Member Exclusive   //   July 5, 2022

DTC Briefing: How brands are navigating big-box distribution

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.

Increasingly, startups that launch direct-to-consumer are also starting to sell through big-box retailers. But simply getting into the doors of Target or Walmart isn’t enough to guarantee success.

“My friends in the industry told me you have to be ready, but it’s still overwhelming when you get [into big-box retailer],” Marta Cros, founder of skincare brand Apto told me. 

Founders of early-stage startups say there are many moving parts to ensuring success in wholesale partnerships, such as: working with a buyer, a retail broker and learning each retailer’s internal language and order cycles. Additionally, many startups come up with a playbook to complement their retail launches with digital marketing.

Put together, it’s all about making sure their products stand out on store shelves, should competitors come creeping in. 

Learning lessons with each new retail launch
Skincare brand Apto launched in 2019, and currently has partnerships with Walmart and Target, among other chain retailers. Previously, the brand had mainly worked with online marketplaces and subscription services like Ipsy.

Working with big-box retailers was a big learning curve, and Apto made “logistics mistakes” when launching its first product at Walmart last year. “It was a simple mislabeling that impacted our performance because we were out-of-stock in some stores and overstocked in others,” Cros said. Going forward “we’ve made sure our warehouse closely checks every palette to avoid these costly mistakes,” Cros said.

Because providing inventory to hundreds or thousands of stores, even the smallest mistakes — like in Apto’s case — can be costly. DTC dog food brand Jinx raised a $28 million Series A round to support wholesale distribution, among other initiatives. 

The brand made its Walmart debut in March, which was nine months in the making, according to founder Terri Rockovich. Rockovich explained that for bootstrapped startups, there is often a lot of cash tied up to the large orders that a retailer like Walmart places before a first sale is made; it also takes months for invoices to be processed following an order cycle

Upon securing the Walmart partnership, “we immediately hired a retail broker, TeamDirect, to help with everything from logistics to launch,” Rockovich said. “We also identified incremental partners to scale our supply chain and prepare our go-to-market strategy.” Lastly, the company also worked to “design, fabricate, fill, palletize and ship the entire product showcase so that all the store operators had to do was lift it from the shipper to the shelf.” 

After launching in Walmart in March, “we started to deploy our marketing efforts about four weeks post-launch,” Rockovich said, which consisted of a mix of digital marketing and press announcements. This was done to ensure that the brand’s first phase of store integrations were done before directing traffic to Jinx’s Walmart doors. 

Jinx is also taking advantage of Walmart’s in-house advertising resources: specifically, advertising through the Walmart connect platform and participating in Walmart’s live shopping program.

Solidifying logistics, then getting the right marketing in order
Similar to Jinx’s strategy, “targeting the right customers is important to be successful on the shelf,” Apto’s Cros said. Instead of driving customers to Target, Apto “wanted to focus on people who already shop there,” Cros said.

“We’ve done multiple activations through Target Circle, and those promotions do really well for us,” Cros said. The Target Circle campaigns, often facilitated by the brand’s broker, range from discounts on Apto bundles to other limited-time discounts for Target Circle members. The company has experimented with seasonal Target Circle deals since January.

Another recent example was a paid and social campaign aimed at moms who shop at Target. We focused on geo-targeted paid ads and collaborated with a variety of influencers and communities of unique women united by motherhood, such as ScaryMommy.

When a brand launches in big-box retailers, there’s a lot of work to be done to brand awareness. Laundry detergent maker Hex Performance has made wholesale distribution a big focus this year, entering retailers like  Dick’s Sporting Goods and Costco for the first time. And in May, Hex Performance expanded its full line at Target in over 500 national locations.

Hex Performance’s head of marketing, Christine Luongo said that once the new SKUs became available at Target, Hex Performance began tailoring brand awareness messaging to specifically mention Target, Luongo said. 

“The launch was just the beginning of our advertising,” Luongo said. “Now that we are on the shelf and ready to go, we’re leaning heavily into tactics like social media, influencer marketing, events and sampling, programmatic advertising and paid search.” The company plans to continue increasing these budgets and test what works to optimize Target sales. 

“We are not yet available in Targets nationwide, so the best part about utilizing these marketing channels is that we could overlay the ads with locations where we had distribution in Target,” she said. “It allowed us to really optimize our spending.”

Luongo said the brand has implemented a mix of Target deals through the end of 2022; they include Target circular placements, specific deals and offers for Circle members, as well as Hex’s own at-shelf price reductions. he company also plans to participate in Target’s digital marketing and influencer marketing campaigns down the road.

Knowing when to tap the retailer for support
Apto’s Cros said that it’s important to know when and how to use resources. “It’s such a complex system, and you’re often expected to have your following year’s strategy in place.” 

Being part of Target’s brand accelerator program in 2021 has become a vital forum, said Cros. That’s where the Cros goes to ask other alums, in a Slack channel, questions before contacting Apto’s Target buyer. 

“A lot of brokers are ex-Target people and will warn you about the best time to reach out to the company,” she said. “So I try to problem solve before going to my buyer – who is typically dealing with many other brands.” Realistically, some of the bigger brands are going to be prioritized, Cros said. “So it’s on us to bring value for the buyer – whether it’s through trends or offering vertical integration.” 

Measuring post-launch metrics is another important aspect of keeping products moving off the shelf. 

Hex first launched at Target with one SKU, the Antibacterial Fabric Protector, last summer. After a year of testing its performance, in May Target expanded Hex Performance’s SKUs to include the brand’s detergent in both scented and fragrance-free varieties. Now with the full line’s availability, Target has given the company specific sales goals for each SKU.

“Success will certainly be measured by reach,” Luongo said, but also by repeat purchase. “It’s one thing for a consumer to hear about the brand and give it a try, but another for them to become repeat purchasers of the brand and products.” 

Laying solid grounds for distribution, along with driving existing and new customers to stores, are the two pillars for big-box partnerships. 

“Nobody is going to be holding your hand,” Cros said. “But there is definitely a founder sentiment of not wanting to ‘die on the shelf.’” 

Cost-cutting continues to grip the e-commerce industry

As talk of a potential recession ramps up, more companies are cutting costs and laying off employees ahead of an anticipated downturn in consumer spending. So far, most of the layoff announcements over the past couple months have come from venture-backed technology startups that support e-commerce brands — think buy now, pay later startups and Shopify apps.

But, these layoffs may serve as a warning sign — these startups are cutting costs as they anticipate DTC startups may also be cutting costs. Here are some of the most recent cost-cutting measures from e-commerce and B-to-B startups that DTC brands should keep on their radar: 

  • Meta, the growth engine powering many DTC brands, isn’t making layoffs yet — but, the company is preparing for ‘fierce headwinds’ and slower growth in the second half of the year, according to an internal memo obtained by Reuters. Meta is cutting plans to hire engineers, with the belief that its headcount has gotten too bloated.”Realistically, there are probably a bunch of people at the company who shouldn’t be here,” Zuckerberg reportedly said in an internal Q&A with employees. “Part of my hope by raising expectations and having more aggressive goals, and just kind of turning up the heat a little bit, is that I think some of you might decide that this place isn’t for you, and that self-selection is OK with me.”
  • SMS marketing company Postscript laid off 43 employees or 19% of its headcount, last week. The news came as a surprise given that Postscript had just announced a $65 million Series C last in mid-June, but CEO Alex Beller said in a Twitter thread that that round was actually closed during the first quarter. “Since that time, the economic landscape has radically shifted. As we looked to the future, my cofounders and I came to the difficult decision that we needed to make some changes,” Beller wrote.
  • Sneaker marketplace StockX also laid off 8% of its workforce last week, as “macroeconomic challenges currently impacting our global economy continue to affect consumer behavior.”

— written by Anna Hensel

What I’m reading

  • Fortune has a deep dive on scrubs startup Figs, and how the company is plotting for its next phase of growth after going public last year.
  • Thingtesting looks at how direct-to-consumer furniture brands like Benchmade Modern and Allform have adapted to the supply chain crisis, as the furniture category has had some of the longest lead times throughout the pandemic.
  • Retail Brew has a round-up from four experts on where the future of sustainable materials is headed.

What we’ve covered

  • Subscriber exclusive: Lingerie startup Adore Me has spent the last year experimenting with livestream commerce, and found that it gets the best results broadcasting live shopping sessions on its own site — and then using that footage for content marketing later.
  • Hoka decided to focus on connected TV for its first-ever global advertising campaign.
  • How cookie dough brand Deux’s social media strategy helped it land wholesale deals with major retailers like Target and Walmart.