There have been some high profile challenges too, not least of which is the impact the COVID-19 crisis had on consumer spending, shopping habits and economic realities. For many brands that operate mostly online, though, the increase in digital shopping was actually a boon. Flaws in the DTC model have begun to show, as companies grapple with not only profitability concerns, but also retaining authentic brand messaging and attempting to stand out in a world where everyone knows how to market on Instagram.
All of which is to say: There's a lot happening in the direct-to-consumer space right now, and it's not going away anytime soon. This report covers several different aspects of the trend, including:
Trends and brands to watch in the DTC space
What companies like Nordstrom and Target have to gain by bringing DTCs into stores
How brands like Nike are shifting more of their focus to DTC sales
What problems are challenging former DTC darlings
The relationship between brick and mortar and direct to consumer
These aren't the only things we're watching, but they are some of the main themes we've picked up on as retailers adapt to a new era.
While the broader industry outlook remains uncertain, one thing is clear: Digitally native brands will continue to adapt and evolve in the year ahead.
By: Retail Dive Staff• Published Feb. 3, 2021
2020 upended nearly every aspect of the retail industry. Many retailers were forced to temporarily shutter stores, furlough employees and adjust strategies on the fly to account for increased e-commerce demands as the pandemic hit.
Direct-to-consumer brands, however, were uniquely positioned to weather the disruptions, operating relatively few stores and already having a very active presence online where consumers shifted spending.
The sector faced struggles of its own though, from supply constraints to shipping delays, forcing brands to make tough decisions like furloughing and laying off employees. But the space has also persevered, pivoting strategies that account for the seismic changes taking place across the industry.
Heading into 2021, DTC brands will continue to navigate pandemic-induced headwinds that will ultimately shape the space in the long term.
Here are eight trends Retail Dive is watching in the DTC space in the year ahead.
1. More traditional retailers enter the DTC arena
What do traditional retailers do to beat DTC brands on their turf? For some top retailers, the answer is to emulate them. With less foot traffic in physical stores, retailers took inspiration from DTC brands on how to approach tech-savvy consumers.
Nike shut down nine wholesale accounts in August 2020, according to Susquehanna Financial Group, in a bid to accelerate its DTC strategy. Under Armor reaped the benefits of this model too, announcing it would exit a few thousand wholesale doors and lean into a DTC strategy. Its DTC revenue jumped 17% to $540 million in October 2020.
Some big-box retailers also formed partnerships with DTC brands. Target, Sam's Club and Nordstrom are just some of the stores that feature DTC brands on their shelves. From the beginning, DTC brands displayed inherent values such as personalization and user-friendly platforms that have proven valuable during the pandemic. And traditional retailers took note.
2. Digitally native brands see the value in physical retail
DTC brands planted their seeds online, and in some cases, swore off physical retail. But over the years, these brands realized that in order to scale their businesses and succeed in the industry, they need to enter brick and mortar in some capacity.
Other brands opted for pop-ups or permanent locations of their own. In 2018, Casper announced plans to open 200 stores across North America, while Adore Me around the same time said it had plans to open 200 to 300 locations over the next five years. Commercial real estate firm JLL previously anticipated digitally native brands could open some 850 stores by 2023.
Among those DTCs that have jumped into physical retail, several adopted a showroom model in which they don't sell merchandise in-store, but offer consumers the opportunity to touch and feel a product before going online to purchase. The model has garnered the attention of traditional retailers as well, namely Nordstrom and Ikea, which have integrated elements of the merchandise-free concept into their Local and urban planning studio stores respectively.
3. DTC brands extend their category reach
Though the pandemic has made it difficult for some brands to execute their growth strategies, it has been the root cause of demand for casual and self-care products as consumers continue to work from home. And for digital natives like Thinx, Ipsy and Bombas, expanding into these categories seems like a natural extension of their brand.
As top brands lose market share in certain categories, DTC companies have the opportunity to expand their product offerings. Social distancing measures have only made customers more reliant on e-commerce platforms, and in entering new markets, DTC brands are finding creative ways to retain their new customers.
4. Tech-savvy consumers will be drawn to DTC brands
One of the most immediate effects of the pandemic for retailers was the need for an efficient e-commerce platform — something DTC brands already had. In 2020, e-commerce sales rose to $795 billion from $600 billion in 2019, according to data from eMarketer.
While consumers spend less time in malls and more on the devices in the palm of their hands, DTC brands have opportunities to appeal to a new demographic and retain the ones they already have. DTC brands' commitment to sustainability will also likely amplify on social media and continue to resonate with Gen Z and millennials.
With no end to the pandemic in sight and continued funding, DTC brands are poised to continue to gain more popularity.
5. Securing funding could be easier, at least for some
It also means that DTC brands can expect to have a larger customer base to draw from, Andrea Hippeau, principal at Lerer Hippeau, told Retail Dive in the fall of 2020, something that appeals to investors in the space. As far as shifting consumer behaviors this year, DTC brands and tech companies are some of the best-positioned, though some investors said the focus might shift to more realistic growth expectations and less funding in the future. Whether certain categories get more of a funding lift than others is up for debate, but investors are clearly still interested in the model: DTC darling Allbirds raised a cool $100 million in September 2020, and outside furniture brand Outer secured $10.5 million in January 2021.
6. Exit strategies get more complex
Once brands grow to a certain size, they begin eyeing their next move.
Other brands have gone the route of initial public offerings. Casper and Chewy both filed IPOs in recent years. But releasing their financial information publicly came at the cost of exposing where their businesses have been less successful, primarily when it comes to operating profitably.
More recently, going public by way of special purpose acquisition companies — or SPACs — became a popular option across industries with the total number of these kinds of deals reaching 248 in 2020, up from just 59 the year prior, according to SPACInsider. IPO fundraising through SPAC deals exceeded $83 billion last year, an increase from $3.9 billion in 2015 and $503 million in 2010.
7. Leadership turns to retail vets as founders step back
DTC brands and their founders are inextricably tied in many cases. Many DTC brands have origin stories of a founder who had a problem themselves and set out to solve it. Brands like Outdoor Voices and Away come to mind. But recently, as popular DTC brands scale much larger than their startup days, and execs run into both operational and workplace culture issues, founders have taken a step back, and retail veterans have moved into C-suite roles.
The shift of founders away from the day-to-day of their brands isn't likely to end, as successful DTC brands continue to expand and recruit leadership that can help them reach the next growth stage.
8. Brands will continue to struggle with profitability
As more online companies begin trading publicly, offering a glimpse into their finances, trends around their profitability have emerged.
Until the second quarter of 2020, Wayfair consistently posted net losses since its public debut in 2014, while at the same time it reported mounting advertising costs. The retailer in fiscal year 2019 posted a nearly $1 billion net loss — an increase of more than 95% year over year — while its advertising costs in the period reached $1.1 billion. Online retailers Chewy and Casper have faced similar issues.
Media costs came down during the pandemic, providing some relief to these brands, but the solution is temporary and brands need to continue to look for ways to mitigate the high costs of acquiring customers online. In order to eventually turn a profit, brands will need to continue finding solutions to attract consumers — whether it's opening brick-and-mortar stores or forging partnerships with larger brands — and bring marketing costs down.
Article top image credit: Cara Salpini/Retail Dive
What big-box retailers have to gain from DTC brands
The benefits for a direct-to-consumer brand sitting on a Walmart or Target shelf seem obvious. But mass merchants have a lot to learn from those brands.
By: Caroline Jansen• Published Feb. 22, 2021
Scattered among the CPG mainstays at a Walmart or Target are a crop of direct-to-consumer brands.
While built on the notion of cutting out the middleman and selling directly to customers through online channels, DTC brands have increasingly found value in selling goods offline due to high marketing spend online, which can inhibit profitability prospects.
Several more mature brands have opened permanent shops in key markets. Others have opted for temporary pop-up stores or turned to traditional retailers to forge partnerships to house their products in a physical setting.
"Customer acquisition costs continue to increase," Lauren Bitar, head of retail consulting at RetailNext, said by email. "Having immediate access to the base of a retailer like Walmart [and] being able to have a store presence without having to lease your own stores could be pretty appetizing as the DTC space continues to become more crowded. That is why a lot of brands went to these retailers historically. Right now if you have an Instagram page you can have a brand — there's a lot of clutter to cut through."
Digital brands have plenty to gain from having their products sit on the shelf in a Walmart or Target. But how does a big-box retailer benefit from such partnerships?
An influx of DTC brands in big-box stores
Retailer-brand partnerships are far from new, and mass merchants have brought DTCs into their stores not long after the brands' founding.
Target, for example, struck a deal with razor brand Harry's in 2016 to sell its products in stores. The mass merchant has gone all-in on its DTC strategy, striking deals over the years with other brands like Function of Beauty, Lively, Native and Quip.
Walmart, which has also inked its fair share of partnerships with digitally native brands, in more recent years began buying brands outright — a move Moody's Vice President and Senior Credit Officer Charlie O'Shea likened to "renting a great apartment and the opportunity comes to buy it at a reasonable price."
"You're going to grab it," he said about the opportunity to acquire brands. "With owning comes more control and the ability to move it in directions that maybe a partnership doesn't provide … Sometimes it's more effective to buy it than build it, and you get a quicker bang for your buck. You pay more, but you're going to minimize the potential for failure."
"With owning comes more control and the ability to move it in directions that maybe a partnership doesn't provide."
Vice President and Senior Credit Officer at Moody's
Through its various acquisitions over the years — which have also included Eloquii, Bare Necessities and ModCloth — Walmart has gained tremendous digital knowledge and talent, namely through the acqui-hires of Marc Lore and Andy Dunn.
"Much of that initial focus of Jet and some of the other acquisitions was really about talent," Hilding Anderson, head of retail strategy, North America at Publicis Sapient, said in an interview with Retail Dive. "Walmart didn't have enough digital-savvy talent and didn't know how to run a digital operation at the level that it aspired to."
In recent years, however, Walmart sold some of the brands it acquired, including Bare Necessities, Shoes.com and ModCloth, possibly indicating that the retailer was more interested in the digital capabilities and knowledge offered by these companies than the specific brands themselves.
While bringing in a hip, new brand, in theory, seems like a good way to stand out from the competition, if the acquired brand doesn't fit in with the retailer's overall mission, it creates a potential problem by alienating existing customers.
The challenge is "when your acquisition doesn't mesh with your brand reputation. If brands are perceived as 'too cool for Walmart,' both the DTC brand and Walmart could get hurt," Bitar said. "Just buying brands with great equity won't be a silver bullet for solving pre-existing online selling woes. In addition, as customer acquisition costs continue to increase, the more you spend on marketing to prop up a new brand [or] category, the less you have to spend on other brands [or] categories. They might have found themselves spread too thin."
"They've learned from every experience," O'Shea said about Walmart's decision to pivot strategies. "They're going to test. They're going to throw stuff at the wall and whatever sticks they'll hang on to, and whatever doesn't, they've got the ability to move fast and minimize whatever negative impact there could be."
What can DTCs offer the biggest retail players?
While traditional retailers' e-commerce operations have become vastly more advanced in the last several years, direct-to-consumer brands can still offer their digital expertise to a certain extent. "The retailer still needs to figure out how to make shopping for those brands and the experience of shopping the rest of their site (e.g. shopping for pants vs. plungers) feel seamless," Bitar said.
But more importantly, forming partnerships with newer, more sought-after brands allows retailers to attract and build a relationship with a new set of consumers that may have not necessarily shopped with them otherwise.
"It's a win for [traditional retailers] as well because they get a younger audience," Hilding said.
For the retailers, it helps generate more foot traffic to stores, provide incremental revenue and help maintain cultural relevance among consumers.
Right now, consumers are "scouring their social networks for the next great product. And more often than not, these are the smaller digital retail companies that we call the DTC companies," Hilding said. But he predicts that once the coronavirus pandemic subsides, consumers will be eager to venture out of their homes and into physical stores, creating immense value for these brands to be housed within a traditional retailer's space.
Forming partnerships with digitally native brands can also help retailers when it comes to their private labels. Target, for example, has adopted the DTC aesthetic through several of its private labels, including its Open Story luggage line launched in 2020, which features products reminiscent of Away's suitcases. Its activewear brand All in Motion, which features products using the fun, bright color palette many younger brands have used, has grown to generate $1 billion in its first year. And Walmart, over the past several years, has launched more private labels itself, including a clean, affordable skincare line and an apparel label.
"We have seen them really go after their own private label fashion of late," Bitar said. "They might have used those acquisitions as an opportunity to learn more about how these brands handle design processes, trend forecasting, their manufacturing and sourcing relationships etc. and then decided to turn around and do it themselves."
The DTC space is rapidly growing and showing no signs of slowing down. With more and more brands vying for consumers' attention, the challenge of acquiring and retaining customers is greater than ever. High-quality products and prices are no longer enough. In order to stay competitive, brands must deliver consistently exceptional experiences.
DTC brands that take the following initiatives will lead the competition:
Continue to Lean Into Digital Innovation
It is no surprise the rise in customer expectations coincides with the digital transformation. Most DTC brands are on the forefront of this revolution; taking on a digital-first approach. However, most traditional and smaller businesses do not intend on relying solely on CX methods of the past.
While the digital transformation may seem like it's in full swing, it is really just getting started. DTC brands that continue to forge ahead and seek out digital solutions that take their CX to the next level will be the ones to stay on top.
Offer Omnichannel Support
Your customers want to choose how and when they get in touch with you. They don't want to be forced into live chat when they could send an email on their own time, or converse via social media when they prefer SMS. Instead of making customers come to you, be everywhere they want you to be. And while you're there, ensure you're delivering quick, easy and accurate high-quality support across all channels. Providing omnichannel support not only allows customers to contact you in the way that works best for them, but also sets them up for a more seamless and enjoyable experience.
Leverage Customer Data to Create Personalized Experiences
When it comes to delivering experiences that build loyalty and boost LTV, personalization is essential. Capturing, analyzing, and using data pertaining to customers' history with your brand will enable you to tailor experiences to each individual. Not only does this foster a deeper connection with your customers, but it allows you to anticipate their needs and wants - further elevating their experience with your brand.
Remember Customers Are in Control
With ubiquitous access to many options and the ability to digitally source and share information, todays' customers have unprecedented power. Whether brands like it or not, customers are the ones in control; their needs and expectations drive the trends you see here as well as the future trends that arise.
The direct-to-consumer model empowers DTC brands to fully own customer relationships, providing the opportunity to really embrace this new power dynamic. Customers will take notice and invest in brands that are catering to their needs. Brands that take a customer-centric approach are 60% more profitable than those who do not.
During this time of unparalleled momentum, it is imperative that DTC brands align their CX practices with emerging trends and really act on what customers' want from them. Brands that don't stay ahead of the game will inevitably fall behind.
Article top image credit: Retrieved from Unsplash.
The rise of DTC holding companies
Why the founders of Pattern Brands, Very Great and Win Brands Group are betting on the power of building multiple brands under one umbrella.
By: Caroline Jansen• Published June 30, 2021
Over the years, as the direct-to-consumer space has heated up, a number of brands have entered the scene, from DTC darlings like Warby Parker and Bonobos to newer, emerging brands.
In most cases, these brands have largely operated and scaled independently. More recently, however, DTC holding companies are emerging and growing multiple brands under one umbrella. By doing so, companies can more effectively and efficiently scale these brands by providing the resources and knowledge needed to grow.
Harry's Inc., for example, houses its namesake brand, as well as Flamingo, Headquarters and Cat Person. In April 2021, the company announced it raised $155 million in Series E funding, valuing it at $1.7 billion. Harry's said it will primarily use the funds to add more brands to its portfolio as well as expand into additional product categories.
Similarly, Very Great operates three brands under itself. The company focuses on growing brands internally rather than seeking out brands to buy, though co-founder Eric Prum didn't rule out the possibility of an acquisition in the future. It initially launched W&P, which Prum and co-founder Josh Williams spent around seven years building.
"Within that, we built out every system and department vertically and independently," Prum said. "We thought to ourselves, if we could actually create a platform and a centralized service, we could actually do more, more efficiently within other categories that we had a lot of interest in exploring."
The brand has since launched dog products brand Wild One and home tech accessories brand Courant.
Pattern Brands (formerly branding agency Gin Lane, which helped launch to market several brands like Harry's, Hims, Ayr and Stadium Goods) created brands Open Spaces and Equal Parts and in 2021 announced its mission to acquire more brands in the home space.
"What we're looking to do when we're operating Pattern and building Pattern is do the same thing we've always done, which is building brands and bringing them together," Nick Ling, co-founder and CEO of Pattern Brands, said. "What I love about the model of family brands is that you can grow any individual brand sustainably. No one brand has to overgrow too fast. I think they naturally should grow and address the audience that they were bought for."
The brand kicked off its home brand acquisition strategy with home accessories brand "Get It Right" (GIR) in June. "I don't think we need to reinvent the wheel when there are great products out there," Ling said. "We can do what we're best at, which is building brands that matter for our generation."
Coinciding with the acquisition announcement, Pattern also relaunched its website, creating a curated shopping experience featuring both its own brands as well as a selection of products from other companies.
The idea to shift to more of an acquisition model came from Pattern's own consumers. "During the last year, we've been shooting a lot of content, both for social and for our websites," Ling said. "We consistently got questions and requests from consumers around, 'What was the lamp in that photo?' or 'What was the desk in that video?' Often, they were for other brands we were curating alongside our own brands."
And similarly following the acquisition route, DTC holding company Win Brands Group has bought candle brand Homesick, silicone wedding band brand QALO and Gravity (the makers of the Gravity Blanket).
Advantagesof scaling alongside other brands
If DTC brands have historically launched on their own as stand-alone entities, why would one opt to be acquired and operate alongside other brands?
For one, it may be more efficient from an operating perspective: Rather than building out individual departments — like HR or logistics, for example — the parent company can build out strong departments used across all of the brands.
"Could we not go out and recruit a really incredible team that spans all of the operating areas of the business and have that coverage as a shared service?"
Co-founder and CEO, Win Brands Group
"You don't need three separate accounting teams at each of our brands," Very Great's Prum said. "We just have one centralized, one that is able to offer its services to each of those brands. The idea is that if we're able to get it right, we can both scale the businesses more quickly than you would with a single brand, and you can do it more efficiently as well."
Win Brands Group co-founder and CEO Kyle Widrick similarly thought that by having a single team focusing on various aspects of a business, Win Brands could grow its portfolio more efficiently.
"It's really challenging to have all the necessary skill set to be able to operate and scale these businesses, and I was seeing that time and time again," Widrick told Retail Dive. "Could we not go out and recruit a really incredible team that spans all of the operating areas of the business and have that coverage as a shared service?"
Widrick added that Win has 12 verticals within its organization — including customer service, product sourcing, and shipping and logistics — with an individual leader for each.
"What we really try to get the brands most focused on is product and product innovation. And then community and community building," he added. "The exact things that make that brand and have always made that brand are really special. To have those folks really hyper focused on those things, while the broader shared team can handle some of the larger operating issues."
Holding companies can also provide access to resources, which Win's Widrick said is the biggest challenge DTC brands face today. "I think founders today in this space are asked to do so much," he added. "Oftentimes, they have to choose between which channels they want to focus on because they have a limited amount of resources. And that's really the unlock that we can solve for."
These companies, with their expertise in scaling businesses, can help smaller DTC brands reach that next milestone in their growth path, whether it be moving into new online channels or expanding offline.
"We can come in and really help them build out their channel strategy, specifically launching and having success on Amazon, which we consider to be the largest shopping mall in the world," Widrick said. "And also at retail: We're sold in over 7,000 stores today — Walmart, Target, Dick's, Bloomingdale's, etc. For a brand that's already working, we can really help accelerate that growth."
Being part of a larger company can also potentially make it easier for brands to form partnerships with large, traditional retailers if another brand in the portfolio has previously worked with them. Very Great, for example, has partnerships with retailers like Nordstrom and Target.
"We become like a reliable vendor," Prum said. "They're doing business with Very Great, and so they're more willing to take risks on our brands if it's not known whether or not they're going to do well."
"You're really creating almost the next digital e-tail department stores of the future."
Principal in the Consumer and Media Practice of Kearney
For digitally natives exploring their next move, joining a portfolio of other brands can also be an exit strategy. While some DTC darlings, like Casper, Chewy and most recently Warby Parker, have gone the route of public listings, for brands that have yet to scale to the same extent as these larger players, holding companies are a viable option for next-stage growth.
"A lot of these companies have success. Being at $10, and $15, and $20 million in revenue — that's a tremendous business that can be quite profitable, but they still don't have the size and scale to be a public business," Widrick said. "So the question then becomes: How can I attach myself to a larger enterprise and achieve that outcome?"
Housing like-minded brands alongside each other, like what Pattern has done with its recently revamped website, also creates a curated shopping experience for the consumer, according to Michael Felice, principal in the consumer and media practice of Kearney.
"You're really creating almost the next digital e-tail department stores of the future. You're aggregating into a group of curated brands that are predominantly privately held, which gives a big advantage over a publicly held brand when you're in a DTC growth phase where your margin may not be up to the standards of some of these others," Felice said. "It's a very advantageous way to come into other curated brands that fit the lifestyle you're looking at."
Something many DTC brands have historically struggled with is profitability, as a result of high costs related to customer acquisition, among other things. Casper, for example, has yet to report a positive net income since going public early last year. And up until recently, when circumstances brought on by the pandemic made the home and pet category particularly popular, Wayfair and Chewy reported years of losses. Operating under a larger parent company can alleviate some of the pain points brands struggle with, by providing necessary resources and helping to take their brands offline — something that, in the past, has offset the high costs of customer acquisition.
"I think there was a period of time where there were a lot of efficiencies there, say, in the time that the Outdoor Voices and Harry's of the world were first coming up. There was a distinct advantage and a value there," Prum said. But now that the barrier to entry has become lower than ever, with services like Shopify or other apps, the competition has grown, making it difficult for brands to stand out to consumers. "The fact that there's more competition and noise in each of these categories, with ever-increasing costs, makes it a challenge to be strictly a direct-to-consumer brand and/or a stand-alone one."
Prum also strongly believes brands should have an omnichannel presence and meet consumers where they are at any point in their life. While entering physical retail creates some challenges for DTC brands, the risks — and costs — of operating exclusively online are far greater.
"I think there are some existential threats, and some of the brands out there that might be digital only and really focused only on that — I think there's real opportunity there for some of these holding companies or platforms, such as ourselves, to help fix those problems and issues," Prum said. "I think those things are going to come up in the relatively near future."
All of the holding company founders Retail Dive spoke with for this story highly consider and value profitability when it comes to standing up or acquiring these brands.
"Call us crazy, if we're selling products, we like to be able to do that profitably," Widrick said. "I think there was some irrational thought and behavior on venture capital coming into the consumer space. I think that has started to change. People are thinking about the space more rationally today than they were maybe five years ago. But the reality is, there is a tremendous opportunity to scale these businesses, double-digit growth year over year while maintaining profitability. That's really what we focus on."
Growing the business
Acquiring or building brands under a single parent company seems easy enough, but what factors do holding companies need to consider to ensure the brands are a good fit?
Harry's Inc. has added brands that are, for the most part, natural extensions from its existing products. The company started with razor brand Harry's, which is primarily targeted toward men, then launched Flamingo to try to capture more of the female audience, and more recently, it's launched Headquarters, a hair products brand, remaining in the personal care space. (Harry's, however, has also ventured out slightly, helping build pet brand Cat Person.)
"In other areas, you're starting to see companies form their own CPGs of the future, if you will," Felice said. "If I'm going to live a lifestyle with someone, then I need to offer more than just one thing. So what are other elements of their lifestyle that are important to them? In Pattern's case, someone that is into home essentials probably is also into cooking and entertaining. So I can see them also branching into things around entertainment or other elements of the home."
Aside from the logical category extensions holding companies consider when building out brands, Ling said Pattern thinks about the size of the brands in terms of their financials when forming deals. Ling said the company tends to buy and scale brands that are doing much less revenue than a company pursuing an IPO. Among the top priorities for the company when determining what brands it will work with is having healthy and sustainable margins. Pattern expects to announce its second acquisition in 2021.
And Win Brands will only take a majority ownership in brands that have already shown product-market fit in the marketplace, which Widrick defines as roughly $5 million in sales, and typically haven't raised a lot of venture capital funding. The company also looks at Shopify data, customer acquisition costs and the lifetime value of the customer.
"If you look at our portfolio — with Homesick, with Gravity Blanket, with QALO — these are all category leaders in their own respect that we specifically sought out as part of the Win portfolio," Widrick said. "We want to have something that we can stand behind as that category leader and help the founders continue to scale that business."
The goal, he said, is to ink three to five deals per year, and the company currently has a few planned for the back half of 2021.
"If you can find support and find a team like Win that can help take some of that operating load off your back, it's a really good partnership," Widrick said.
Article top image credit: Permission granted by Win Brands Group
How Nike is using DTC and data to expand its empire
Since 2011, the sportswear giant has grown direct-to-consumer sales from 16% of its namesake brand revenues to 35%, all while continuing to take share.
By: Cara Salpini• Published March 23, 2021
In 2011, nearly ten years before Nike would announce its Consumer Direct Acceleration strategy to speed up the prioritization of DTC, the company was already focused on growth in that channel. In its annual report that year, Nike wrote that while wholesale made up the largest share of Nike brand revenues, "we continue to see growth in revenue through our Direct to Consumer channels."
At the time, DTC sales made up 16% of Nike brand revenues, or $2.9 billion of the total $18.1 billion the sportswear giant's namesake brand brought in that year (total company revenues, including Converse and other businesses, hit $20.1 billion). By the end of Nike's fiscal 2020, which came May 31 of that year, that number had grown to 35%, or $12.4 billion. Of course, Nike's revenues have also grown over that 10-year period, to $35.6 billion (or $37.4 billion company-wide).
The dominance of Nike was not always a sure thing. The numbers used to look closer than they do now (and they still are in countries outside of the U.S.), but the brand's journey to $35.6 billion, and generating more in DTC sales alone than some of its competitors make annually, has been through a path of persistent growth.
"Back in the mid-'80s, Reebok actually took No. 1 market share in the U.S. for about 18 months," Matt Powell, senior industry adviser for sports with the NPD Group, said. He noted that Nike had neglected the women's business, allowing Reebok to break in. "And then this guy named Jordan came along and Nike took No. 1 position back again. It's really been a multi-year strategy of them continuing to take share: Most years in the United States, Nike has taken share."
It's been about having the right product, definitely. But it's also been about knowing how to make tough decisions. In the '90s, that meant opening outlet stores when trends shifted to khakis and away from sneakers, according to Powell, and in the past few years, it's meant doubling and tripling down on shifting spend to its DTC channels.
"There's few brands that I can think of that should be pursuing the amount of economic upside from this kind of transformation more than Nike should," Michael Binetti, managing director at CreditSuisse, said. "It's such a big brand, with so many advantages to doing this."
Chief among those is that DTC sales are more profitable. Hence, the number of startups that have cropped up as DTCs. Nike has a strong brand, so it's able to command a sizable business through its own channels, but the more sales Nike can get that way, the better. Another advantage to the method is that Nike has more control over how its brand is presented through DTC channels, something which analysts speculated was the reason it stepped away from Amazon.
A report from McKinsey and the World Federation Sporting Goods Industry estimated that the shift to DTC has been accelerated by two years because of the pandemic, and researchers recommend that in the medium- to long-term, brands that want to thrive will need to aim for a 20% DTC business, or higher. It's at that point that brands begin to see a virtuous cycle from DTC sales and higher margins, rather than the "vicious cycle" that comes with less scale of the channel.
"They're all doing what Nike's doing," Joe Feldman, senior managing director and assistant director of research at Telsey Advisory Group, said. "They're all trying to segment more. They're all trying to clean up their vendor partners."
Of course, retailers' partners are the other half of this equation. Even though the Nike brand still does 65% of its business through wholesale, Nike's DTC rise has consequences for the wholesale opportunities it's leaving behind.
"I think, frankly, any retailer who loses Nike is going to be affected in a major way," Powell said. "Some of the mall-based retailers do as much as 70% to 75% of their business with Nike. And even the ones who don't have that kind of dominant space, it's in the 30s. So it would be a significant loss to any retailer, to lose that brand."
Nike's acceleration of selling directly to consumers doesn't mean overnight changes, necessarily. The retailer has been steadily shifting to more DTC sales over the past several years. But with the pandemic accelerating e-commerce growth by years, the next phase in Nike's strategy might turn out to be incredibly well-timed.
"I've covered these guys for 13 years and I've never seen them really embracing change and moving as fast as they are today," Binetti said. "And if you'd have asked me if I would have seen the biggest company in my coverage moving at this kind of pace… it's quite an impressive thing."
The Nike ecosystem
As Nike's been pushing toward a greater percentage of DTC sales, the retailer has also been carefully constructing an ecosystem to support that shift. In reality, it's just Nike delivering on what every retailer aims for when they talk about omnichannel, but where others have struggled, Nike seems to be succeeding.
As explained by CEO John Donahoe in June 2020, the company's DTC strategy starts with digital and Nike's owned stores. Most retailers have an e-commerce presence in addition to a fleet of stores — that's not unique, per se. But how Nike is using its stores is. After years of experimenting with digitally connected store concepts like Nike Live and House of Innovation, Nike is planning 200 small-format stores in the same model as Nike Live.
While most retailers understand the benefit of having physical stores, and how it increases online purchases in a given area as well, few retailers operate stores that are as digitally enabled as some of Nike's recent concepts. The retailer has managed to make its app so useful to the in-store experience that consumers without it are at a disadvantage. Customers can scan QR codes to pull up products on their phone, they can start dressing rooms through the app, and signs throughout the stores show customers what else they can do with their phones.
"It's this really smart acknowledgement that a purchase journey is sort of fragmented, and there are multiple touch points that go into a customer's consideration process," Sarah Marzano, a retail analyst at Gartner, said of the stores. "You might visit the Nike website while you're considering a shoe. You might then want to pop into your local Nike store to evaluate that product in person. They keep being really thoughtful about, 'How do we collect the first-party data that's necessary to knit that journey together and drive conversion?'"
In addition to creating an interconnected experience, Nike also has a strong sense of the purpose that each of its channels serve, Marzano said. For its stores, there are multiple objectives. Nike's new locations, notably off the mall and in more local communities, will not only help compensate for the closing of wholesale doors by providing a place for shoppers to see products, but they will also help build community with loyal customers, in the same way many DTC brands view their stores as marketing channels more than just revenue opportunities.
"They're in front of the curve, where they're saying, 'Look, we're making a bet that the consumer is going to either shop digitally or closer to home and the way that a lot of retail is built on high streets and in malls across the country, those are going to continue to diminish,'" Binetti said. "They're making the right bets. And we hear similar overtones of the neighborhood store strategy or the smaller store strategy all over the place."
Of course, e-commerce as a channel in and of itself has also accelerated over the years, and even more dramatically during the past few months. Nike has said before that it plans to become a 50% digital business (that includes both its own digital channels and those of retail partners like Foot Locker) and analysts believe that is a medium-term milestone rather than an end-goal.
NPD's Powell noted that the "targets are moving" on e-commerce as a whole thanks to the pandemic, with the firm originally projecting athletic footwear would be 50% e-commerce in five to 10 years, and instead it grew from 29% to 40% in 2020 alone. What that means for the future share e-commerce could make up is less certain.
"Is 50 a ceiling or does this go beyond that?" Powell said. "My gut tells me it goes beyond that."
Erinn Murphy, senior research analyst at Piper Sandler, said Nike's direct digital channels are on track to make up 21.5% of the total business by the end of fiscal 2021, up from 15.5% in the last fiscal year. That would amount to $9 billion. Reaching 50% with its retail partners, then, seems "very achievable," Murphy said. In fact, in an August 2019 report on Nike, Piper Sandler noted that over time it expected digital DTC "to become [Nike's] largest selling channel."
Nike execs added on a conference call in March 2021 that its digital business had grown over 70% year to date, and total digital (both owned and partnered) had grown to 35% of the company's business.
Fueling that digital growth are Nike's apps. The SNKRS app alone is now a $1 billion business, according to Murphy, and made up 18% of Nike's total online sales in fiscal year 2020, Piper Sandler wrote in an October 2020 report. The percentage of both male and female sneakerheads that use the SNKRS app has increased year over year, according to Piper Sandler, while the Nike app saw almost 200% growth in Q1 of 2020.
"It becomes a sticky ecosystem because, say that you've downloaded the Nike app on your phone, and you have the Nike running app or the fitness app that they have or even just their shopping app — you'll get targeted emails and they start to know what you do athletically. Or they might know your style," Telsey's Feldman said. "They'll start to send you direct emails when there's either a new product that might be of interest to you or they'll give you a first crack sometimes at a new product that just came out."
The importance of digital to Nike — and all of retail, really — has also led to shifts in how companies think about manufacturing and shipping, something Nike will have to think through as well. According to a joint report between McKinsey and the World Federation Sporting Goods Industry, digital trends have forced athletics retailers to "become nimbler, and produce smaller, more frequent product runs. Perhaps because of this shift, lead times have shortened, with Asian suppliers of large sporting goods companies moving initially from 120 days to 90, then 60, and often eventually down to 30 days."
Nearshoring, the process of moving operations closer to where the products are sold, has also been explored by some, according to the report. With Nike, Binetti doesn't believe the majority of the retailer's manufacturing volume will move to North America, but the new small-format fleet will likely be built to hold a certain amount of high-conversion inventory, and could be used to ship local orders when it's more cost-effective to do so.
"In very simple terms, there's a boat ride across the ocean that can't be changed," Binetti said. "It's just far away. But this, however, has caused them to look at all the other parts of the business and say, 'Look, we need to get a lot better at the digital side of it.'"
And in 2020, they brought in a digital CEO to do just that. Donahoe came in as the former CEO of eBay and Nike praised him for his "expertise in digital commerce, technology, global strategy and leadership" when his appointment was announced.
"He's the right man for the job," Binetti said. "And you see him doing it very, very quickly."
Nike, but make it personalized
At its heart, Nike's strategy for its various channels emphasizes uniqueness. Its Nike Live stores are focused on housing a localized assortment to best suit those geographies, and its wholesale partners receive different product depending on what type of consumer they serve. Nordstrom, for example, is a different consumer than Dick's Sporting Goods or Foot Locker.
"Nike probably does the best job of any of the sporting goods manufacturers in terms of segmenting the market," Feldman said, explaining how the retailer is careful to avoid too much overlap at its wholesale partners, even with flagship products like its Nike Pegasus running shoe. "There might be different colorways, there may be slight differences within them, so that will help segment the market. And then they may even offer some that you can only get that certain color on their own website. So for direct to consumer, it helps to drive business that way."
With the Nike Live stores, the retailer personalizes in a different way, changing its assortment to reflect consumer trends in the region, as well as local teams and cultural touchpoints in that area. Matching assortment to what's popular in a given geography also means the retailer can benefit from using those stores as potential shipping or pickup points for online orders by customers that live nearby.
Being able to personalize effectively, of course, comes back to data. Nike's "robust data ecosystem," as Marzano refers to it, is what's behind the retailer's efforts to create a completely seamless online and offline experience. It informs the retailer's merchandising strategy, and also how the retailer markets to specific consumers. The company's made acquisitions along the way (four in the data and analytics space over the past few years, Donahoe said in a recent earnings call) to help it achieve those goals, including Celect, a predictive analytics and demand sensing firm Nike acquired in August 2019, and Datalogue, which Nike acquired in February.
In Nike's third quarter earnings report, which came out in March 2021, Donahoe hit on both acquisitions, saying Celect has helped with "getting the right product in the right place at the right time" and Datalogue will help improve personalization on both search and product recommendations, including anticipating when customers might be due for new product. In terms of a personalized experience for consumers, Nike is "just scratching the surface," Donahoe said.
"If you're really trying to control how your brand is presented at retail, how it's priced, how it's merchandised and so forth, having thousands of wholesale partners is really antithetical to getting that done."
Senior Industry Adviser for Sports with the NPD Group
But the retailer doesn't want to lose sight of product in all that data.
"The science of what we're doing: It's been done, it's doable," Donahoe said, according to a Motley Fool transcript. "But the thing that makes this company remarkable is the art. It's the creativity of our apparel designers, of our footwear designers, it's the creativity of our brand teams and the storytelling they do. And so, data doesn't displace art, it's both."
The result of Nike's data-heavy focus is that not only is merchandise personalized to certain stores, but the online experience of individual consumers is unique as well.
"When you open up the Nike app on your phone, it's not just, 'Here's a bunch of Nike stuff that we're excited to sell today.' It's literally a vending machine of the product that is most likely to sell to you," Binetti said.
With such an emphasis on differentiation, Nike's DTC strategy is understandably focused on pulling out of partnerships that aren't as unique or useful to the Nike brand. When it comes to wholesale, retail partners have to add something to Nike: a different customer base, a geography Nike isn't as saturated in, or representation that is advantageous from a branding perspective. Wholesale partners that just want "the hot Air Force One of the day" won't be attractive to the brand, according to Binetti.
Execs reaffirmed that strategy on Nike's recent earnings call, saying consolidation would continue, and that the retailer has been prioritizing inventory for its "strategic partners" and its direct channel over undifferentiated retail.
Analysts pointed to strong partnerships the brand has with certain wholesale partners like Dick's and Foot Locker as examples of areas where Nike is getting it right.
"Wholesale gets painted as kind of a bad thing these days ... but Nike's really, really good at it. They're really good at it," Binetti said. "There are still some places where they really should be doing it and can make a really good amount of money, leveraging other people's real estate, other people's customer bases, things like that. But there's always going to be that temptation to try to encourage those sales to happen in your own channels, in your own distribution, either your own stores or digital."
Off-price, on the other hand, is one of the channels that could suffer as Nike, and its peers, move away from certain wholesale partners. Multiple analysts referred to the channel as an area athletics retailers are trying to step back from as they look to avoid cheapening their brand. Rather than using discounting to drive incremental sales, Nike has relied on newness and exclusive product drops, according to Marzano, which keeps the focus on full-price products.
Analysts also highlighted that the U.S. is an incredibly retailer-diverse country, which means brands are selling through a large variety of different players. That complicates how companies can control their brand messaging, which is a key tenet of the DTC playbook.
"If you're really trying to control how your brand is presented at retail, how it's priced, how it's merchandised and so forth, having thousands of wholesale partners is really antithetical to getting that done," Powell said.
Innovating when you make $40B in revenue
As with any ambitious strategy, investments must be made, risks must be taken and occasionally, unpopular decisions must be made. Nike's particularly good at that last one, which has helped it weather crises in the past, according to analysts.
This time, it's Nike's undifferentiated wholesale partners that will pay the price.
"It's much more aggressive than, you know, 'I know some of my retail partners are going to go away, so I'm going to ramp up my DTC to offset it,'" Powell said. "This is actually forcing some of your retail partners to close in order to ramp up your DTC."
There have been other casualties as well. After the retailer announced the acceleration of its DTC strategy in June 2020, layoffs were close behind, with execs noting that the new strategy would allow it to "significantly simplify" its organization. Layoff costs were estimated at between $200 million and $250 million, as the retailer shuffled its management to better align with the new plan. The company has made additional cuts since then.
"The leadership changes, combined with a strategic alignment of NIKE's operating model against the CDA, will create even greater focus and agility that will be enabled by a nimbler, flatter organization in service of consumers," a press release at the time read. "To drive this focus, NIKE will streamline its organization, including its Corporate Leadership Team (CLT)."
Nike's undaunted attitude is also matched by a willingness to make heavy investments, and a large amount of revenue to take the sting out of those investments. Since 2015, Nike has made upwards of $30 billion a year, peaking at $39.1 billion in fiscal 2019. Even during a pandemic, Nike made it out with $37.4 billion. That's $13.6 billion more than Adidas made last year.
Being a bigger company comes with both pros and cons, though.
"Nike has to transform $40 billion worth of revenues every year, so for them, they just have to invest bigger dollar amounts because they have a bigger business to transform," Binetti said, noting that during the pandemic they had problems just like everyone else, but with "10 times" the complexity because of their scale.
"Middle-sized companies, they're always having to make a decision between, 'OK, are we a big enough business to make an investment in this technology and have it really generate a return for us?'"
Managing Director at CreditSuisse
Researchers from McKinsey and the World Federation Sporting Goods Industry also highlighted that a shift to DTC could pose problems for larger companies because it may be difficult to move as quickly as a smaller company, but that mostly applies to brands that aren't pursuing change the way Nike is.
"We think there are two types of brands who are particularly at risk," Alexander Thiel, partner and leader of the Sporting Goods Practice EMEA for McKinsey, said in a briefing on the report at the beginning of the year. "They are smaller brands lacking the capital and liquidity to make the investments that are required to succeed in these plans. But the second group we think [that] will also have issues are bigger, lagging brands who lack a culture of agility and change, and who will therefore be slow to adapt."
For brands that are already aware of what shifts need to be made, scale is a benefit over smaller competitors.
"Middle-sized companies, they're always having to make a decision between, 'OK, are we a big enough business to make an investment in this technology and have it really generate a return for us?' And in a lot of those things, Nike's size — just being four or five, six times bigger than anybody — they don't have to think about that," Binetti said. "They know that if they make a bet, then it costs a couple dollars. Even if it's a little bit of an expensive acquisition, if they can use that across their $40 billion of revenues around the world, it's going to pay for itself."
Looking at Nike's small-format stores is a good example. The stores are practically built on effective uses of data, which has come through acquisitions. While the majority of retailers have known data is important for years, Nike is one of the few who's made big strides in using it well, according to Binetti, and part of that is that the company has the "biggest budget of anyone" to pursue it. The basis of the retailer's Nike Live stores, which rely on changing assortment frequently and using data to understand local preferences, wasn't possible a few years ago, Binetti said.
The retailer started small with the concept, testing Nike Live locations in a handful of places, but it rapidly accelerated to a fairly large-scale expansion of similar stores — around 150 to 200. Not only do analysts see no problem with Nike opening that number of stores, some think the rollout is actually conservative, and that even if they don't work, it won't be a real problem for Nike.
Nike's competitors aren't sitting still. Adidas is also investing boldly. The retailer rolled out a four-year strategy in March 2020 that emphasizes the same things that Nike is focused on: having a DTC-led business model, sticking with only strategic wholesale partners and investing heavily in digital. It includes funneling 1 billion euros ($1.2 billion) into a digital transformation between now and 2025.
Executives also said during an investor presentation on the strategy that Adidas had a plan for the basketball segment, an area where Nike is the "dominant brand" in the U.S., according to Feldman. The difference between Nike and its competitors, at least for the moment, might just be that it's moving faster.
"It is interesting to see that most of these guys have realized that data was the future and they knew they had to talk about their data initiatives, but they're still on the cusp of really getting smart," Binetti said of other players in the space. "I think it's interesting to see the biggest one of them, Nike — with the biggest mountain of a business to move — really moving, in my opinion, fastest on a lot of these things."
Article top image credit: Permission granted by Nike
9 emerging DTCs to watch in 2021
A lot has changed since Warby Parker and Dollar Shave Club entered the scene. In an increasingly crowded space, brands need to find what sets them apart.
By: Caroline Jansen• Published March 30, 2021
When Warby Parker and Dollar Shave Club entered the market in 2010 and 2011, respectively, the so-called first class of DTC darlings was born.
DTC was almost "a synonym for the internet," said Emmett Shine, co-founder of multi-brand consumer goods company Pattern (formerly branding agency Gin Lane).
In the decade since, consumer appetite for buying online and through direct-to-consumer models hasn't slowed down. In 2020, e-commerce soared to $795 billion, up32.4% year over year, according to eMarketer data.
"I think you'll see those traditional players lean into the model more and more," Michael Felice, a principal in the consumer and media practice of Kearney, said.
The pandemic has actually helped fuel growth for direct-to-consumer brands as consumers were forced to shop online virtually overnight when businesses temporarily shut their doors and individuals became warier of trips they made outside their homes. It's also presented an opportunity for brands to attract a new set of customers who may not have opted to shop online previously.
"Everybody went online. Even our consumer base, which tended to be millennials, for the first time had 70-year-olds," Monika Kochhar, CEO and co-founder of SmartGift, said.
But the pandemic also introduced some new obstacles these brands will have to face. Over the last year, buy online, pick up in store really became mainstream. Everyone from Lowe's and At Home to Macy's, and even DTC brands like Casper, were touting their BOPIS features to consumers.
"COVID really did create a whole new baseline online behavior," Kochhar said. "I want to buy online, but I want to pick it up today." The challenge that creates for retailers, however, is having to spend more on things like last-mile delivery and increased fulfillment capacity. The heightened expectations from consumers around fulfillment come on top of problems many DTC brands already faced before the pandemic around shipping and logistics.
Brands entering the scene now not only are faced with the challenges of those first digitally native companies but also more competition, increased scrutiny to uphold their values and a constantly changing playbook for success.
How DTC is changing
While digitally native brands were born online — and some initially even swore they wouldn't venture away from the channel — the limitations of selling exclusively through e-commerce are becoming ever more apparent.
Among the few DTC brands that have entered the public markets, many have failed to reach profitability while at the same time continued to spend more and more on their marketing budgets to acquire customers.
To combat this, brands have turned to physical retail, whether through pop-ups and owned leases or, in some cases, partnerships with traditional retailers — causing brands to walk back on that original notion of "cutting out the middleman."
Many brands have landed in Target, Walmart and Nordstrom, and those traditional retailers are actually more receptive than ever to form those brand partnerships, according to Kochhar. "They realize the voice of the customers," she said. "There's a movement there, and they're all trying to capture the movement."
For Eric Prum, co-founder of Very Great — a company that oversees three DTC brands: Wild One, W&P and Courant — the need to operate as an omnichannel business was present from the start.
"In general, I think it's critical that while we do have a digital-first mentality, actually, for some of our business, the majority is actually B2B," Prum said.
To that end, Prum points to W&P as being a brand that has a beautiful website, a big focus on DTC and a strong emphasis on its digital community, "but we're actually bigger with our B2B relationships with Crate and Barrel, Sur la Table, Williams Sonoma, West Elm than we actually are on our own website."
Other DTC brands also launched as "pure plays" in the sense that they focused on one key product. However, in order to retain and broaden their customer bases, they've needed to expand their assortment. For example, Casper — which sells mattresses, a relatively infrequent purchase — has moved into other product categories, launching a smart nightlight, dog beds and CBD gummies, among other things.
For some of the brands featured in our list — which sell in categories benefiting from circumstances brought on by the pandemic — a return to "normal" may result in adjacent category expansions.
"How they continue to differentiate themselves versus another makeup brand or another cookware brand that capitalizes on an influencer or a movement within an industry will be critical for them to succeed," Felice said.
What consumers are looking for now
Not only is the channel in which consumers shop changing, but the decisions behind those purchases are as well.
"I think people want to support businesses that they feel an affinity to. They liked the story, they liked the branding, they liked the quality of the product, they liked what a business stands for. I think people do vote with their wallet," Shine said. "E-commerce is just continuing to grow and dominate in forms of commerce in many ways that America is actually behind. I think there's a ton of room to go and grow, and I think that the innovations will just continue."
Consumers, especially those of the younger generations, have been more vocal about wanting to shop with brands that are more environmentally friendly and take a stand on issues that matter to them. This behavior has resulted in a shift in language around companies' branding.
"It seems that the voice has changed. The voice has become much more purposeful, much more driven by causes. That shift really did happen over the last, I would say almost three to four years, with the rising levels of consumer consciousness around fast fashion or fast food," Kochhar said.
"For the longest time — and I was in the markets for a long time — everything was about quarterly revenue," she added. "Every company is just forced to trade decisions that are three-month-long decisions just because of earnings pressure. But now, I think the consumer's voice is actually getting them to say that, 'You know, we actually want to make a change and this is really what we stand for.'"
And the pandemic, which caused many to feel a strong sense of isolation, may have heightened consumers' longing for a sense of community within the brands they shop.
"We've lost a lot of our people connection and our inert ability to want to be around others, and be lifted up by others," Felice said. "I think sometimes we feel we can express that through the brands we use, which show our uniqueness, our creativity and our curated selves. Finding that in a brand means that not only am I thinking that I think the product is unique, but I want the brand to speak almost like me."
But as these brands shift to more cause-driven branding and foster a community of trusting consumers, they're being held to a higher standard to actually uphold the missions they tout on social media.
"There's definitely the ability to hold brands accountable," Prum said. "If their business strategy ratchets up to a retailer like Target, Target can take notice and not carry that brand. You can't fake certain things when it comes to sustainability."
"I think people want to support businesses that they feel an affinity to. They liked the story, they liked the branding, they liked the quality of the product, they liked what a business stands for. I think people do vote with their wallet."
Co-founder of Pattern
But from the investor side, brands are being held more financially accountable to achieve long-term growth. Previously, there was a notion for DTC brands to "grow at all costs." But now, investors are looking for more sustainable and profitable growth.
"The barriers to entry for new brands are the lowest they've ever been. But the barriers to success and scale are increasing daily," Felice said, adding that "as more people flood the market, they'll be looking to gauge faster exits and more profitable growth than just rewarding pure out top-line growth."
Prum says success lies in having fundamentally sound business economics related to supply chain, profitability and securing that first purchase.
"In the Casper, Warby, Harry's days, there maybe was that value in customer acquisition and the idea that it was going to lead to some great outcome. But I'm not sure there has been a really great outcome yet," Prum said. "The investment community is more eyes wide open than ever."
How to succeed in today's environment
Creating a brand online has never been easier, which has made the DTC space saturated with competition.
Brands must differentiate themselves and resonate with consumers to succeed, and doing that comes down to a couple of things.
Bringing on board people that understand the "unsexy" aspects of a business like SEO, paid marketing and retargeting will make a huge difference, Shine said. But ultimately, it boils down to testing a product and making sure it works for consumers.
The biggest things SmartGift's Kochhar looks for in potential clients and partners are: personalization, which can be a brand providing more colors, styles, fits, sizes; community and a brand that "attentively voices their overarching values because that's what consumers want"; and how quickly a brand goes from a product mindset to an overarching industry narrative.
To the latter point, Kochhar points to mattress brands that have been able to shift from pushing out a sleep narrative to a holistic living narrative.
As more brands continue to enter the market Retail Dive took a look at nine emerging DTC brands to keep an eye on in the year ahead:
1. Spark Grills
Before founding Spark Grills, Ben West spent years designing high-efficiency charcoal and wood cookstoves in developing countries, including Rwanda, where 30% of Rwandans use one of Spark's cookstoves, according to the company. It was then that he discovered a newfound appreciation for cooking with these materials.
In the U.S., however, the majority of consumers (61%) own a gas grill, according to data released by Statista in April 2020. While charcoal offers that unmistakable smoky flavor, propane is quicker to start and easier to control the temperature as food cooks.
But through Spark Grills, West is hoping to marry the ease gas offers with the richer flavors of charcoal. The Spark Grill promises to ignite instantly, control temperatures up to 900 degrees Fahrenheit and provide information to users through an app on their phone.
Along with its namesake product, the company developed the Briq, which ignites instantly, is hot within minutes and is made of natural wood and charcoal to impose a smoky flavor.
The brand has garnered the attention of consumers over the past year: Visits to its website grew 64% from the first half of 2020 to the second half, reaching an average of 7,600 monthly U.S. visits in the back half of the year, according to SimilarWeb data shared with Retail Dive.
Comparatively, website visits to The Home Depot grew 20.5%, Lowe's (18%), Weber (17.5%) and Ace Hardware (10.3%).
But Spark Grills has also dedicated part of its business to serving others: The brand said with every grill purchased, the company will fund the placement of a locally designed and manufactured cookstove to a family in Ghana.
The brand has raised $12.3 million in funding since its inception in 2017 and is valued at $15.3 million as of March 2021, according to PitchBook.
2. Great Jones
Sierra Tishgart and Maddy Moelis founded cookware brand Great Jones in 2018 after they "struggled to find the right kitchen tools."
And the retailer appears to be benefiting from pandemic-induced trends of consumers cooking more at home. U.S. dollar sales on small appliances increased 29% in 2020 from 2019 and on housewares, increased 25% year over year, according to the NPD Group.
The company is ranked No. 4 out of 15 on SimilarWeb's Top Growing DTC Brands of 2020 list, falling just behind skincare brand Youth to the People, electronics brand Nonda and intimates brand Cuup.
The brand's average monthly website visits in 2020 grew 401% from 2019, according to SimilarWeb, notching over 95,000 average visits per month.
The pet segment — which has historically remained unscathed during times of economic uncertainty — has also emerged as one of the few beneficiaries of the past year.
This has meant a boost for pet supplies newcomer Wild One.
Over the 12 months leading up to March 2021, the brand grew its Instagram following by more than 100% to 103,019, and its Facebook following by over 240% year over year, according to data tracked by Charm.io.
Charm.io also gave the brand a 93.01 growth score and a 63.65 success score on a scale of 100, as of March 26.
Over the past year, Wild One's average monthly website traffic increased 101.5% from the first half of 2020 to the second half. At the same time, Pet Supplies Plus' website traffic grew 37.8%, followed by Petco (34.5%), Chewy (28.6%) and PetSmart (25.4%).
Wild One, founded in 2018, sits under Very Great's umbrella of brands, which also includes W&P and Courant.
The brand has forged retail partnerships with Nordstrom and, most recently, with Target on more than 1,000 in-store placements.
Searching for an easier way to shop for paint, Clare launched to reimagine the buying experience by providing "designer-curated colors, technology to guide you, mess-free paint swatches, and the highest-quality paint and supplies, delivered."
Founder Nicole Gibbons, an interior designer, wanted to make painting a room a more convenient and easy experience.
And as consumers hunkered down in their homes this past year, brands like Clare appeared to benefit from people investing more in their personal spaces.
Average monthly website visits to Clare increased 117.7% from the first half of 2020 to the second half, according to SimilarWeb. Meanwhile at Sherwin-Williams, visits grew 25.4%, Home Depot (20.5%), Lowe's (18%) and Ace Hardware (10.3%).
Clare received a growth score of 90.23 and a success score of 52.83 on a scale of 100 from Charm.io, as of March 26.
The brand has raised $4.25 million since incorporating in 2017 and has a post valuation of $7 million as of March 2021, according to PitchBook.
Mented entered the scene in 2015 after founders Amanda Johnson and KJ Miller struggled to find the "perfect nude lipstick."
From its original nude lipsticks, the brand has expanded into pigmented eyeshadows and blushes to help every woman "find herself in the world of beauty, no matter her skin tone."
Mented landed on SimilarWeb's fastest growing DTC brands of 2020, ranked No. 10, and recorded a 312% year-over-year growth in its average monthly website visits in 2020.
The beauty brand saw website traffic increase 41.7% from the first half of 2020 to the second half when it reported 491,900 average monthly visits. Its competitors in the beauty space saw less substantial growth in terms of website traffic from H1 2020 to H2 2020: Ulta was up 35.1%, followed by Sephora (20.1%), Glossier (11.7%) and Sally Beauty (down 8.5%).
The brand was selected as one of the brands QVC and HSN featured in 2019's "The Big Find," a search the retailers kicked off to find innovative products and brands.
Mented has raised $4.2 million to date and is valued at $8.7 million as of March 2021, according to PitchBook.
6. Olive & June
Sarah Gibson Tuttle left a career in finance, where she worked as an equity sales trader at JP Morgan and Morgan Stanley, and moved out west to Los Angeles.
After failing to find an adequate nail salon, Tuttle set out to provide customers with personalized service at an approachable price point. And thus, Olive & June was born.
The brand is different from typical DTCs in that it initially opened up a physical location to provide nail services to customers.
The product, however, is also sold directly through its website, which appears to have benefited from salons closing at the start of the pandemic.
From the first half of 2020 to the second half, website traffic grew 234.2% while notching an average of 332,400 visits per month in the back half of the year.
Olive & June in 2019 forged a partnership with Target to sell its products in stores and online.
As of March 2021, the brand has raised $6 million since its founding in 2013, according to PitchBook.
Amid the highly sexualized styles associated with the lingerie sector for years, one DTC brand wanted to break through and redefine what the industry defines as "sexy."
Parade, founded in 2018 by Cami Téllez, is a size-inclusive underwear brand that's baked sustainability and sexual education into its mission.
"Sexiness isn't one-dimensional — it's a voice, it's a feeling, it's a technicolor mirror that reflects whoever is holding it," the company said. "[W]e're rewriting the American underwear story—in full-spectrum color."
The brand pushes out cause-driven messaging across its platforms, vowing to donate 1% of its profits to support Planned Parenthood and using sustainable materials that are good for both consumers and the environment.
And Parade appears to be resonating with consumers: The brand's average monthly website visits grew a whopping 245.8% from the first half of 2020 to the second half, according to SimilarWeb. Comparatively, traffic to Victoria's Secret's website grew 39.6% during the same period.
The brand, which in July 2020 snapped up $3 million in a funding round led by Vice Ventures, has raised $7.5 million as of March 2021, according to PitchBook.
As the pandemic took hold, certain products became top-of-mind for consumers: toilet paper, disinfectant wipes and hand sanitizer.
For Touchland, founded in 2018 by Andrea Lisbona, it meant the brand could really hit its stride.
The company, which specializes in hand sanitizing products, has raised $1.5 million as of March 2021, according to PitchBook, and was valued at $11.5 million at that time.
Touchland also dedicates 5% of its profits to send hand sanitizing products to "developing countries where there's water scarcity and many kids die every day from diarrheal diseases caused by a lack of safe water, sanitation and basic hygiene," the company said.
FaceTory, a Korean beauty-inspired company, launched in 2016 with the goal of making skincare approachable, functional and affordable.
The brand seemingly benefited from the increased popularity in the skincare and personal care categories this past year. FaceTory's average monthly website traffic in the first half of 2020 to the second half grew 8.8%, compared to declines of 0.1% and 8.5% at Birchbox and Sally Beauty's websites in the same period, according to SimilarWeb.
"FaceTory has noticed an upward trend in men entering the beauty scene," co-founder Chan Ho Park said in a statement at the time. "Whether it be fashion, makeup, skincare, or Kbeauty, men are now having a huge influence in the once predominantly female industry. But even with this upward trend, there are not very many products or resources tailored specifically towards men's skin types and skin concerns."
The brand has raised $1.7 million and is valued at $2.2 million as of March 2021, according to PitchBook.
Article top image credit: Courtesy of Touchland
'Relevance is key': Why Nordstrom has gone all-in on DTC brands
The 120-year-old department store has welcomed in some of the hottest digitally native brands, from Bonobos to Everlane, all in an attempt to grow with its consumer.
By: Caroline Jansen• Published March 10, 2021
There was a time when, in order to become known among consumers, a brand needed to land in a department store. But as consumers sought out alternative channels to discover products, and brands proved it was possible to build a following exclusively online, the partnerships appeared less critical.
Now, Nordstrom is the one finding value in housing digitally native brands within its stores.
The department store in 2012 indicated its growing interest in online retailers when it made a $16.4 million minority investment into DTC menswear brand Bonobos. In conjunction with the deal, the brand would be sold on Nordstrom's website as well as 20 of its full-line stores — marking the first time Bonobos would be sold in a physical setting outside its New York showroom-style store.
The Bonobos tie-up was among the first of Nordstrom's "full throttle" direct-to-consumer partnerships, according to Shawn Grain Carter, professor of fashion business management at the Fashion Institute of Technology.
Since then, the department store has inked partnerships with some of the hottest DTC brands in the sector from Away and Thinx, to Kim Kardashian West'sshapewear brand Skims.
In order to survive, broadening its customer base is key
The 120-year-old department store's primary customer falls within the Gen X or baby boomer demographics, "so, in order to target and expand their consumer base, Nordstrom has created these kinds of strategic partnerships," Carter said.
Gen Z and millennials have been more vocal about their desire to shop with brands that are environmentally sustainable as well as those that foster corporate social responsibility.
"These partnerships — as strategic as they are — attempt to do it in a way that gives the brand an opportunity to have a broader customer base," Carter said.
As more digitally native retailers make their public debut on the stock market, and reveal their financial information that was once private, it's become clear how difficult it is to sell goods exclusively online and make a profit. Chewy and Casper had yet to reach profitability since going public in 2019 and 2020, respectively, until March 2021 when Chewy posted its first quarterly profit. And up until 2020 when pandemic-induced spending on home picked up, Wayfair notched growing losses quarter after quarter since going public in 2014.
The high advertising and marketing costs associated with acquiring customers online has pushed DTC brands offline through temporary pop-ups, permanent locations or partnerships with traditional retailers. In addition to Nordstrom, many retailers like Walmart and Target have forged deals with these brands, which Michael Felice, a principal in the consumer and media practice of Kearney, argues is a "broader play" for some DTCs. But what Nordstrom can offer to these brands is placement among a highly curated selection of products.
"What Nordstrom gets is an opportunity to grow with these brands that really target Gen Z and millennials, and to bring them in, in a way that they can do an enhanced consumer engagement experience," Carter added. "That demographic is not used to going in a department store within a mall to shop. That's not part of their socialization."
Because younger consumers are so adept at shopping online for goods, attracting these shoppers into its physical stores allows Nordstrom to potentially win them over by doing what it knows best: customer service.
"What Nordstrom wants to differentiate is simply, 'How do we capture more ... market share?And how do we capture a better [lifetime value] by having a younger customer that grows with our brand over the next five, six, seven decades?'" Carter added.
Department stores' place of relevancy — especially among those younger consumers it's seeking — has changed over the years. Before, for a brand to become known, it needed to be placed within a department store because that's where the consumer was shopping. As consumers sought out other channels and venues to spend their money, those retailers operating in the sector had to fight to regain that importance to consumers.
"Relevance is key to fashion," Carter says. "What has shifted is the designers are not in control, the consumer is in control. That's a huge shift. Nobody cared about influencers 10 years ago. You have influencers that have more of a say in fashion now than the fashion editors. Nordstrom is paying close attention and saying, 'Look, we've got to go with younger customers.' And the younger customers are saying our peers have more value in terms of merchandise assortment, and which brands have relevance, than a fashion editor and a fashion designer."
Nordstrom wins on exclusives
While bringing a popular direct-to-consumer brand into some locationsis already enough to drive interest and traffic, some of its partnerships have gone one step further by offering exclusive products only sold through Nordstrom.
Warby Parker in 2015 teamed up with Nordstrom for a month-long pop-up in six of itsstores. While the partnership included selling a "curated selection of frames" in the pop-up, the DTC brand also launched four sunglass styles that would exclusively be sold in Nordstrom.
"Nordstrom, in order to survive, cannot just cater to the parents. They have to cater to these young people who will grow with them. Otherwise, it's a missed opportunity for revenue and profit."
Shawn Grain Carter
Professor of fashion business management at the Fashion Institute of Technology
And Glossier in late 2019 tapped Nordstrom when it launched its perfume. The fragrance, Glossier You, was available in seven of the department store's locations in pop-up style venues. Each location featured a team of Glossier associates.
Most recently, Boy Smells partnered with Nordstrom to house its latest product launch: fragrances. The brand last week debuted its Cologne de Parfum collection, which features both masculine and femanine olfactive notes, further promoting Boy Smells' "genderful" ethos. Beginning April 8, 2021, Nordstrom became the exclusive retailer outside of the brand's own website selling the product until September.
"We see Nordstrom as being unique in the US department store landscape, and as a brand we share similar values of diversity and inclusion," Boy Smells creator and co-founder Matthew Herman told Retail Dive by email. "We love that [Nordstrom] is forward thinking which I believe is why they've remained relevant for so many years."
The perfume counter has long been a fixture in department stores — often separating men's fragrances from women's. For Herman, having Boy Smells' product sold within Nordstrom means providing a more inclusive selection of products to consumers so that they can be their authentic selves.
"Given [Nordstrom's] expression of progressive brands, many of them mission driven, it's apparent that they cater to diversity and inclusion, which is our sweet spot," he said. "We are not just a company that makes beautiful scents, we have the opportunity to make products that allow consumers to live in a deeper sense of authenticity, with products made [for] more modern identities that don't fit into neat and simple boxes. It is very important that all retailers start embracing brands that stand for the way future consumers identify. It's just smart business. To know where things are headed."
Exclusives generate interest among consumers and create a sense of scarcity for the brands' products. They also help protect the brand from stepping on its own website traffic by selling through Nordstrom.
"There has to be a reason to go to Nordstrom to get it," Kearney'sFelice said. "Therefore, the exclusive creates the excitement around the brand, which is good for the DTC and good for the retailer to bring traffic into the store."
It's become clearer that Nordstrom's relationship with digitally native brands has become more important to its overall strategy.
In 2013, Nordstrom brought on Opening Ceremony's Olivia Kim to direct its Creative Projects business. Under Kim, the department store launched its "[email protected]" concept, an ongoing series of pop-up shops with rotating brands.The pop-ups will either host a variety of brands centered around a single theme, or bring in a single brand to showcase. Brand partnerships have included a number of DTC brands like Warby Parker, Goop and Casper.
Nordstrom also has an extensive partnership with rental company Rent the Runway. Select stores in Los Angeles in 2019 began serving as order pickup and drop-off locations for Rent the Runway customers. The stores not only featured drop-off boxes in those stores, but also try-on areas, tailoring services and gift wrapping, among other things.
Rent the Runway had already had drop-off locations at some WeWork locations across the country. But what made the Nordstrom-Rent the Runway tie-up different was that the two brands' customer bases already were closely aligned.
"[Nordstrom's] got a very robust diversification strategy. And why? Because younger people are buying this stuff. They're buying secondhand clothes, they're shopping at vintage, they're shopping for resale and they're shopping different subscription services," Carter said. "So Nordstrom, in order to survive, cannot just cater to the parents. They have to cater to these young people who will grow with them. Otherwise, it's a missed opportunity for revenue and profit."
But many of the partnerships also complement Nordstrom's existing offering. In November 2020, Casper began selling its mattress and sleep accessories in 31 of Nordstrom's full-line stores, as well as on its website. The tie-up marked the DTC mattress brand's 23rd retail partnership, which also include Target, Costco and Sam's Club.
"What Nordstrom is doing is saying, 'We have everything for your lifestyle. So if you live in an apartment, or if you live in a rental or if you own your home, you can come to Nordstrom and know that we have what you need,'" Carter said.
Post-pandemic, partnerships will be critical to driving traffic back to stores
Nordstrom was particularly hard hit when the pandemic took hold. Like many nonessential retailers, it was forced to temporarily shutter its stores back in the spring of 2020. Because of this, its foot traffic to full-line stores plunged 98.3% and 93.3% year over year in April and May, respectively. As stores reopened, traffic improved slightly — down 44.7%, 35% and 34.4% in November, December and January, according to data from Placer.ai.
The retailer also heavily carries apparel, a category that faced months of declines since March 2020 as consumers had less of a need to purchase clothes for work and special occasions. Nordstrom in March 2021 reported that net sales fell 20% year over year to $3.6 billion during its all-important holiday quarter, while sales at its full-line business in particular fell 19% from last year to reach $2.5 billion. E-commerce in the quarter represented the majority of sales.
But as the vaccine becomes more widely available, consumers are starting to plan for life after COVID. Finding ways to lure shoppers back into stores will become increasingly important to Nordstrom as it fights for consumer's dollars against things like experiences and eating out.
"I think [the partnerships] will end up being a core part of the strategy going forward," said David Ritter, managing director at Alvarez & Marsal Consumer and Retail Group. "I do expect mall traffic to bounce back to a certain extent, but I'm not sure we'll ever go back to pre-pandemic levels."
Article top image credit: Courtesy of Glossier
Is the DTC brand aesthetic bad for business?
Sans serif font and bright colored backgrounds are hallmarks of digitally native brands, but it may not matter if they all look the same.
It starts with a sans serif font and ends with a clean, bold color choice, but there's more to it than brands playing copycat. Emmett Shine, co-founder and creative director of Pattern, a multi-brand consumer goods company, noted that much of the DTC aesthetic retail has become familiar with is generation-based.
"DTC as it relates to typography, photography, colors, advertisements, Instagram — they're just forms of expression that essentially are representative of values and aesthetics of, really, millennials," Shine said.
Prior to closing the company to focus on Pattern, Shine was the co-founder and former executive creative director of Gin Lane, the branding and growth company that helped launch Harry's and Hims to market, and worked with Warby Parker, Bonobos and Everlane, among others. Shine noted that those early players in particular were inspired to create the DTC style of branding by what came before it: mainly brands that were either corporate juggernauts or had a hipster aesthetic.
"The hipster stuff was plaid and twirly mustaches and everything in the world was made in Brooklyn somehow, and it was bespoke," Shine said, noting Dollar Shave Club and other early entrants saw a white space there to do something different.
"They looked fundamentally at these markets and said ... There's a real opportunity here to lean into a kind of witty, almost snarky — but not too Gen X snarky — customer service, and a clean aesthetic that says, 'Hey, take a breath from all the loud noise and commercials and crazy ads, and just listen. We have a pretty good product at a pretty good price. We're pretty nice people. We'd love to get your business, just talk to us.' And so I think that as a framing created the next kind of 10 years."
It's not a phenomenon unique to DTC brands, either. Shine referred to ads and branding styles as "time capsules" of the society and pop culture of the day, and Victoria Sakal, managing director of brand intelligence at Morning Consult, noted that there are branding trends for every time period.
"Every generation or so you see some of these trends around design or experience come through," Sakal said, "and if they work, there's probably a reason that people are flocking to them."
Retail just happens to be in the DTC generation at the moment.
The DTC promise
The direct-to-consumer promise is well documented: a simpler shopping experience based on cutting out the middleman and offering fewer, but higher quality, products than traditional players. With that goal comes a similar shopping experience, which means that not only do the basic logos of DTC brands match, but so do their digital experiences.
"Designing a digital experience that can work for the consumer — that's the piece that is very, very consistent across many of the DTCs," said Zach Weinberg, director of advisory at Gartner, noting that once a category has been established is when brands start to look the same. "If you look at, let's say, the furniture category: You compare Burrow against some of the other DTC companies and you see that also the branding and the design is similar. But the reason for that is because that's the experience and that is the mechanic that they are trying to create — and that's something that I think has proven successful over time."
On the branding side, in particular, Weinberg said many DTC brands have been focused on creating companies with a personality and values that consumers can align with themselves, a position that "speaks to a universal truth of a consumer base." It might be sustainability or another element of corporate behavior that consumers have come to care more about over the years, but the niche focus of DTCs allows them to develop distinct personalities, Weinberg said, and "find like-minded friends, let's call them, instead of consumers, that you want to talk to. And those people want to talk back."
What makes DTCs appear so similar is that many of them are trying to talk to the same customer base, Shine said, namely millennials. Adopting the now-familiar branding themes of other DTCs can signal to consumers that the company they're looking at is part of the set of brands they already trust to understand their needs.
"I'll see an ad for God-knows-what brand and it'll have some hip serif font with some clean minimal background and I go 'Here we go again,'" Shine said. "But at the same time, I'm going to go, 'They probably get it.'"
"I'll see an ad for God-knows-what brand and it'll have some hip serif font with some clean minimal background and I go 'Here we go again.' ... But at the same time, I'm going to go, 'They probably get it.'"
Co-founder and Creative Director of Pattern
Shine added, though, that while there is a DTC aesthetic, the cohort is not as similar as it looks from the outside. In reality, creating differentiated DTC branding is a dance between building something that is familiar and will appeal to the millennial audience, and also adding distinctive features to help tell a certain brand's story. He likened the differences in DTC branding to the small things private school students do to stand out from others while they're all still wearing the same uniform.
"When you're trying to design any brand, you figure out the denominator: OK, this is the core, we're trying to talk to you. This is the vibe they like," Shine said. "And then the numerator is, how can you freak it a little bit to be kind of custom per the aesthetic or the values that the founders have and that they're trying to give their interpretation on? If someone just says, 'Yo, copy this and make it the same. I just want to fit in,' you never want to do that job because there's no pink streak in the hair or no fingernail polish or no unique shoelaces."
That streak of individuality can impact brand choice, according to Sakal. But there's nothing inherently wrong with DTC brands pursuing an aesthetic and a digital experience that look and feel similar, so long as a business can offer something unique to consumers. And part of the reason for the similarity is out of the DTCs' hands.
"It's also really easy for me to just engage the Red Antlers, the Gin Lanes, all the branding businesses that built the initial winners," Alex Song, founder and CEO of the Innovation Department, said, noting the influence of venture capital firms on the process. "The VCs are like, 'Hey, I know the contact — they're dependable, they're good. They're the ones that did these other guys so they got the winning formula.'"
So what if they're all the same?
Rather than turning off customers, the similarities in DTC brands can actually work in their favor, by putting consumers in a place where they feel comfortable. Branding is tied to human psychology and a longing for feelings of safety and familiarity, according to Song.
"Consumers are creatures that like familiarity," Song said. "We like to go buy things and use things and be around things that feel familiar, feel comfortable and feel cozy to us. So when you see that you had these styles, these palettes of colors, these font types, across your Instagram for so long, you gravitate towards things that also feel fun and familiar, versus something that's way off base and it just doesn't resonate with you the same way because it just isn't what you're used to seeing."
So, too, with the similarities in the shopping experiences DTCs create, Weinberg said. He noted that many DTCs have a "how it works" section on the site to explain value points like month-long return windows or a subscription function or how the product itself works. As a result, consumers have come to look for the same experience, perhaps subconsciously, because they're used to it. Those that fall outside of that experience may have to work harder for consumer attention as a result, rather than consumers growing tired of shopping similar brands.
"The ones who do it really well will be recognized and will be familiar to new consumers, but the ones who are different, consumers will say, 'Hey, this is not the same experience that I've seen on some of these other companies and they'll actually need to make a decision at that zero moment of truth when they first enter a site," Weinberg said. "'Do I like the way that this is even browsing? And do I find it familiar?' And if I don't, that's when they may drop off, as opposed to the other way around."
Outside of the possibility of consumer fatigue, one of the biggest risks DTCs could face from sticking to the same aesthetic year after year is the loss of their leading-edge status, Shine noted. DTCs with "massive revenue targets and goals" would likely suffer from not maturing their brand over time, but it's not necessarily a death knell.
"I think there are brands that were from the '50s, '60s, '70s, '80s and '90s, that still market as if it's that time, and they do fine," Shine said. "I think they're just not changing the cultural narrative."
"There's a real authenticity that comes to a brand from a founding team that you really can't recreate in a lab, so to speak."
Principal at Lerer Hippeau
For the moment, at least, DTCs are hitting on trends that consumers appreciate, including purposeful branding and a dose of authenticity that wasn't always true of businesses. Sakal noted that some may "get a bad rap" for their execution of those things, but at their core, they're acting on consumer behavior trends.
It isn't turning away venture capital firms, either. Andrea Hippeau, a principal at Lerer Hippeau, which focuses on early-stage funding, noted that there are plenty of "me too" brands created by the DTC formula, but she looks to the founding team to discern how deep the brand message goes.
"There's a real authenticity that comes to a brand from a founding team that you really can't recreate in a lab, so to speak," Hippeau said, noting her firm looks for mission-driven companies when investing. "That's something that you can sniff out pretty quickly is if a brand is truly authentic. What's their mission and are they true to it? Is it a real mission or are they just donating one pair of whatever it might be just to kind of say that they do?"
Branding is cyclical and DTC's cycle is not over yet. But as DTC brands continue to enter the space, or grow their businesses, there's a new cycle emerging for Gen Zs that is anti to the millennial appeal that DTCs hold, according to Shine. He said DTC branding has become a "dominant visual language of communication," and may stay so for the next five to ten years, but added that younger generations are more focused on a rebellious "frumpy on purpose" vibe.
"You've got the next generation going, 'OK, we've had 10 years of sans serif, millennial pink, different bright colors, everything is clean, there's hands in all the photographs, everything is bright and blown out — we're just going to funk this up,'" Shine said.
Maturing the aesthetic
Shine may have stepped out of the DTC branding world, but he didn't give up on DTCs, or on the ability of the original pioneers to transform their marketing to fit a new generation of shoppers that's "a bit more loose and a bit more messy."
He cited Recess and Ghia as in-between brands of the millennial "premium mediocre" aesthetic and the Gen Z "domestic cozy" aesthetic (terms coined by Venkatesh Rao of Ribbonfarm). His own company, Pattern, is also trying to bridge the gap between those two with its brands.
"We are still using notions of premium mediocre in terms of some of our advertising and some of our site's design," Shine said. "But we are fusing it I think with notions of domestic cozy, in the sense of, we're not trying to be too slick and too manufactured. We're trying to espouse values around, you know, 'Don't try to be a superstar at work. Don't try to be a superstar on the internet. Spend more time at home, do things that are cozy and intrinsically motivated.'"
Shine added that he was impressed with a Harry's TV ad recently that was a departure from their previous marketing, and "a really nice maturation." For others in the space, it's possible to mature their marketing as well while not departing too heavily from the millennial aesthetic that made them so successful in the first place.
"You kind of expect a business to stay at its core," Shine said. "Like Chanel or something — they can do reinterpretation and reinvention, but it's still, 'Yo, I'm a French, luxury, atelier-based business.'"
Outside of the classic DTC brands, Song cited Liquid Death and Magic Spoon as examples of very different branding that has worked as well. But even those brands will have followers, and they're likely to show up on consumers' Instagram feeds, Song noted, reinforcing the feeling of sameness through an echo chamber effect.
Indeed, one of the defining features of DTC marketing is social media. Companies including Chewy, Wayfair and Casper have shelled out millions on advertising while running up ever higher net losses. The branding similarity may not be a problem, but "creating thumb-stopping power" is, Weinberg said.
"It's not good enough anymore to just have really strong lifestyle branding with a strong message," Weinberg said. "DTC brands need to do more to differentiate and create that thumb-stopping power within those social engagement platforms that actually communicates a differentiated message, not just a pretty brand."
So maybe, in the long run, the biggest problem for DTC brands is not their branding. It's how they differentiate on social platforms or through ad campaigns, how they mature their brand over the years, and how they tackle the real threat: profitability.
"I think we are experiencing fatigue right now. I think that's fundamentally what you're hearing and that's what people are writing about," Song said. "But the truth is, things change when they stop working."
Article top image credit: Photo illustration by Danielle Ternes/Retail Dive; photograph by fizkes, Nicola Katie and Urfinguss via Getty Images
How DTC brands will approach physical retail in 2021
As cities empty and landlords look to ink deals, digitally native brands might have a chance to accelerate their brick-and-mortar strategies.
By: Caroline Jansen• Published Jan. 26, 2021
The unique circumstances of the pandemic caused online sales to balloon, seemingly overnight. As retailers were forced in 2020 to temporarily shutter their stores, either by choice or by government mandate, consumers shifted their spending online.
E-commerce sales in March 2020 jumped to $70.1 billion from $61.7 billion in February, and were up 18.2% from the prior year, according to the Department of Commerce.
As a result, retailers across the industry adjusted their strategies to meet the increased demand to their digital channels. Several ramped up fulfillment options, like curbside and in-store pickup. At Home piloted buy online, pick up in store at 28 stores in January 2020 with a gradual rollout to other markets throughout the year. In response to more sales happening online, though, the retailer expedited those plans in order to serve its customers. Target's same-day services — pick up, drive up and Shipt — helped drive record growth in 2020. And Lowe's in September 2020 announced it would introduce pickup lockers to most metro areas by the Thanksgiving holiday.
On the other hand, direct-to-consumer brands, which by and large operate nearly entirely online, were already well-positioned to gain as consumers spent more time, and money, online.
But physical stores, something some DTCs vowed against in their early days, remain a valuable asset for digital brands.
Why DTCs move offline
DTC brands saw an opportunity selling directly to the consumer online, cutting out the middleman and creating unique experiences for their customers.
"Direct-to-consumer brands obviously found great traction and great success through their e-commerce and digital platforms. But that has become a pretty crowded space," Tyler Higgins, leader of the retail practice at AArete, said. "They started to realize that even despite the pandemic — the pandemic definitely slowed everybody's plans down — that brick-and-mortar stores hold just some unique value that is near impossible for them to gain just through kind of a digital footprint."
Although media costs came down during the pandemic, it only offered a temporary solution. Brands create an additional marketing channel and opportunity to acquire customers by opening a physical store.
Brick-and-mortar stores are "brand-building locations," Michael Brown, a partner in the consumer practice at Kearney, told Retail Dive. "They need to be in high-traffic, high-density markets of the target consumer to be able to build that brand affinity and that brand experience. They're billboards."
What's the point?
While direct-to-consumer brands are moving further offline, the function of their spaces oftentimes differs from that of traditional retailers.
DTC brands have a smaller footprint — in terms of store count and square footage — than more traditional retailers. Several brands have also adopted a showroom, inventory-free model where consumers can view and try out products in person to then go online and order them.
But with the pandemic drastically cutting back on how often consumers venture out to stores, brands may be forced to adapt their models to what the consumer wants.
"I think the ability to walk away with a product that same day is always attractive. Being more convenient to the customer and being able to provide them with the same-day service and a product I think is only a benefit," said Ben Lazzareschi, executive vice president of Retail at JLL. "That added level of customer experience and convenience and ability for customers to kind of hold and feel and take home their product that same day is really only a good thing, but I don't think that necessarily is going to replace DTC."
Offering merchandise in stores, however, would force digitally natives to completely rethink their operating model and supply chains. Alternatively, Brown actually suggests traditional retailers should be the ones taking note from DTCs with their showroom models.
"I think the showroom model is one that needs to be adopted by traditional retailers as well, because what's happening with the direct-to-consumer brands is they've built a fulfillment network that is very efficient in shipping goods to a consumer's home," he said. "A fulfillment network that has to send large quantities of product to a store to be displayed to maybe be sold out of that location, or maybe has to be shipped from that location to consumers to get it out of the store, is a completely different operating model. So [DTC brands] built very effective operating models based on shipping goods to the consumers' homes from large fulfillment centers, and they need to continue to leverage that operating model."
However, determining a store's purpose isn't one-size-fits-all, and the showroom model may go away for some brands, while others that are simply using stores as a means for brand awareness will likely remain merchandise-free.
Follow the consumer
While much of the retail industry works to rightsize its footprint (8,736 stores shuttered in 2020, according to Coresight Research), it opens opportunities that otherwise wouldn't have been made available to smaller brands, like DTCs.
But that doesn't necessarily mean direct-to-consumer brands will move into the massive stores retailers are leaving downtown.
"The challenge with some of those large format, downtown, high-profile urban locations is significant operating costs and occupancy costs for something like that," Lazzareschi said. "By and large, most direct-to-consumer brands — they're kind of showrooms or they have limited amounts of products," eliminating the need for such large spaces.
When the pandemic took hold and made typical in-person activities like eating out and shopping in stores less desirable, it ignited a trend of residents moving out of cities and to the suburbs. Brands in turn are looking to follow their base outside of urban markets.
"There's no doubt that we have seen an increased focus on suburban markets for retailers with the work-from-home strategy … premium suburban high streets and premium suburban pedestrian retail streets have become more of a focus and float to the top of the targeted sub-markets and markets for expansion," Lazzareschi said. Higgins, who categorizes this as "the second wave" of brick and mortar for DTC brands, said pop-ups may be used even more now than before as "testing grounds for a certain city."
Once consumers begin moving back to cities, which Lazzareschi predicts will happen, the focus will shift to premium streets in urban markets again. Even now, Higgins added, the focus remains on popular locations like SoHo, Boston Seaport and San Francisco for DTC brands looking to open their first location.
The return to "normal" remains unclear. Nonetheless, now is when brands should be looking to forge deals with landlords.
"It's actually a great time to be looking. If you are a good credit tenant with a great brand and have a successful operational history, I mean landlords right now are making deals in most markets with more concessions than they have been in years," Lazzareschi said. "The smart ones, frankly, will be doing long-term deals and leveraging the opportunities that are available now with landlord concessions."
But for other brands less eager to pull the trigger and open more stand-alone stores at the moment, Higgins expects to see more partnerships formed with traditional retailers. Casper, which formed over 20 partnerships with retailers like Target, Costco and Sam's Club, in November 2020 added Nordstrom to that list. And Target has welcomed a growing number of DTC brands to its shelves recently, including Function of Beauty and Winky Lux.
"Can they enhance partnerships with large existing brands?" Higgins said. "Obviously, that comes at a cost, but the size that they want to be in such a crowded space, that's one way to try to see a huge revenue growth that a lot of these brands are targeting."
How many stores do digital brands need?
Traditional retailers have moved to close stores over the past several months in order to rightsize their footprints. Macy's and H&M, for example, have announced plans to shutter hundreds of locations.
So as DTC brands look to expand their footprints, the question remains: How many?
While the pandemic has caused some brands to rethink just how many stores they need, Brown believes the "right number" to operate for a DTC brand lies somewhere in the 200 to 400 range.
It also depends on the category in which the brand operates. Casper's goal of hundreds of stores may be rationalized by the fact that a mattress is a purchase consumers oftentimes want to touch and feel before buying, whereas categories like beauty or apparel may not need as many.
But even as some brands reconsider the sweet spot when it comes to store count, the number of deals being made will likely accelerate to pre-pandemic levels in the months ahead.
"There's a lot of discussion that retailers, including DTC brands, are going to be stepping on the accelerator in the middle to end of this year to focus on stores getting opened in 2022," Lazzareschi said. "We anticipate that they are going to be expanding at pre-pandemic levels."
Article top image credit: Cara Salpini for Retail Dive
'It's a violation of an implicit psychological contract': Why DTC culture issues hit hard
Many DTCs have faced criticism for workplace issues. Part of the problem may be that they promised something better.
By: Cara Salpini• Published Nov. 16, 2020
ThirdLove. Away. Everlane. All three are DTC brands that have been criticized in mainstream media for having alleged corporate culture issues.
ThirdLove's troubles, as reported by Vox, centered around allegations about co-CEO David Spector, who some employees described as "condescending" and "bullying." Employees described long work hours and a lack of comprehensive benefits and salaries.
Away's problems, as reported by The Verge, also stemmed from assertions about a high profile executive: co-founder and, until recently, co-CEO Steph Korey. The publication reported on employee claims that they were held to impossibly high standards and frequently berated in public if they made mistakes. Employees described a practice wherein conversations were held in public Slack rooms which created "a culture of intimidation and constant surveillance," according to the publication. Vacations were discouraged and long work hours were regular, employees said.
Everlane likewise came under fire for its treatment of employees after a group of workers publicly criticized the company, according to reporting by Vice. Complaints included a lack of benefits for customer experience employees, who tried to unionize and were then laid off. Customer experience employees described a stressful work environment with low pay, while retail store employees said the company tried to stop them from talking about wages, leading many to quit in frustration.
With so many high-profile cases emerging in a short time span, all three reports surfaced in the second half of 2019, questions have been raised about the sector. According to sources, it may be an indication of deeper problems or it may be a result of DTCs status as the hot topic of retail today, which means their culture issues disproportionately show up in print.
"Do you want to spend time doing an exclusive on a brand that everyone's heard about or that no one's heard about?" Alex Song, founder and CEO of the Innovation Department, said. "That's a fundamental issue in my mind. It's not that DTC is disproportionately worse."
Whether the problems are worse at DTC brands or not, public reports of the corporate culture issues at companies that promised something more create stark brand challenges. They gave employees and customers something to believe in — whether it be a female founder, a powerful brand message or radical transparency — and then they disappointed.
Employees at ThirdLove were reportedly thrown off by the culture at the brand because they came in with the image of a women-run company.
Authenticity is one of the core promises of the DTC brand, and leadership is a key part of that. Many DTCs were founded by someone who spotted a problem they themselves had and sought to solve it. The set of companies that fall into the DTC cohort are almost at this point expected to be authentic, and younger generations are increasingly looking for companies that practice what they preach, according to Victoria Sakal, managing director of brand intelligence at Morning Consult.
"It becomes this balance of how you look on the outside and how you're carrying yourself," Sakal said, noting that external appearance can't be met with a "cracked shell underneath" of mismanagement or mistreatment of employees. "The authenticity has to come through in all components."
She noted that Gen Zers in particular are focused on how brands treat their employees and are more likely to choose whether or not to buy with someone based on what they know of the company's culture. As a result, DTCs have the ability to both engender strong loyalty and face repercussions when they don't meet the expectations of their loyal customers.
"The community and the cult nature of these brands means a higher high ... but also at the same time comes with this risk of a lower low."
Managing Director of Brand Intelligence at Morning Consult
Sakal described it as hearing something negative about someone that you've put your trust in, and how that might impact your relationship.
"The community and the cult nature of these brands means a higher high, so you have a stronger sense of loyalty and real affinity for the brand, but also at the same time comes with this risk of a lower low," Sakal said. "You're held to a higher regard so you're expected to be able to deliver on it not only in your product, in your experience, but also your culture and how you treat your stakeholders."
The brand mission and strong lifestyle aspect of DTC brands can also mean that workplace challenges hit employees particularly hard because they came in with high expectations, according to Diane Burton, professor and chair of human resource studies at Cornell University.
"It's a violation of an implicit psychological contract," Burton said. "Like, you sell this thing, but in reality, it's fake — and so that's a violation of expectations. It's a violation of the psychological contract and people will be more angry about that if it feels false or fraudulent. That's a huge demoralizer."
Amir Goldberg, associate professor of organizational behavior at the Stanford Graduate School of Business, said some startups also build "family" cultures where they stress the emotional rewards of working with the company over material ones. That can be rewarding for some, but for others it can lead to disenchantment as the company grows and potentially exploits that mindset.
Zappos, for some, is an example of an excellent — and strong — work culture. To others, Goldberg said, it was interpreted "almost like a cult" that was rewarding employees with a sense of belonging instead of monetary rewards.
While DTCs may have a closer relationship with their employees and their customers, and therefore higher expectations, culture issues have not always impacted a brand's standing. For example, although Nike has come under fire for a workplace culture that reportedly discriminates against women, the company is still easily one of the most popular brands in the space (and has the sales numbers to back it up).
It's not that consumers don't care about the issues, but that they forget about them after a certain amount of time, sources have told Retail Dive. Zach Weinberg, director of advisory at Gartner, said that workplace culture and founder-related issues at some DTC brands may actually be less impactful in the public eye than for some larger corporations because the founders are not always well-known.
"The big challenge happens when you're managing a few dozen people and you start managing several hundred people and then you start managing several thousands of people."
Associate Professor of Organizational Behavior at the Stanford Graduate School of Business
For Amazon or Microsoft, the bridge between the founders and the companies is much shorter, and customers associate the actions of the founders more directly with the companies themselves, he said.
"When it comes to direct-to-consumer brands, that bridge is not there," Weinberg said. "And so consumers are really only making the association with the brand itself and with the authenticity that the brand provides. What goes on behind the scenes I don't think is an implication really on that."
He added that corporate culture should not have a serious impact on the loyalty relationship DTCs have with their customers, and even a brand's authenticity doesn't necessarily have to be tied to the founder's story.
As an example, many brands in the beauty and lingerie space are run by men, and have been for some time, and many of the new brands challenging them are ultimately run by men. ThirdLove took flak for projecting an image of being women-run when it also had a male co-CEO, but it's not the only female-focused brand with male leadership at the highest levels. While that may turn off some employees, a brand can build loyalty and an authentic story without the classic DTC founder story, according to Weinberg.
"I completely understand the perspective of the founders or co-founders trying to solve a problem that they themselves have. That lends to the authenticity and that lends to how genuine a brand is perceived by their consumers, and by their target consumers really," Weinberg said. "But I think what we're actually talking about here is really just an authentic story, and not necessarily that it has to align, whether it's gender or not — I think it's just overall an authentic story."
Just startup culture?
While they aren't the startups that get the most funding in retail, direct-to-consumer brands are the most talked-about startups in the space, and some of the culture issues they struggle with speak to that: They're startups. Startups of all kinds face issues that primarily stem from scaling the business, according to Goldberg.
"The big challenge happens when you're managing a few dozen people and you start managing several hundred people and then you start managing several thousands of people," Goldberg said. He noted that investors begin demanding accountability from startup leadership teams, which leads to changes in processes. "Those procedures are very useful tools for large corporations to coordinate activities, and to create clear-cut criteria, but they're antithetical to the ethos that had emerged up until that moment in a startup, where things were negotiated informally through the norms of the culture."
In an article published by Inc., Outdoor Voices' Haney spoke out about mistakes she made as a founder and what she would do differently, given the chance. Top of mind for Haney was operations. She noted in the piece that not having the right operating leader was her "number one regret" and cited challenges with scaling too fast without having a central operating system.
"When you see a lot of success off your story and your product and your value proposition, you kind of neglect the fundamentals. You feel that with enough VC money, you'll be OK, you'll always figure it out. But that's not a business. I almost felt like we were faking it," Haney said.
"There is an attitude that the only way to succeed is to work 80 hour work weeks and ignore personal responsibilities."
Associate Professor of Marketing at the Tepper School of Business
As the company continues to recover from a tumultuous period, Outdoor Voices has shifted to focus more on improving the fundamentals of the business that led to problems in the first place, including through a new Chairwoman in Ashley Merrill. Haney in her account said so far, she and Merrill have cut costs significantly and pulled back on digital marketing.
"Systems, processes, very unsexy things," Merrill told Retail Dive she was focused on in July 2020, adding that she wanted to help the company be more intentional in its decision making. "How are we thinking about how we work together? How can we create smoother operational systems, more touchpoints between departments?"
Startups also need to be focused on HR issues like equal pay, health benefits, compliance and management structure as they grow, according to Jeff Galak, associate professor of marketing at the Tepper School of Business at Carnegie Mellon University.
"When you have 5 employees in a basement, those are things you can largely put off, but once you grow to a critical size, all these HR issues are essential to continuing growth," Galak said in an email.
In addition to procedural challenges, startup cultures characterized by long work hours, similar to employee complaints at Away and Everlane, can also be particularly discriminatory toward women, according to Galak.
"There is an attitude that the only way to succeed is to work 80 hour work weeks and ignore personal responsibilities," Galak said. "That, however, is more difficult for women to do since they are still considered, in many families, the primary caregiver for their children, making non-stop start-up life difficult if not impossible."
The founder effect
As many DTC workplace issues have come to the forefront, the founders have been front and center as well. In her post on Inc., Haney said she and other female founders have been "put on the chopping block" at times.
Many exposés have centered on one particular individual. At Away, it was Korey. Korey's attention to detail, according to the Verge, caused problems for employees by manifesting itself through a high-stress, micromanagement environment — one where employees were freely criticized. While Away made the news for it, a management system characterized by high expectations and micromanagement by a top leader is not unusual.
Burton, who worked on the Stanford Project on Emerging Companies, defines it as an autocratic system and noted they are "very difficult to scale." Another system Burton calls the star system, where a company prioritizes the star performers and then uses supporting staff to bolster those performers. Both can cause unique problems as startups scale.
"The founder succession problem is harder in autocratic organizations," Burton said. "It's hard in star organizations if the founder/CEO is a star him or herself. That's a hard transition, but if the CEO is a supporting member, then you can have a more servant leader take over. So some of these models have kind of embedded into them different challenges associated with succession."
While some issues may arise from the management style or personality of founders — Galak noted that starting a company requires a certain amount of courage, ego and stubbornness, none of which "scream empathy or thought for equality" — much of it arises from inexperience.
"It just somehow feels worse when it's a CEO who's kind of an abusive supervisor than when it's a shop floor foreman."
Professor and Chair of Human Resource Studies at Cornell University
Andrea Hippeau, a principal at Lerer Hippeau, an early stage capital fund, noted they focus on investing in people, and can usually tell if someone wants to treat their employees well. But she also gives founders some grace when it comes to missteps.
"Starting a company and running a company is hard, no matter how successful you may seem on the surface or how well things are going for you. It's just hard and founders make mistakes," Hippeau said. "A lot of them are young or have never run a business before and all of a sudden, they're in a situation where they have hundreds of employees … I think a lot of times what those articles are missing is the grittier and harder side of being a founder and the lonelier side as well."
Song noted that founders who have been labeled a certain way or exposed for poor workplace management could have trouble with investors. When you're a proven entrepreneur, "it all goes out the window," he said. But rising companies looking for funding from investors are more dependent on being well-liked.
Issues with startup founders, or in the workplace culture of startups more generally, may also come to the forefront more because large corporations have processes built in to handle them better, including more experienced HR professionals, according to Burton.
"Inexperienced management is inexperienced management. I think it's more vivid in the startup sector because we tend to be drawn to these young people who are creating things, but of course, they're very inexperienced," Burton said. The hierarchy of startups is also smaller since there are fewer employees, meaning larger corporations with poor middle-managers won't necessarily get highlighted for their behavior, even though it might impact a similar number of people. "It just somehow feels worse when it's a CEO who's kind of an abusive supervisor than when it's a shop floor foreman."
The high brand affinity of DTCs places them more heavily in the spotlight than some other companies — and founders are hurt by that as well — but the nature of the retail industry may also impact how companies treat their employees. It is not a particularly forgiving space.
"In small margins businesses, it's actually more difficult to be generous towards your employees because you need to really reduce costs," Goldberg said. "It often creates pressure on these companies to sell a narrative of purpose and belongingness, but at the same time also be very stingy about their bottom line. I think it's easier to be kind in Google than it is to be kind in retail, when you're awash with money."
Article top image credit: Photo illustration by Danielle Ternes/Retail Dive; photograph by Scyther5 and Fizkes via Getty Images
30 minutes with For Now's co-founders
As the limitations of selling exclusively online become apparent, the company's mission is to not only give emerging brands a physical presence but an opportunity to grow.
By: Caroline Jansen• Published April 27, 2021• Updated April 29, 2021
The following article is part of the "30 minutes" series, where Retail Dive talks to top executives about some of retail's hottest topics. For more, check out our landing page.
Co-founder of For Now
Cimo co-founded For Now in 2017. Prior to this, she was the director of marketing at activewear startup Crane & Lion from 2013 to 2017.
Co-founder of For Now
ReQua co-founded For Now in 2017 and serves as the company's director of operations. She's held a number of operations-related roles, including the director of operations at Crane & Lion.
Kaity Cimo and Katharine ReQua started For Now, a regional brand incubator, with one goal in mind: to help brands grow.
The company, which has two retail storefronts in Boston's Seaport district and Nantucket, will typically work with around 20 emerging brands for three to four months at a time. Brands are given access to physical retail through For Now's stores, receive product feedback from customers and exposure to a new set of customers.
Cimo and ReQua believe that in order for brands to be successful, they need to have strong operational and marketing foundations. That's where their prior experience comes into play.
Before launching For Now, the founders were working together at a women's activewear company where Cimo was the director of marketing and ReQua was the director of operations.
"We found that ops and marketing just sit at the same table, not only literally but figuratively," ReQua said. "So many of the decisions that we were making really drove the success of that business, and we wanted to take our skill set and our expertise and help other brands grow."
From a brand's standpoint, particularly a digitally native one, partnering with For Now allows customers to touch and feel a product before making a purchase while at the same time creating greater potential to acquire customers in different markets. Over the years, as the limitations of exclusively selling goods online have become ever more apparent, direct-to-consumer brands have entered brick and mortar through a variety of ways, whether through stand-alone stores, temporary pop-up shops or partnerships with traditional retailers, like Target and Walmart.
And while opening a storefront wasn't part of For Now's initial strategy, it's really become a part of its overall mission.
"We really believe in the physical storefront, and not all brands can do it on their own. It's extremely capitally and human-capitally intensive," ReQua said. "So, if you can find a partner who can tell your story on your behalf, generate sales on your behalf and collect feedback on your behalf, it's a win-win."
The small-shop atmosphere may play to brands' advantage as well. Brands not only reach a new audience but through For Now, they also gain direct feedback and customer insights from shoppers, so they're able to take those learnings and make necessary adjustments as they grow.
"Exposure is really, really important," ReQua said. "We're telling that story in a way that sometimes the founder can't always articulate, and I think some brands struggle with their true value prop. By seeing that product with customers, and often hearing the same thing over and over again, we're able to take that back to the brands and be like, 'Have you ever thought about positioning it this way? Or packaging it that way? Because that's how customers are seeing it.' So it really is a holistic view."
Building these relationships and gaining insights by communicating directly with customers in stores not only benefits brands by helping them better align product launches but also allows For Now — as curators — to know what brands and products to seek out in the future.
From a brand's perspective, something that may be particularly appealing is the fact that the concept not only provides exposure to their brands and products but actually creates loyal customers, who will eventually shop directly from the brand's website in the future.
"What's interesting and amazing to me is that we have been able to convert customers for brands, not only within our store but on their own website, which is really valuable to them obviously because then they acquire the customer information themselves," Cimo said.
Something a few brands that have worked with For Now have expressed is that when they've partnered with similar concepts, they've gotten sales, but haven't necessarily acquired customers in the long run, Cimo said. "The difference in working with us is that on social and on email, we really do make an effort to tell the brand's story." For Now will not only share product information from a brand with its followers but also go into who the founder is and tag those individuals so that customers can learn more about them, she added. "People are like, 'OK, I'll check that at For Now.' But then after [the brands] rotate out, they'll actually follow the brand and perhaps purchase in the future."
The For Now experience
But what does it take for a brand to be housed in For Now's concept?
"Kaity and I are big gut people," ReQua said. "We're also the type of people who don't mind walking down the street, whether it's our hometown or we're traveling, and we see someone wearing a pair of shoes or a bag we like. We're the people who are like, 'Oh my god, I love her bag, where did you get it?' And if it's a small company or a brand from another country, we'll reach out to them and inquire about working together."
For Now also receives a lot of brand referrals from other companies it has previously worked with, but ReQua said regardless of how a brand connects with For Now, "for us what's really important is understanding the brand and the brand story. So, is there an interesting story for us to tell? And will it resonate with our customers?"
When For Now was first getting started, the strategy was to have "high churn," constantly rotating out brands and presenting customers with ever-changing products. However, as customers came to expect certain brands to be available, the company adjusted its model. Now, about 20% to 30% of brands offered are part of what ReQua calls its "core collection." ChappyWrap, for example, has been working with For Now for about two years.
"We have kept them and a few other brands that just sell well, and our customer would be really disappointed if we didn't carry them," Cimo said. For Now has "this balance of making sure that there's still a great discovery aspect in our store to our shoppers, but also having some reliability."
Handing control over to another company to make sure your brand is accurately portrayed can be concerning for some founders. But For Now aims to address that through extensive staff training and allowing the founders to be involved throughout the process.
"Really, what it comes down to is our ability to story tell," ReQua said. "We put a huge emphasis on our training process when we onboard a brand. Our entire team has a call with the founder or the representative of the brand to hear the brand story really fluently. So anyone who comes in, we can speak really authentically not only about the product features but the founders."
While founders may initially be drawn to For Now for the exposure and growth opportunities for their brand, they're also welcomed into a community of other founders and business owners who may have faced similar challenges.
"We found ourselves naturally connecting founders to one another," Cimo said. "If someone would say, 'I've had an issue with my factory for XYZ. I'm looking for a solution,' responses would be like 'Oh, we know someone that we can connect you with.'"
Building on this sense of community, For Now would host events in-store before the pandemic. The company would bring in five or six founders or experts to participate in panels or discussions on a variety of topics, ranging from female entrepreneurship and sustainability to influencer marketing strategies.
The success of the events is what drove Cimo and ReQua to broaden this concept into something larger: the Female Founders Summit. The event initially was going to be in person and include about 90 people, including speakers and participants.
But like most other events across industries, the summit, which was supposed to be held in March 2020, was upended by the pandemic. For Now pivoted to a virtual event that was held last February and featured speakers like Faherty co-founder Kerry Docherty, designer Mara Hoffman and M.Gemi president Cheryl Kaplan.
"I think something really important about being a small self-funded concept is that we were actually able to pivot in a way that a lot of larger companies weren't able to at that time, and we were able to move really quickly."
Co-founder of For Now
But the event wasn't the only thing For Now had to shift online. Before the pandemic, the company didn't have much of an e-commerce presence at all.
"We actually didn't have a website before the pandemic. Our focus and our expertise was in the storefront and really telling the story there and being physical space for online brands," Cimo said. "All of a sudden, we didn't have a choice."
For Now attributes advantages like being able to get an e-commerce website up and running in a matter of days to the fact that its team is small.
The website has "taken on a life of its own in a really, really exciting way for us," ReQua said. "We're so fortunate to have been able to be a super small team, who didn't have to answer to investors, who could make a really quick decision without any red tape. I think something really important about being a small self-funded concept is that we were actually able to pivot in a way that a lot of larger companies weren't able to at that time, and we were able to move really quickly."
Having an online presence is something, in hindsight, For Now wishes it would have done sooner and sees a lot of potential in going forward, according to Cimo and ReQua. The company is now able to reach customers all over the U.S., rather than just in areas where its physical stores are located. For instance, one of its biggest customers is someone in Washington, D.C., who the founders have never met in person.
"We see online now as a big part of our growth," Cimo said.
Something 'For Later'
The founders have expanded their sights beyond just their storefront and e-commerce business and are looking at other ways to support growth among the brands they work with.
"We obviously opened a storefront as a vehicle to help brands accelerate their growth," ReQua said. "It was through that, that we realized the next step for their growth is often related to financing and funding."
And thus, the idea of "For Later" was born. The concept consists of four partners who offer financial analytics, operations, marketing and commercial real estate expertise to the brands they invest in. So far, For Later has invested in three companies: Sh*t That I Knit, Jibs and Qatch.
The goal is to make three to five investments every year "assuming we're finding high potential brands that we think are really going to accelerate in the marketplace," ReQua said, adding that the company isn't "going to invest in every brand. And we'll probably turn down some great brands at some point," she added.
And even as the company continues to evolve its business and expand into new territories, For Now's mission of helping brands grow remains true.
"For Now started as a customer discovery lab, and now it's a customer discovery lab that informs our ability to make strategic investments," ReQua said. "Our sole focus is to help emerging brands accelerate their growth. Whether that's through the storefront, through our e-commerce channel, through a Female Founder Summit, or through For Later. It's sort of a multi-prong approach of helping this acceleration."
Article top image credit: Adeline Kon/Retail Dive
Latest trends in direct to consumer
The direct to consumer space has seen major growth in recent years, with giants like Amazon and Target paving the way and DTC darlings like Casper and Dollar Shave Club proving the model. Now the pandemic has completely upended the DTC and e-commerce reality, posing several challenges for its players ahead.
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Our Trendlines go deep on the biggest trends. These special reports, produced by our team of award-winning journalists, help business leaders understand how their industries are changing.
Davide SavenijeEditor-in-Chief at Industry Dive.