The Direct-to-Consumer Landscape

Teddy Citrin
Jun 14, 2017 · 3 min read

We at Greycroft are very excited about new direct-to-consumer brands. In 2016, only 12% of retail transactions happened online, while eCommerce represented a whopping 42% of all retail sales growth. We believe this growth will continue to accelerate. Meanwhile, legacy brands which have traditionally sold through third parties are realizing that they don’t know their customers and they are getting undercut by new entrants that can improve the value chain and customer experience by going direct.

We have spent time evaluating many of these businesses and have selectively made investments. The landscape illustrated above should help illuminate why certain categories are more or less appealing to us than others. Let’s use contact lenses and our recent investment in Hubble as an example of how we would use this landscape to determine why a market could be compelling for a DTC startup.

  • Contact lenses represent a $12B global market, not enormous, but big enough to build a billion dollar business in an expanding category.
  • The barriers to entry are high because securing supply is difficult, manufacturing is complex, and it is a regulated industry.
  • Contacts lenses are a daily use product, so repeat purchase and frequency are high, which makes it good for subscription.
  • Average order value is in the medium range, but the high frequency/retention makes for a potentially strong customer lifetime value. Contact lenses are light, small, and thus inexpensive to ship.
  • A few large incumbents dominate the market, which means pricing could be inflated and traditionally there may be little incentive to provide excellent customer service. Incumbents primarily sell to doctors which impacts the brands they create.
  • The category has high gross margins.
  • There hasn’t been much product innovation in the category in the last couple of decades which means building a strong brand is the most important objective. Finally, there are many people with poor vision who have traditionally opted just to wear glasses because of cost/convenience and there are not many startups flooding the market, so there is plenty of greenfield.

It’s important to remember that this landscape leaves out the most crucial part of each startup which is team and brand. A world class team and an authentic brand that resonates with consumers can take a seemingly uninteresting market by storm. However, attractive market and product dynamics may dictate the size and velocity of the ‘wave’ that the startups and entrepreneurs will ride.

If you are building a DTC brand I would love to chat!

Thanks to Ellie Wheeler, Weston Reynolds, and Brad L. for reading drafts and Eric Stromberg for the matrix inspiration.

Please note that some categories may overlap and some classifications are more subjective than others (i.e., barriers to entry, brand affinity). These numbers are not intended to be the truth, just directionally accurate and what I could dig up. The startup field is also not meant to be an exhaustive list, but if I am clearly missing a company or section let me know. Would love to hear thoughts in the comment section!

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