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.
DTC alcohol has been slower to take off than other products, but this surge in pandemic can help it change customer habits for good. Winc president Brian Smith tells us how they're going about accelerating it.
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.
Running a new direct to consumer brand is challenging enough, but doing it during pandemic-related economic uncertainty comes with a new set of obstacles. Shapermint, the brand that sells shapewear, generated $150 million in revenue since its 2018 launch with an operation of an international, remote team. The company initially saw some drop in sales, but has pivoted content and marketing quickly to try make the most of the current situation. Modern Retail talked to co-founder and CMO Massimiliano Tirocchi about pivoting to be about "at-home" shapewear, taking advantage of cheaper ad rates, and managing employee burnout.
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.
Rhone CEO Nate Checketts said his company "saw the writing on the wall really quickly" in the early days of the coronavirus pandemic. "In some cases it might act as a clearing house to get non-serious players out, and that will present some opportunities," he said on the Modern Retail Podcast.
Like any retailer, Rhone is feeling the pinch from forced store closures in the time of coronavirus. But they're being deliberate about how they communicate with customers subscribed to their newsletter.
People don’t think of co-working spaces as operations for physical products, but all our fulfillment is done out of our office, where we have expensive equipment for custom label printing. Our teammate from California was feeling uncomfortable being in New York and went back home, and I wanted to support him on that. The timing also coincided with our other teammate leaving to have surgery, so now it’s just me, our full time head of engineering and a few part time employees.
As brands struggle to stay afloat in light of the coronavirus's spread, what the DTC industry will look like is a big question mark. Big brands will likely adopt DTC-like tendencies, and small startups will probably die. The one thing that's for sure is that earlier doomsday predictions have rapidly accelerated.
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.
"With everyone staying home, it’s actually been good for the puzzle business."
Advertisers, from DTCs scrapping for share in a crackling at-home beauty market to seasoned retailers leaning into the quarantined consumer’s e-commerce surge, what’s changing about your campaign KPIs? How are you using data to make choices and effectively budget across channels? What’s working, what’s broken and how will you fix it? Take this survey and get the full results plus a $5 Starbucks gift card.
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