For some brands across the industry, 2023 got off to a rocky start.
Companies such as Hydro Flask owner Helen of Troy and apparel brand Everlane laid off employees at the start of January. Within weeks, beauty company Morphe filed for bankruptcy and Kristin Bell’s skin care line Happy Dance shuttered.
2023 closed out in a similar manner to which it started.
Direct-to-consumer dental care company SmileDirectClub officially shut down in December, leaving customers in the dark, and athletics brand Bandier has been searching for a buyer of its IP and assets.
However, some companies thrived during 2023, even on the public market. Oddity — owner of beauty brands Il Makiage and SpoiledChild— filed to go public in June (with documents revealing an annual net income from 2020 through 2022) and wound up trading at a higher share price than it initially projected. In August, brand incubator The Center agreed to sell the buzzy skin care brand Naturium to E.l.f. Beauty for $355 million.
So what trends can be gleaned from 2023 to predict the year ahead? Here’s a look at what to expect in the direct-to-consumer space in 2024.
1. Athletics competition heats up
The athletics market — which is dominated by brands like Nike and Adidas — has seen some worthy competitors gain market share lately.
Athletics brand On became successful in the public markets as the visible innovation in its running sneakers gained popularity among specific athletics communities. The Swiss company reported an annual net income for fiscal year 2022 and has steadily seen its net revenue increase since fiscal year 2018.
For its long-term targets, On plans to double net sales to at least 3.55 billion Swiss francs (about $3.9 billion at the time it was announced) between 2023 and 2026, according to investor day information it announced in October. The footwear company also anticipates exceeding 60% gross profit margin by 2026. It’s aiming to gain more market share with product growth through the release of new speed technologies, expanded apparel offerings and entering the training category.
Also bringing competition to the game is Deckers-owned Hoka. The footwear and apparel brand’s second-quarter net sales grew 27.3% to $424 million, as reported in October. Deckers’ DTC business was “the fastest-growing component of revenue growth in the second quarter,” with Hoka seeing a 46% increase in the channel, Deckers President and CEO Dave Powers said on a call at the time.
Throughout 2023, Hoka hit quarterly sales records, and Powers noted in May that Hoka is expected to become a $2 billion brand in the near term. The company launched its first global marketing campaign in 2022 and Powers believes there is more white space opportunity through category expansion.
Both Hoka and On have been focusing more on their DTC growth after years of establishing brand awareness through wholesale. With these companies projecting further growth and the potential for new brands to debut on the market, 2024 will surely see continued competition within athletics.
2. Deals, deals, deals ... potentially
Merger and acquisition — as well as IPO — activity had fallen in 2022 after a surge in 2021, per a February S&P Global Market Intelligence report. Declines continued in 2023, with deal market activity contracting by about 20% compared to the year before, per analysis from PwC of S&P Global Market Intelligence data.
Throughout 2023, however, several deals did come to fruition. Fashion brand Scotch & Soda in March announced it would be acquired by Bluestar Alliance after it filed for bankruptcy in the Netherlands. L’Oréal in April engaged in one of the year’s biggest deals to acquire luxury brand Aesop for $2.5 billion. Universal Standard that same month also reached a deal to buy the plus-sized brand Henning.
In one of the most high-profile sales during the year, Walmart sold off Bonobos to Express and WHP Global for $75 million as part of a larger play to offload its acquisitions.
Generally though, deal-making was slow in 2023 and consolidation and divestiture made up most of the transactions, according to S&P Global Market Intelligence’s 2024 M&A Outlook report.
The end of rate hikes, dampened macroeconomic volatility and pent-up demand could potentially increase M&A activity in the coming year, bringing back more transactions from private equity groups, per S&P Global Market Intelligence. Additionally, the emergence of artificial intelligence as a solution to various business problems could prove to increase tech acquisitions next year.
Overall, the heavily weak M&A activity over the past two years is likely to create some positive numbers in select sectors during the year.
3. The risk of bankruptcy
There was no shortage of bankruptcies and general distress across the retail industry in 2023. Store closures, layoffs and Chapter 11 filings seemed to be an almost regular occurrence.
During the first nine months of the year, commercial Chapter 11 bankruptcies soared 61% year over year to 4,553, per Epiq Bankruptcy. Corporate bankruptcies fell in November, but year-to-date total filings as of early December exceeded all yearly totals going back a decade excluding 2020, according to S&P Global Market Intelligence.
DTC sleepwear brand Lunya’s major bet on owned retail contributed to its Chapter 11 filing in June, while Kristen Bell’s Hello Bello entered bankruptcy proceedings in October following issues getting its supply chain up and running. Showfields and Scotch & Soda also joined the ranks of companies that turned to bankruptcy.
Looking toward 2024, bankruptcy risk is likely to still be prevalent.
“For many issuers, the new interest-rate dynamics could be unsustainable, leading to defaults and bankruptcies,” S&P Global Ratings said in its Global Credit Outlook 2024 report from December.
4. Channel expansion
Plenty of brands have started switching up their traditional distribution model, which can prove to be a vital move for a DTC brand.
Many digitally native brands have begun to embrace a more hybrid distribution model to retain customers, according to a study from GlobalData released in December. The usage of pop-ups to test new markets and working with new wholesale partners could help businesses scale, per the study.
Apparel and footwear brand Allbirds started selling through Amazon in November, joining digitally native brands like Our Place, Care/of and Peloton in moving onto the e-commerce site. Avocado Green Mattress entered wholesale through home retailer Living Spaces in April, and beauty brand Glossier began selling through Sephora in early 2023.
But a complete shift toward wholesale isn’t reflected across the industry, as some brands have started focusing more on their DTC channels after forming brand awareness through strong wholesale partnerships.
Athletics brand On has been focused on its DTC channels, even growing those sales faster than wholesale during some quarters, and luxury brand Canada Goose has done the same by deepening its commitment to owned retail expansion.
Finding a balance between distribution channels is likely to continue in 2024.
“Overall, the diverse performance and innovations of DTC brands prove that the model is no longer one size fits all,” Neil Saunders, managing director of retail at GlobalData, said in a statement in December. “While wholesale may be the path to success for some brands, others are reaping the benefits of stronger margins through DTC channels, proving that the business model can still be a strong avenue for growth.”
5. Stores on the rise
Store openings were already off to a good start in 2023, riding on the fact that major U.S. retailers opened more stores than they closed in 2022, according to a Feburary report from Coresight Research. Could 2024 prove to be another strong year for expanding footprints?
Other than distressed retailers looking to cut costs, plenty of brands turned to brick-and-mortar to grow.
DTC athletic apparel brand Vuori in December opened its second New York City store, adding to its goal to reach 100 stores by 2026, with the expectation to launch 20 to 25 new stores every year. Lululemon increased its store opening plans in August, aiming for 55 net new stores by the end of 2023. Additionally, Salt Life continued to execute on its footprint expansion plans in November with the opening of its seventh store that year.
And it was also a year when several brands entered owned retail for the first time.
Healthcare apparel company Figs in November opened its first brick-and-mortar store at a location in Los Angeles surrounded by healthcare clinics. Hair care company Ceremonia in July opened a flagship store in New York City and apparel brand Lulus in December reentered owned retail for the first time in years with a new store.
6. The fight for funding
Funding was a struggle point for many private brands during 2023.
In addition to several down quarters, global venture funding in October decreased about 24% year over year to $21 billion, per data from Crunchbase. Venture funding to U.S. companies reached $11 billion, representing just over 50% of total global funding. Additionally, funding to brands at any stage of their life — including seed funding, Series A, etc. — dropped year over year.
That’s not to say venture firms didn’t invest at all. Beauty e-commerce company Thirteen Lune at the beginning of 2023 raised $8 million in a seed funding round, brick-and-mortar DTC platform Leap in June got $15 million in capital and resale company Trove in August secured $30 million in a Series E round.
But down rounds are expected to increase in 2024 thanks to continued macroeconomic factors despite advancements and interest in AI, according to an outlook report by consulting firm Cambridge Associates in December.
Based on the drop in startup funding throughout 2023, some brands have looked toward alternatives. For example, DTC plant company The Sill launched a WeFunder campaign in September, inviting customers to invest in the brand, according to details emailed to Retail Dive.
7. Founder exits
As several DTC brands get older, the needs of the business change and therefore, leadership sometimes needs to shift with it.
In 2023, several companies saw co-founders switch up their involvement in their companies. In May, Allbirds co-founder Tim Brown announced he would step down from the co-CEO role he shared with co-founder Joey Zwillinger. Brown now serves as the brand’s chief innovation officer.
DTC bedding brand Brooklinen saw its co-founder Rich Fulop exit the CEO position in July, with a company spokesperson noting that “this year felt like the right time after a lot of focus on expansion over the past few years … and because of how well the business was doing.”
Additionally, Grove Collaborative co-founder Stuart Landesberg stepped away from the CEO role in August — with former Zulily CEO Jeff Yurcisin taking over — to align the company “more closely with future growth and market expansion initiatives.”
With more brands looking to improve profitability as they age in 2024, co-founder shakeups could persist.
8. Pricepoint expansion
Price is certainly on customers' minds as inflation continues to impact shopping habits.
Throughout the last year, several brands expanded their price offerings to attract more customers.
Menstrual care company Thinx in January of 2023 released its more affordable underwear line on its website. Thinx For All had already been available through select wholesale partners including Target and CVS.
Additionally, lingerie brand Adore Me expanded an exclusive, lower-priced collection, Adored by Adore Me, through Walmart as it explores wholesale as a distribution method. Luxury brand Goop — known for its high-end reputation — debuted a cheaper skin care range through Target and Amazon in October called Good.Clean.Goop.