Before the coronavirus, opening more brick and mortar stores was a surefire way for DTC brands to acquire customers more profitably. Now, that calculus is changing.
Retail workers, especially in grocery and delivery, were lauded for being on the frontlines when the coronavirus outbreak first began. But the treatment of these often-exploited employees hasn’t always matched brands’ sentimental commercials, says one worker.
Shopify has a bevy of competitors, like Magento, WooCommerce, Salesforce, Microsoft Amazon and BigCommerce, which just filed to go public this week. But no one company yet has emerged as the biggest threat to Shopify's position as the go-to e-commerce platform for DTC brands. Shopify's dominance says a lot not just about the state of other e-commerce platforms, but also about the state of DTC brands.
Long before Covid-19 hit, the industry had been grappling with the so-called retail apocalypse. Now that the pandemic has exposed many of the supply chain’s weak points, brands are rushing to pivot their strategy to survive.
After months of Instagram posts about how "we're all in this together," and turning their factories into production centers for masks, direct-to-consumer brands are finally starting to return to business as usual. That's particularly evident by the number of new startups entering the market. But they playbook they're following is rapidly changing.
Despite experiencing unprecedented sales declines, some retailers are still willing to open their wallets. At least, Lululemon proved it was when the athleisure brand announced last week that it was acquiring Mirror, a connected fitness startup that it had previously acquired, for $500 million. The news was largely celebrated as a "win" for the direct-to-consumer community. But it may also gives some startups a sense of false hope.
At-home fitness has been having a moment particularly over the past few months, and startup Mirror was able to cash in big on it. On Monday, Lululemon announced that it was acquiring the connected fitness company for $500 million. Mirror had raised $72 million to-date, and is projecting over $100 million in revenue this year. "I think this should be considered one of the big wins in the direct-to-consumer space," said Web Smith, founder of e-commerce newsletter and website 2pm Inc.
Direct-to-consumer startup founders have found themselves in a number of unprecedented situations over the past three months -- from having to keep their company afloat while stores were closed to having employees confront them about racism within the company. Many of these same startups have also found themselves in hot water for how they responded to these situations. The issue at hand is simple: customers feel like these companies aren't practicing what they preach.
United Sodas of America unveiled its line of 12 flavors of low-calorie soda last May, which came after two years of development. At the most recent Modern Retail+ Talk, co-founder and CEO Marisa Zupan said the compant surpassed forecast sales by 5x over the past month. “Learning about people’s behavior at their delivery preference was valuable during this period,” she said.
While the first generation of DTC brands waited years to launch retail stores to build up their online business, newer DTC brands have been much more eager to launch stores within their first couple of years in business. Many of them are now cutting back on the number of stores they had planned to open in the next year or two. But they are also rethinking what it will take to get their customers to come to their stores, and where their customer will be.
Over the past two weeks, there's been a flood of direct-to-consumer startups issuing statements about steps they will take to better support the black community, and build more diverse companies. But venture capitalists have remained largely quiet. "People are scared -- even though they want to do the right thing, they're worried that people are going to inevitably drag them down with, 'well look at your website,'" said one consumer investor.
At this week's Modern Retail+ Talk Saucey founder and CEO Chris Vaughn spoke about how the company, which launched in 2014, has grown and evolved its philosophy on working with brands. In the early days, the platform tried to find any big name in alcohol that would work with it. Today, the service is available in 40 different markets around the United States and finds itself sometimes turning down campaigns.
Running a radical, mission-driven brand can be tricky. East Fork Pottery's Connie Matisse explained at this week's Modern Retail+ Talk the need to integrate values throughout business decision, and why "not everyone needs to be your customers." Consistently defining your company and what you stand for is integral in finding and retaining customers, she said.
DTC startups have responded to events of the past week in a couple of ways. The first is by affirming their support for Black Lives Matter on social media, and pledging to fight against systemic injustice. Some brands followed that with pledges to donate to organizations like the NAACP Legal Defense and Educational Fund and the National Movement for Black Lives Matter. Now, the focus needs to shift to building diverse companies.
Running different channels requires skills and discipline. Brand consistency is key, especially when many channels are involved internationally and across different touch points. Ask “what are the reasons to come to the site and why is the experience special?” said Ugly Drinks CEO Hugh Thomas.
With in-person sales largely out of the picture this holiday season, brands must adapt to deliver the frictionless experiences that online consumers expect and demand.
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