Direct To Consumer (DTC) brands have been synonymous with success in 2019, just look at Glossier, Warby Parker or AWAY, but is the explosion in this retail category sustainable or will the bubble burst as we enter 2020?
DTC is obviously an attractive proposition for new entrants with its low barriers to entry and the lack of need for 3rd party retailers, wholesalers and other middlemen. Fewer people in that sales process clearly means higher margins.
Throughout 2019 we have seen a plethora of DTC startups bucking the general retail trend and enjoying huge growth based on this core principle. These have often been digital-first brands who have capitalized on the benefits of owning the customer journey from end to end enabling them to manage all aspects of the customer experience and benefit from quick and easy access to customer feedback data.
An added allure for new entrants is the “superstar’ founders of some of the most successful DTC brands, these founders have blurred the lines between celebrity and influencer. For example, the Pretty Little Thing founders Umar and Adam Kamani are often photographed celebrating with high profile celebrity influencers such as the Kardashians and they have in turn become celebrities for the influencer inspired generation themselves.
With the traditional retail industry experiencing what has been commonly dubbed a ‘retail apocalypse’ investors have been attracted to the growth of DTC brands resulting in relatively easy access to capital for many of the businesses in this space.
This influx of capital has seen many copycat business pop up that are now sucking customers away from the originals through loss leading models focused on trying to just win market share, which whilst back by stacks of VC dollars might seem like a good model but when they turn off the discounting tap the party is likely to stop with consumers moving on to the next company in the line.
Take the teen-driven fast fashion space in the UK – where you once really just had Missguided and Boohoo in the space it now feels like there is a new entrant every week. With the likes of In The Style, I Saw It First, Pink Boutique, Little Mistress all now battling for the same customers – plus tens of other smaller players.
Like any nascent growth industry there comes a tipping point where plateaus are reached and only the best survive this looks set to happen for DTC brands in 2020 as many of the new entrants will be unable to sustain their initial ‘shiny penny’ appeal – what was once a fresh and exciting new brand has to figure out strategies to build a loyal customer base who won’t be lured by the next new brand that comes along to take their place – especially with younger shoppers.
The DTC market model is also starting to suffer from rising customer acquisition costs as the sector evolves and whilst the savvy will use their customer insight data to manage this, unfortunately, there will be many whose retail naivety will leave them unprepared and unable to counter this. The winners – Facebook and Google! More DTC brands fighting for consumers = more ad spend with the two giants!
Another issue that I foresee is that many DTC brands have relied heavily on influencer marketing to build brand in the absence of physical stores and the influencer industry is currently losing its power having been tarnished by less than authentic posts – who can forget Fyre Festival and the backlash against those influencers who helped attendees part with thousands of dollars! If this backlash against influencer marketing continues DTC brands will be amongst the most affected.
It must also be remembered that whilst in 2019 new DTC brands enjoyed a relatively clear route to success competing as they were against traditional retailers who had all too often lost sight of their own product USPs, were suffering from heritage bricks and mortar distribution channels with lowered footfall and rising costs, as we enter 2020 many of these established retailers are back fighting! They have learned from 2019’s disruptors and are now realigning their offering to more closely meet customer wants – from product to distribution channels and turning their physical stores into lifestyle destinations offering experiences alongside the product.
2019 was the year of the DTC brand, 2020 might be the graveyard for many if the warning signs are to be believed.
read more at http://www.forbes.com/entrepreneurs/ by Cally Russell, Contributor