Every time you open Instagram, you're likely hit with an ad from a brand you've never heard of, showcasing a beautifully photographed product that's sold only online. Welcome to the age of "direct-to-consumer," or DTC--the name that's been assigned to the digitally native businesses that now dominate your social feeds and have replaced traditional brands in the closets and cupboards of your home. Lately, rumors have been swirling of DTC's demise, in press coverage of individual companies as well as the category at large. But I think these proclamations are missing the point, which is that these businesses aren't defined by their model, but by their values.
When we started our brand-development firm, Red Antler, in 2007, our vision was to partner with entrepreneurs to launch and grow businesses through the lens of the brand. From the start, we worked with many companies that were introducing new business models into the world of e-commerce: One Kings Lane, Birchbox, and Rent the Runway, to name a few. And then, in 2010, we observed as a little eyeglass business called Warby Parker came on the scene.
Warby Parker was one of the first of a new set of brands that launched specifically for e-commerce, brands that have since come to be known as direct-to-consumer. DTC was not a new business model, not in the technical sense. After all, many traditional retailers already sold "directly" to their consumers, rather than through wholesale partners. Gap, H&M, J.Crew--any brand that owns its own stores is technically DTC. (Over a century ago, catalog-driven Montgomery Ward and Sears, Roebuck & Company were also DTC.) However, a few key principles defined this new wave of startups, which have now been lumped together into one conversation:
1. A focus on value, with companies able to offer more for less because of the removal of middlemen (i.e., the entire wholesale infrastructure). For example, fashion brand Everlane debuted with an infographic comparing the cost of a traditional T-shirt, including all of its markups, with its own $15 style.
2. Stellar customer service. Warby Parker's "try at home" model is just one example of how DTC brands go out of their way to prove that they're on the customer's side, there to make life as easy and joyful as possible, and also to help people get over the barrier of buying something online that they're used to purchasing in a store.
3. Digital-first brand building that creates a world people want to be a part of. Delightful, intuitive websites, gorgeous social feeds, and clever storytelling all contribute to the deep affinity that consumers have for these brands, compared with their traditional counterparts.
As DTC businesses started to take off, our team met the founders of Casper. Casper set out to prove that selling directly to consumers was not just relevant for fashion or accessories, but could even be applied to mundane, high-ticket purchases like mattresses. Together, by building a brand consumers fell in love with, we transformed the dynamics of the category and inspired people to trust that they could buy a mattress online.
Soon after, we were seeing direct-to-consumer businesses in every category imaginable: toothbrushes, bras, underwear, housewares, sofas, contact lenses, candles, luggage, plants, socks, snacks, sneakers, suits, strollers, vitamins, even pharmaceuticals (whew).
Lately, these brands have garnered intense scrutiny as people have begun to question whether DTC businesses actually work:
"Their valuations are too high."
"The cost of acquiring their customers is expensive."
"Not profitable. Hemorrhaging money. Disaster. Imploding."
"All the brands look the same."
"Millennials! Who needs 'em!"
Whether you want to call it a backlash or a reckoning, the conversation around DTC includes facts that can't be disputed. A lot of these businesses are struggling on the path to profitability. It's only getting more expensive to acquire customers online. And many of them raised more money than they should have. But when people ask, "Is direct-to- consumer over?" I caution against lumping together every digitally native e-commerce business and assigning them a shared fate. Already, we're seeing many DTC businesses evolve beyond their initial offering and moving into additional product categories, physical retail, and even wholesale.
Even more important: Focusing solely on what these DTC brands are doing wrong ignores what they are doing right. The current landscape reminds me of what happened to the music industry right after everyone stopped buying albums in stores but before streaming services figured out how to make money. It's what happens whenever there's a major industry disruption. Amid all the negativity toward DTC businesses, have people been flooding into department stores and malls in the past year? Not so much.
That's because there's no turning back. Everyone now wants--no, demands--incredible customer service. Great design. Fair prices. Easy, breezy experiences. Any 21st-century consumer goods company needs to be fluent in the winning strategies of the DTC movement if it wants to succeed. There's a reason that businesses like Procter & Gamble are acquiring startups like DTC women's shaving brand Billie.
Traditional retail is being forced to respond to the threat of DTC by working harder to create better relationships with their consumers, whether through acquisition or evolution. And DTC businesses will continue to evolve as well. Investors are already pulling back, and valuations will become much more realistic (which is a good thing). But businesses with a genuine point of difference--businesses that are focused on their consumers and finding new ways to deliver value for them--will also find their way to making money, if they haven't already. After all, people need to buy their socks and dog food somewhere. The beautifully designed pastel box with the clever headline on its flaps has been opened, and we can't tape it shut.