Direct-to-consumer Brands Gaining Customers and Clout

Watch out conventional retailers. Digitally native direct-to-consumer manufacturers are stealing your thunder, and more of them are popping up. DTC businesses manufacture and ship their products directly to customers, keeping control over the manufacturing, promotion, and distribution of goods. Eliminating distribution partners enables these organizations to reduce costs and oftentimes pass the savings on to their clients.

What makes them stand out is their imagination — inventing unconventional layouts for staid products (Caspar mattresses) or using other materials (Allbirds wool shoes ). Away adopted technology for its carry-on bag, and Warby Parker changed the eyeglass frame business model, selling eyeglasses on the internet by sending five frames to prospective clients to test for free and then return at no cost. Casper successfully took on mattress retailers by simplifying choices and offering free returns on their easily shippable mattresses.

Conventional retailer Mattress Company filed for bankruptcy late in 2018 as a consequence of Casper and other online DTC mattress manufacturers. Dollar Shave Club and Harry’s upended the razor industry. And Glossier is challenging traditional makeup brands with highly personalized products based on suggestions from clients.

Crowdfunding

In the last few years, venture capital companies often shifted startup investments from ecommerce businesses to software platforms. However in 2017 VCs invested $3.8 billion in online DTC startups, and in 2018 they spent about $5 billion, a rise of 32 percent, based on data from PitchBook, a research company.

Throughout the time that venture capital was scarce, consumer merchandise startups turned into crowdfunding to raise money, largely on Kickstarter and Indiegogo, two rewards-based portals. The products themselves were the most frequent reward. Successful increases — meaning the item was fabricated and delivered — supposed that startups needed to transition into a sales model, selling on a business site or via Facebook or Instagram.

In 2015 Indiegogo established InDemand, which enables successful crowdfunding campaigns (those who increase the total requested) to keep on the portal site and accept pre-orders of the goods. Indiegogo also partners with design companies and supply specialists so startups have access to expertise that can help them transition from campaign to a small business. This assistance can help companies prevent the manufacturing and shipping snafus that doomed many successful crowdfunding campaigns.

Furthermore, startups which crowdfund receive invaluable advice from donors concerning how the product could be improved. This feedback is important to the achievement of DTC businesses.

The success of consumer merchandise crowdfunding revealed venture capitalists that a healthy market exists for unique consumer products. They finally came around to financing DTC businesses which were meeting needs that conventional retailers ignored.

Success Factors

Now multiple DTC businesses have attained unicorn standing (a valuation of $1 billion). Among them are:

  • Allbirds, valued at $1.4 billion,
  • Away, valued at $1.4 billion,
  • Casper, valued at $1.1 billion,
  • Glossier, valued at $1.2 billion,
  • Harry’s, obtained by Edgewell Personal Care (owner of Schick) for $1.4 billion,
  • Dollar Shave Club, acquired by Unilever for $1 billion.

Seminar organizer CommerceNext states in its report,”How Leading Retailers and Direct-to-Consumer Brands Are Purchasing Digital,” that client data platforms which assist in personalization are vital to the achievement of DTC businesses. Seventy percent of DTC companies interviewed indicated that their 2019 budgets have increased for client information platforms, compared to 63 percent for conventional retailers.

Moreover, according to the CommerceNext report,”While 60 percent of ecommerce marketers surveyed have increased spending 2019 on personalization, DTC manufacturers are allocating more of their funding towards this technology. Heading to the 2019 holiday retail season, 67 percent of digital-first DTC brands surveyed have improved personalization budgets, compared to 58 percent of incumbent brands.”

Amazon

Another indication of the prevalence of DTC brands is that Amazon is wooing many of them, inviting them to Seattle headquarters for dinners, tours, and presents. According to a January 2019 post on Digiday, Amazon has provided brands monetary investments ranging from $500,000 to $1 million in exchange for sale on its Marketplace. Brands also have been promised free advertisements on Amazon and free inventory management through Fulfillment by Amazon.

Though some DTC manufacturers are already selling on the Amazon Marketplace, others are cautious. Amazon is known for copying successful products to Amazon private brands and then competing against those products with lower prices. Another objection is that Amazon won’t share client data, something crucial to the character of DTC businesses.

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