Direct-to-consumer startups have been thinking for weeks about how and when they want to re-open their stores. But as the time has come to re-open stores in some states, no one has any better idea of what the right path forward is than they did six weeks ago.
Since launching in 2013, Derris has quickly become one of the go-to public relations agency for direct-to-consumer startups. Since then, its founders Jesse Derris and Matt Higgins have also parlayed the success of Derris into an investing arm. Derris and Higgins are the founders of a fund called Amity Supply, which launched in 2017 with an initial $10 million fund and primarily invests in startups pre-launch. Its portfolio companies include telemedicine brand Hims, and acne care brand Starface.
JCPenney already faced a tough road in re-opening its stores, as the company was struggling to grow sales even before the coronavirus. Now, it has another headache to contend with as it dukes it out with Sephora over its shops-in-shops.
As the coronavirus upends consumer behavior, it presents a double-edged sword for Shopify, which powers the e-commerce sites of more than 1 million merchants. As more shopping takes place online while stores are closed, the digitally-native companies that run on Shopify could be well positioned to capture a large portion of this spending. But first, Shopify needs to make sure that these e-commerce companies, many of whom also have stores, survive the enormous hit to their offline sales.
For many direct-to-consumer founders, it's been six weeks of extreme highs and lows -- some companies have recorded simultaneously some of their best and worst sales days within those same time periods. But even companies that have reported record sales haven't been immune from having to lay employees off. As a result, many DTC founders are finding themselves having to navigate situations that they never have been before, and are having to learn new ways of leading.
As more states are set to allow non-essential retail stores to re-open, one of their first orders of business will likely be figuring out how to get personal protective equipment, namely masks and gloves, for their store employees. But as the plight of essential retailers has shown, getting access to enough PPE for employees is no easy task.
Personal protective equipment like masks, gloves and face shields are in high demand. Many retail companies today see an opportunity in both donating PPE to medical groups who are running low on critical supplies, and sellng it to customers in need. At the beginning of April, direct-to-consumer footwear brand Rothy's announced that it was launching a group called the Open Innovation Coalition to help companies work together to solve the challenges they are facing in trying to manufacture this equipment.
Even before stores were forced to shut down to the coronavirus, shopping malls were struggling. In October, the number of vacancies at shopping malls reached an eight-year high, according to commercial real estate data analytics company Reis. Now, shoppers may be even less enthusiastic about visiting the mall than they were before the coronavirus. As a result, malls have to make a few key decisions in order to ensure that they survive the coming year.
In some ways, it's starting to feel like the early days of the direct-to-consumer boom all over again. A startup's website is once again its most important sales channel, as stores remain closed. Startups are having to operate with as small of a team as possible. And Facebook is once again a cheap place to advertise. Over the past couple of years, the constant refrain has been that DTC startups need to rely less on acquiring customers through Facebook. As more companies started advertising on the platform, Facebook advertising costs started to rise. Now, as more companies are dramatically slashing their advertising budgets in the wake of the coronavirus, Facebook is becoming less crowded.
Amazon's decision in March to temporarily stop accepting shipments of non-essential goods to its warehouses left many sellers in limbo. That presents a new opportunity for other marketplaces like eBay, Walmart, Target and Google to woo over dissatisfied sellers. Earlier this week, Google announced that it would be now making it free for merchants to sell their products on Google Shopping. Previously, merchants were charged on a cost-per-click basis.
All grocery stores are seeing a huge surge in sales right now. But for small and independent grocery store chains, who have struggled to remain competitive against increased investments in grocery by Walmart and Amazon, the chance to get their stores in front of new customers is proving to be an especially important lifeline. Mercato, a grocery delivery platform that focuses on small grocers and speciality food stores, said that it has seen a 5,000% spike in orders over the past month, and has been signing up anywhere from 30 to 50 new grocery stores for its platform each day. As such, that provides an opportunity for smaller grocery stores to win over shoppers who previously flocked to big-box chains, if they can provide a better experience for first-time shoppers.
As more people are considering trying telehealth for the first time, Ro is moving forward with marketing and product expansion plans to introduce its women's focused-brand, Rory to new customers. Last week, Rory ran its first-ever TV ad, and this week launched a new product offering, a customized prescription skincare treatment. Rob Schutz, chief growth officer at Ro, said that the company has been "shipping more product than ever before" over the last month. While he declined to share overall growth numbers for Ro, he said that Google search traffic across its three brands -- Roman, Rory and Zero -- was up 30% between March and April.
Right now, many brands and retailers are shying away from experimenting with new marketing channels, desperate to cut costs wherever possible while sales are down. But Levi's decided to move forward this month with a pre-planned test of running shoppable ads on TikTok, as it sees the platform as being an increasingly valuable way to connect with customers now, when many people are stuck inside and glued to apps like TikTok.
Right now, direct-to-consumer startups have to hope for the best but prepare for the worst, and nowhere is that more evident than within their brick-and-mortar divisions. Most of the executives I spoke with this week said that they don't anticipate being able to re-open their stores until the summer. "I think people are preparing models [in which stores] will open as early as July and as late as October," said Logan Langberg, principal at Imaginary Ventures, which has invested in Camp and Everlane. But it's absolutely critical that when stores re-open, DTC brands are ready.
Apparel retailers have a ticking time bomb on their hands while stores remain closed. They have to figure out how to move what will likely be an unprecedented level of excess inventory once stores re-open and beyond, while taking as little of a loss on it is possible.The challenge is two-fold: first, retailers have a huge amount of inventory in stores that they can't sell right now. That inventory also risks becoming more out of season the longer that store closures drag on. Second, because it's unclear just how much consumer demand there will be the rest of the year, retailers are also trying to figure out what's in the pipeline for the rest of the year that they can still cancel, so they don't risk being left with too much inventory in the fall and beyond.
Exclusively for Modern Retail+ members: Hear from Connie Matisse, Co-founder and CMO and Alex Matisse, Co-founder and CEO at East Fork Ceramics, on how to maintain brand loyalty during a time of tumult.Subscribe