels has become crucial in
understanding a brand’s value. Evaluating domain
names, websites, retail big data and the social media
engagement with consumers and opinion leaders have
become the knife and fork of brand valuation.”
Technology has altered the life cycle of brands.
Underperforming brands can be tweaked to extend
their life cycle instead of being abandoned. The web
has shortened the shelf life of many products. Take
sheets and towels as examples. Once the products that
your grandmother bought for you, sheets and towels
became fashion items in the past 15 years. Retailers
discovered that consumers wanted different colors of
sheets and towels each season instead of replacing
the products when they became frayed. Technology
enabled rapid replenishment and increased product
change-up by retailers. One of the reasons that Linens
n’ Things was pushed into Chapter 11 in 2008 was its
inability to keep up with brand shifts and velocities.
The crumbling of brick and mortar has also accelerated massive changes in the brand value of retailers.
Over the past five years, we have all seen that the
traditional department stores are under intense pressure from all sides.
The Hudson’s Bay Company’s recent bid to take over
Macy’s highlights the issues confronting this channel to
the consumer. Once a retail titan, Macy’s has struggled
to remain relevant as e-commerce and discount retailers
have decimated its brick-and-mortar business. Its
website is one of the largest retailers of apparel in the
U.S., but even Macy’s enormous scale is not enough
to overcome the tidal waves of change. To some extent,
Macy’s scale has become a disadvantage; there are too
many established practices that need to be changed. In
January 2017, Macy’s announced plans to cut more than
10,000 jobs and shutter many of its 880 stores.
Lynn Whitmore, managing director at Wells Fargo
Capital Finance in Boston, explains, “Lenders are
always looking to add that extra bit of value for our
clients. What’s interesting is how valuing and lending
on brands is evolving; it’s no longer in its infancy but
has grown to be a unique differentiator in the tool chest
for retail lenders such as Wells Fargo. Understanding
brand value and capitalizing on it in the right situa-
tions can be an important way to maximize value for
How is a brand loan structured? David Peress, EVP
at Hilco Streambank, explains the three most common
• ABL: The brand becomes part of the borrowing
base, usually at some percentage (advance
rate) of NFLV (net forced liquidation value).
• Stretch ABL: The brand is valued and is part
of first lien collateral package. The asset-based
lender is willing to stretch to higher advance
rates on working capital assets given backstop
or boot collateral.
• Second Lien: This type of lender comes in with
a second lien on the working capital assets and
a first lien on the IP.
“Another important consideration in structuring a
deal is whether the brand has a licensing stream of
revenue. If a lender can get visibility on the cash flow
from a predictable royalty stream, this can be another
way to substantiate brand value,” Whitmore adds.
“Brands and trademarks are sometimes ‘boot
collateral’ – that is to say, nice to have , but not a deal
breaker,” according to Nate Land of Clear Landing
Capital. “In other situations, a loan against these
assets is seen as the fulcrum security on a tough
Decline of Brick and Mortar Retail
The crumbling of brick and mortar poses some interesting questions about brand value. Historically,
getting shelf space at a major retailer was a long and
arduous process. At grocery retailers, brand manufacturers often had to pay stocking fees, which could
swamp the marketing budget of upstart products.
The internet has dramatically tilted the playing field,
enabling new products to gain traction in a highly
targeted way. With the internet as a major channel to
consumers, brand owners and manufacturers have real
time information on how the brand is performing. An
interesting question for historians in 10 years’ time will
“Another important consideration in structuring a deal is whether the brand has a licensing stream of revenue. If a lender
can get visibility on the cash flow from a predictable royalty
stream, this can be another way to substantiate brand value.”
— Lynn Whitmore, Managing Director, Wells Fargo Capital Finance