Apparel DTC brand due diligence

Once a letter of intent is signed on an apparel brand, diligence moves from asking questions to independently verifying answers, and the findings that actually change a deal in this sub-sector cluster around a small number of specific items: the trademark, the labelling on current inventory, the factory relationship, the physical inventory count, and the real return rate. Each is worth its own verification step rather than a single general review, because each one fails in a different, specific way.

Verify the trademark at the federal registry, not just from the seller’s word

A search of the Canadian trademark register confirms whether the brand name, logo, and any registered prints or patterns are actually registered, to which entity, and whether that registration is current and unencumbered, rather than relying on the seller’s representation that “the brand is trademarked.” A mark registered to the founder personally rather than to the company being sold, or one that has lapsed, is a common and fixable finding — but only if it is caught before closing rather than after. The same search also reveals whether a confusingly similar mark has already been registered by someone else, which is a very different and more serious problem to discover this late.

Confirm whether copyright, not just trademark, protects the proprietary prints

A brand’s proprietary prints and patterns can be protected by copyright as original artistic works, separately from any trademark registration on the brand name or logo, and the two protections are not interchangeable — a design that was never trademarked can still be defensible if copyright ownership is clear and properly assigned to the company being sold. Ask specifically who created each proprietary print or pattern, whether they were an employee or an outside contractor, and whether any assignment of rights from a contractor to the business was actually documented in writing, because an undocumented assignment is a common and easily missed gap in an otherwise clean-looking design catalogue.

Sample-test the labelling on current inventory

Rather than accepting a general representation that labelling is compliant, pull a physical sample of current inventory across different suppliers and seasons and check it against the federal fibre-content and bilingual labelling requirements directly. A finding here usually means one of two things: an isolated batch from a supplier transition that needs correcting, which is a manageable cost, or a systemic gap across most of the current stock, which is a materially different problem and typically becomes a price or holdback conversation rather than a simple fix.

Confirm the factory relationship is contractual, not personal

Ask to see the actual agreement, or the absence of one, governing the manufacturing or sourcing relationship, and where none exists in writing, treat that as a finding rather than an assumption that goodwill will carry over. The clearest way to test it is to have the seller formally introduce the buyer to the factory or agent before closing and confirm, directly, that the relationship and its terms will continue — a factory that hesitates or wants to renegotiate terms once it learns of a sale is exactly the scenario this step is designed to surface early. Where a second qualified source exists, confirm it is genuinely capable of absorbing production, not simply listed as a backup that has never actually produced an order.

Physically verify the inventory, not just the reported count

Apparel inventory records drift from physical reality faster than in many other categories, because returns, damaged stock, and season-end markdowns all move through the system quickly. A physical count, or a statistically meaningful sample checked against the books, either confirms the reported position or reveals that inventory is older, smaller, or more markdown-exposed than represented — a finding that usually converts directly into a price adjustment because it changes what the buyer is actually receiving. Cross-checking the physical count against purchase orders from the factory also confirms that the quantities the seller says were produced actually match what was received and paid for.

Pull the return-rate data without the promotional filter

Ask specifically for return-rate data calculated over a period with no active free-return or extended-return promotion, and compare it to any headline figure the seller has quoted. A material gap between the two numbers means the reported profitability has been overstating the brand’s real, ongoing return cost, and it should be treated the same way as any other earnings adjustment — reflected in the price, not just noted and moved past.

What these findings usually mean for the deal

A labelling gap confined to a specific batch, a trademark registered to the wrong entity, or an unassigned copyright in a print design are typically fixable before closing and rarely justify walking away on their own. A factory relationship that will not survive the change of ownership, or inventory and return-rate data that are meaningfully worse than represented once verified independently, are the findings most likely to change the price materially or end the deal, because they go to whether the business can keep operating the way its financials assumed it would.