In 2008, Melissa Mash, now the co-founder and CEO of handbag brand Dagne Dover, was managing Coach's wholesale e-commerce business, which consisted of selling through the websites of department stores like Macy's and Nordstrom. As the recession worsened, she got a crash course in what not to do during hard economic times. Mash said the biggest takeaways for her were, one, the dangers of offering deep discounting, and second, relying on wholesale retail partners to drive all of your sales, especially when they are hurting for revenue themselves.
People are staying home and they're buying things online. While platforms like Amazon and Walmart face bottlenecks due to surges in demand, smaller DTC players are seeing influxes of interest. Many of these brands offer higher-end pantry items, which more people are willing to splurge on in this new coronavirus reality.
A month ago, I was talking to the founder of a one-year-old direct-to-consumer startup who was out fundraising. The founder told me it was a weird time to be fundraising. The coronavirus outbreak was just starting in the U.S, and some investors were already starting to get hesitant about deploying capital. Additionally, many of the investors the founder was meeting with were looking for companies that could display a surefire path to profitability, but without sacrificing high growth rates. In the month since then, things have only gotten weirder. Months ago, steps that were being billed as smart and necessary in order for an e-commerce company to become profitable, like expanding wholesale partnerships and opening their retail stores, have now turned into logistical nightmares as most stores remain closed.
The reckoning was a while in coming. It just wasn't expected to come like this. After all, people on Twitter, that favorite platform of the direct-to-consumer startup community -- and plenty of articles on this site as well -- love to talk about one of a few things: If there's a direct-to-consumer ceiling; the best way to acquire customers, and the inevitable slowdown and burst of the DTC bubble as unprofitable businesses are due to run out of cash, with no investors left to fund them. And thanks to the coronavirus outbreak, that last one seems to have accelerated. "The coronavirus outbreak notwithstanding, there were a lot of issues that were spread out through the rest of the DTC ecosystem going into the first-quarter of this year," said Jeremy Cai, CEO of Italic, which sells luxury bedding and handbags. "I feel like we are settling into a new normal in many ways of being conservative," he said.
For one executive, like so many other business owners, the last week has been stressful -- and filled with spreadsheets. This person, who co-founded a growing consumer-facing digital startup, has spent the last week looking at his financials and trying to figure out if he qualifies for federal and state aid. Right now, he believes he can participate in at least three new programs that will give him cash in the six figures to keep his business afloat for the next few months, which has seen sales steeply decline over the last few weeks. He's spent the last week poring over tax documents, speaking with colleagues and trying to demystify what seem to be very obtusely-written rules. But like for so many, he's finding the new rules confusing and hard to navigate.
Brands are in uncharted territory as the age of coronavirus hurdles along. They have many questions and few empirical examples. As a result, a number of people and services are trying to rise the occasion and become the leaders of the DTC consulting space.
Before the coronavirus outbreak, Blue Apron was on life support. The meal kit company reported in February that it had 351,000 customers during the fourth quarter of 2019, down from more than a million at the height of its popularity, and has consistently failed to turn a profit in its nearly three years as a public company. CEO Linda Findley Kozlowski said the company was considering a menu of strategic options including a sale and raising additional capital. But in March, the company started seeing an unexpected uptick in demand, thanks to the coronavirus outbreak.
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As shoppers in the U.S. and Europe are spending more time in their homes thanks to shelter in place orders, apparel brands are seizing the opportunity by offering sales on items like loungewear and leggings, and marketing their products as essentials for people working at home. Everlane is hosting a sale this week where shoppers can get a discount if they buy two pairs of leggings or two sweatshirts. Universal Standard is having a mix and match sale where if customers buy three products from a selection of tank tops, t-shirts, and sweaters, they get 30% off. It's an easier lift for some companies than others.
As many states are continuing to order non-essential retail stores to stay closed, and shoppers tighten their wallets, startup founders are having to take a look at what costs they can cut to ensure their can keep their business running through the coronavirus outbreak. Many startups are cutting their digital advertising spend. Others are trying to renegotiate leases. Many founders are taking extreme pay cuts themselves, and asking their executive teams to as well. And, ultimately many of them are also having to layoff or furlough staff, or asking them to take unpaid leave as well. Modern Retail will be tracking the job and salary cuts announced by startups, by date of when they were first reported, in order to get a better sense of how the coronavirus outbreak will impact the burgeoning direct-to-consumer industry.
Many brands have relied on out of home ads, like subway takeovers, to diversify away from social and digital. But now that everyone is staying home, these businesses are being forced to rethink where best to reach audiences and how to message to them.
For the past couple of years, investors have been urging direct-to-consumer brands to rely less on digital advertising to acquire new customers. While they may be hesitant to admit it, many direct-to-consumer advertising brands are pulling back on their advertising spend on Facebook and Google as they anticipate shoppers will tighten their wallets in the coming months.
It seems like every day Amazon is changing the rules for its sellers. Some are seeing huge gains, others are seeing huge losses. What's clear, however, is that the platform has dramatically changed over the last few weeks and many brands feel left in the dark.
Some investors have speculated that the coronavirus could lead to a rise in sales for e-commerce startups, as more people shop online instead of visiting stores. But, that doesn't mean that these startups are completely in the clear. Direct-to-consumer startups, in their never-ending quest to acquire customers more cheaply, have been moving to open more stores in recent years. Others also rely on in-person events to reach new potential new customers.
Seventy-three percent of shoppers now use multiple channels to research and shop before making a purchase. And 90 percent expect consistent interactions across all of those channels.
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