Member Exclusive   //   September 7, 2021

DTC Briefing: Brands are trying to set expectations ahead of holiday inventory challenges

This is the latest installment of the DTC Briefing, a weekly Modern Retail+ column about the biggest challenges and trends facing the volatile direct-to-consumer startup world. More from the series →

This is the latest installment of the DTC Briefing, a weekly Modern Retail column about the biggest challenges and trends facing the volatile direct-to-consumer startup world. To receive it in your inbox every week, sign up here

Direct-to-consumer startups have now been grappling with manufacturing delays, increased prices of raw materials and astronomical costs for shipping containers for close to a year and a half now. And the challenges show no signs of subsiding.

As a result, more brands are getting frank with customers about their ongoing supply chain woes. Everlane, for example sent an email to customers in mid-August noting that it was experiencing ongoing inventory delays. In particular, the email called out the fact that an order of one of its best-selling pairs of pants is thirteen weeks delayed from its factory, and warned customers that it “expected the issue to continue for quite some time.” Misen, which sells high-end kitchen knives, raised prices on its products at the end of August, explaining the price increases to customers as necessary steps to “allow Misen to meet dramatically rising shipping and raw materials costs while maintaining the high level of product quality and customer experience we believe is necessary.”

Over the past year and a half, but particularly last holiday season, brands have had to constantly communicate with customers about which products are out of stock, and which ones are taking longer than expected to ship, due to unprecedented supply chain challenges. But as the holiday season gets closer and closer, brands are finding themselves in a crunch. If they don’t forewarn customers of any long wait times for particular items, or hold off on price increases until the last minute, the greater the risk is that customers choose to leave their items off of their holiday gift list.

As a result, brands and retailers are grappling with how and when to communicate these delays to customers — as well as fear that human behavior will win out, and people will still rely on last-minute shopping, despite the rampant delays.

Brands are dealing with nearly just as many supply chain setbacks this year compared to last year. “We did not expect the Delta variant to create such an impact on the capacity of factories and transport,” Everlane CEO Michael Preysman said in an email to Modern Retail.

Right now, there are a few key challenges contributing to the issue that all retail companies face right now. For starters, many factories around the world, particularly in Southeast Asia, are still having to occasionally shut down production, sometimes for weeks, due to spikes of coronavirus cases in their country. In the case of Everlane, one of its partner factories in Sri Lanka is currently shut down to government safety regulations.

When Everlane sent out the mid-August email warning customers about significant delays for certain products, Preysman said it was the first time during the pandemic that the company had communicated to customers about supply chain challenges in newsletter format. “But we have long shared information on the product pages of our website showing when an item is expected to be restocked and available again to the customer,” he added.

What’s more, the continued spike in online shopping means that more retailers are looking to manufacture — and ship — more goods out of the countries where their factories are located, leading to a bottleneck at ports. Matthew Hertz, co-founder of consulting firm Second Marathon, said that it’s now taking as long as two months just to book a shipping container to leave one of the main ports in China — and then from there, it takes another 3o to 45 days just to get to the United States.

As a result, many brands have already placed their orders for holiday inventory months ago, in order to ensure that it gets to its fulfillment centers in the United States ahead of the holidays — but even that may not be enough.

“The biggest issue we will face [during the holidays] is brands just not having sufficient or the right holiday inventory ahead of peak season sales,” said Hertz, whose firm works with brands like Lola and Haus among other e-commerce companies.

These bottlenecks at the factories and ports also mean that nearly every part of the manufacturing and shipping process is getting more expensive. As of July, the average cost to ship a 40-foot container had more than quadrupled compared to a year prior, while aluminum prices have risen nearly 70% since May 2020.

That, in turn is leading some brands, like Misen, to raise prices ahead of the holidays — the cost of its chef’s knife, for example increased from $65 to $75. (Misen did not respond to a request for additional comment from Modern Retail).

In some of the most extreme examples, some brands are also encouraging people to start their holiday shopping in September, as one Vermont-based bookstore told the Washington Post they were doing. Hertz is skeptical that consumers will heed warnings to start their holiday shopping earlier.

“If you are like me, come Labor Day, I don’t think of now as the time to purchase holiday gifts for friends, family and clients,” he said. “I think that’s the reality.”

That leaves most brands in a wait-and-see mode, trying to be as communicative with customers as possible about any upcoming shipping delays, and holding their breath that they have enough inventory come November and December.

“We expect to see timelines impacted for some time into the fall and holiday season. However, our team is doing everything possible to mitigate delays,” Preysman said. He added that one of the international denim factories it works with, Saitex, recently opened a factory in Los Angeles, “meaning we have less vulnerability to transportation delays in our denim collection.”

“We will continue to review further communications with our customers as the situation evolves,” Preysman added.

Another DTC darling is going public

Last week, we dove into Warby Parker’s newly-released S-1 — and what it meant for other DTC brands. Like clockwork, another brand joined the fray: Allbirds.

In Allbirds’ S-1, the shoe brand disclosed that while it made $219 million in revenue in 2020, it still recorded a loss. In fact, Allbirds has yet to hit profitability. It’s a problem that plagues most every scaling DTC brand.

There were a few interesting details about the company’s growth — one being the fact that even though Allbirds has nearly 30 stores, 89% of its sales happened online. That’s a pretty staggering statistic, especially compared to Warby Parker which saw 40% of its revenue come from store sales in 2020 (down from 65% the year before).

Allbirds still sees stores as a useful way to acquire customers. “Our stores serve as an effective and profitable source of new customer acquisition, increase awareness of our brand, and drive traffic to our digital platform,” the company wrote in its S-1. But the numbers posted show how even the most beloved growth strategies are no panacea.

What I’m reading

  • DTC footwear brand Rothy’s is doubling its retail footprint next year. The company currently has six stores, and has plans to open six more locations in 2022.
  • Supply chain woes are still impacting retailers and brands. Lands’ End CEO Jerome Griffith told CNBC that the holidays are going to be tough for the company simply because it will have difficulty getting its products onto shelves.
  • Footwear brand Hoka One One is testing out stores with two pop-ups in New York and Los Angeles. Up until now, the company has been online-only, but is now trying capture in-person demand,

What we’ve covered

  • A lot of brands are thinking about retail expansion, but some are forgoing the usual locations. Fashion brand Faherty, for example, has been focusing specifically on resort locales.
  • As the buy now pay later services boom continues, many of the platforms are trying to figure out new ways to monetize. Some of the big players, including Afterpay and Klarna, are building out advertising platforms.
  • Brunt Workwear is trying to become the next Carhartt. On the Modern Retail Podcast, founder Eric Girouard spoke about how he’s building his only brand and seeking out different types of customers.