DTC Brands. Why They Are Disrupting The Market
The past decade has seen an explosion of direct-to-consumer (D2C) brands, which led to the evolution of the relationship between brands and consumers. With traditional stores or other middlemen becoming a thing of the past, “direct-to-consumer” (DTC) companies are defined by broader supply chains, web-only retail, direct distribution, social media marketing, and specific visual brand identity (the now ubiquitous “blending”) that is easily adapted to a variety of digital media.
The landscape of the modern B2C sector is almost unrecognizable from even a decade ago. Enabled by an environment of abundant venture capital, low competition, and, above all, the advertising arbitrage that could be exploited on under-priced social media platforms — D2C brands are finding themselves adapting to changing digital trends to stay afloat.
With more than 400 D2C brands as of early 2019, according to eMarketer, including companies such as Warby Parker, Casper, Glossier, and Away, the overly-saturated and hit by the coronavirus market is truncating the life cycle of businesses that aren’t built for long-term growth.
Sure, DTC brands have received a cumulative $3 billion in venture capital funds since 2012, and more than $1 billion was invested in 2018 alone based on data from CB Insights. However, pouring millions of dollars into immature D2C companies has pressure to grow even faster and achieve greater scale to meet venture expectations. All of this is proving to be quite overwhelming to the D2C model.
Fortunately for D2C brands, being mostly in a consumer category with demand, they can continue to tap into the great retail opportunities. The consumer landscape shifts and failed incumbents have left shelf space for new entrants.
So, understand their success better and how they fit in the general retail market, let’s take a step back and look at the basics.
What are DTC Brands
Direct to Consumer (DTC/D2C) brands grew very fast from a cottage industry into a recognized market. The D2C model focuses on what is convenient for the consumer rather than the retailer, starting first in easy-to-ship items like skincare, makeup, and fashion. Now, higher-priced and more complex items like smart home technology also see success in the DTC space.
With the direct-to-consumer model, the manufacturer/creator promotes and sells products directly to new customers — removing any intermediate channels like marketplaces, intermediaries, brick-and-mortar stores, and third-party retailers.
As it relies less on third-parties and has fewer contract negotiations and fewer limitations on branding and fulfillment, the DTC model presents an attractive avenue for up-and-coming brands who need an easy entry into a market.
Examples of DTC Brands
Although the D2C model is most commonly used in fashion, consumer goods, and houseware verticals, D2C brands can be found in any vertical — from vehicles (Tesla) to airfare (LinearAir), all the way through to fertility tests (Modern Fertility).
At present, DT2C still represents only 9.4 percent of the retail economy, but there are already some headline-grabbing early innovators. Casper, Allbirds, Warby Parker, and Glossier have all become multimillion and billion-dollar companies in less than a decade. Other D2C startups, like Dollar Shave Club and Bonobos, have even been acquired by Fortune 500 companies.
D2C brands like Beltology, Brilliant Earth, David Kind, Mejuri, AdoreMe, and American Giant have carved a name in their respective niche. They have a loyal following of clients on their booming social media accounts.
Competitive advantages
In the highly competitive and rapidly evolving retail landscape of the digital age, D2C brands are better positioned to meet changing consumer needs. Because they are consumer-focused, this gives them the flexibility to adapt their promotion and sales technique quicker and cheaper.
One area where the D2C model thrives is omnichannel distribution. The digitally native brand quickly learned they might need to cross the chasm into IRL retail. Now, a large part of D2C brands dabbles in at least some offline presence. Others deploy a retail strategy via company-owned stores, national retail networks, Amazon listings, or some combination of the three depending on their communities' strength.
A unique advantage of D2C brands stems from their ability to have one-to-one relationships with their consumers while capturing valuable data. This is impossible at traditional retail. Increasingly, they invest in building a two-way relationship in which community members collaborate with D2C brands to co-create new products and services.
The ubiquity of social media networks like Facebook and Instagram is another major advantage that lets D2C brands take control of their creative, digital, and social campaigns. This allows them to build their own brand and stay authentic because of their narrow focus with a clear proposition and a strong tone of voice.
Why they are disrupting the market
The retail sector has historically been dominated by several larger players and many smaller businesses that can’t compete with their speed-of-service, inventory, and pricing. However, becoming an established brand comes at the cost of flexibility. This is where D2C brands are flipping the market on its head.
For the first time, instead of companies coming first, the focus is on customer convenience and, more importantly, customer experience. The way D2C brands adapt and further diversify their product offerings allows them to mitigate the risk in an industry downturn and allows for an extra barrier against competition.
When large traditional retailers are posting staggering losses and bracing for bankruptcy, online retailers' sales are soaring. The direct-to-consumer model seems better equipped to survive amid the looming health crisis. It has also shifted consumers’ attention from legacy retailers to nuanced, smaller shops.
While we can expect the competition in the D2C world to continue to rise, brands now need to shape up and adopt some of the D2C’s strong points of customer experience, product diversification, industry acquisitions, and mergers want to remain relevant. It is about adopting a more iterative approach to the needs of distribution and promotion and demonstrating the ability to be as flexible and responsive as possible.
