Welcome to the DTC Briefing, a weekly feature for Modern Retail+ members that goes deep into the world of direct-to-consumer brands. The DTC Briefing will look at what topics are most top of mind for people who work at direct-to-consumer startups, and what challenges these brands face as they seek to scale.
As the number of direct-to-consumer brands are growing, so too are the number of direct-to-consumer focused marketplaces.
There’s The Verticale, which launched a “mission-driven” marketplace in November, and features startups in clothing, accessories, beauty and home goods. The following month The Fascination, a combination marketplace and reviews site also launched, led by early employees of DTC mattress brand Leesa Sleep.
These sites are trying to solve what a two-fold problem that is constantly plaguing DTC brands: it’s getting harder for customers to discover new brands; meanwhile, it’s also hard for brands to acquire customers because of how crowded the e-commerce space is getting. Other sites that have launched within the past couple of years to solve some of these challenges include Verishop, which is a marketplace, and reviews site ThingTesting.
But what makes sites like The Verticale and The Fascination different is they’re trying to be both a marketplace, which means that customers can buy products from featured brands directly from their sites, and a reviews site. The Verticale, for example first launched its editorial site a year about a prior to launching its marketplace, with articles like “men’s jackets to welcome spring.” Other companies have pursued a hybrid marketplace-editorial model like Hodinkee or Food52, but they typically focus on one vertical like watches or kitchen goods.
The founders of these types of sites — many of whom previously held marketing or PR roles in retail — say that they’re trying to solve issues for both consumers and brands. But at least early on, they are better designed to help brands tell their story, rather than to help customers figure out, for example, which of the dozens of swimsuit brands out there is best.
The Verticale CEO Jaclyn Grauman said she and her co-founder Michelle Silverstein decided to launch The Verticale because “there’s just entirely too much burden right on the consumer to navigate across product categories.” And, when she thought about what types of companies are most interesting to her personally, it’s the ones “that stand for something.” So, on The Verticale, brands have to meet the approved standards for one of the site’s 10 values. These values include criteria like ethical production or promoting women’s empowerment.
The Fascination co-founder Matt Hayes said he and his partner on the site, former Leesa co-founder and CEO David Wolfe, were inspired to start The Fascination because they saw at Leesa how much reviews could make or break a DTC business. Brands apply to be featured on The Fascination — if approved, they are given their own pages that delves into “the science” and “the soul” behind the company and the product. Brands may also be featured in a roundup or product review. Right now, all of the products featured on The Fascination link out to the brand’s site, and The Fascination earns a commission on any purchase. But longterm, the goal is to turn the site into a marketplace.
To brands, the appeal of these sites is clear: it’s yet another way to get their name out, in the form of articles that delve into what they believe really makes them different from other companies. Many of today’s startups often find now that customers won’t buy from a new company just after seeing a Facebook ad. They also might want to read about them in a publication like the Strategist, or see them featured by one of their favorite influencers.
“We live in a day in an age where oftentimes consumers need three, four, five, six touchpoints before they ultimately convert,” Matt Mullenax, CEO of men’s skincare brand Huron, told Modern Retail. Huron is currently featured on both The Fascination and the Verticale’s site right now.
These sites are also targeting the same type of consumer: people who might not be familiar with the term direct-to-consumer, but have probably bought from brands like Rothy’s or Allbirds before — as well as those who say they want to support sustainable or women-owned brands.
What customers won’t find on sites like The Verticale and The Fascination is horror stories about shipping nightmares or defective products.
“If there’s a product that we’re sent to try that just doesn’t meet our standards we’re not going to put it on The Fascination,” said Hayes, though he said the company’s approach is still evolving. “And we’re not going to write just an outwardly negative product review about them.”
And that gets at the heart of what’s driving sites like The Verticale and The Fascination: ultimately, while it can be difficult for consumers to wade through the number from DTC startups, the biggest impetus driving these sites is that brands need more ways to gain brand recognition.
3 questions with Kyle Widrick, co-founder and CEO at Win Brands Group
This week, direct-to-consumer holding company Win Brands Group announced that it is acquiring weighted blanket brand Gravity. Win Brands Group, which also owns startups Homesick and Qalo, has raised $50 million to go out and acquire more e-commerce businesses. Kyle Widrick, co-founder and CEO at Win Brands Group spoke with Modern Retail about what his firm will be looking for as they go out to acquire new businesses, mostly in the home, wellness and sporting goods categories.
What criteria do you have when acquiring business?
We look at businesses doing between 5 and $50 million in revenue is our target. The reason we start at $5 million is really to feel comfortable that they’ve shown us that proof of concept, that product market fit, and that gives us the ability to come in and better expand. And then our focus is really growing the business across three primary channels: First the direct business, which most of the businesses we partner with are strong in already. Second, is Amazon. And then third is in big-box retail.
Because of the pandemic there being such a huge increase in e-commerce sales — did that fuel you to go find more brands to acquire, or are you finding more people are expressing interest in acquiring e-commerce startups?
I would say it has accelerated the inbound leads that we are getting. And I think the main reason for that is regardless of whether things are going well, or things have slowed a bit, the business of operating these DTC or direct commerce companies, has gotten so much more complicated over the last two, three four years. So even as these companies are scaling, there’s constantly new things to know, constantly new bodies that you really should be adding to your team. So we believe the proposition of having this shared platform and having this shared team, is a great offering for most DTC brands or e-commerce brands in the space, and as we continue to partner with more great brands like Gravity, it just continues to get the awareness up that perhaps we could be a great partner for them.
What do you mean when you say the business of operating these DTC brands has gotten a lot more challenging?
I think of [something like] 3PL shipping logistics — it’s on the surface, something that’s pretty simple. Choose a warehouse, ship your products, ship them on time. But in reality you are shipping e-commerce goods, you are shipping goods to retail partners, you are shipping goods to Amazon, you may have some level of customization that you add to your products like we do at Homesick. So it can become quite complicated. And if you are a founder that has a very small team around you, these things to know start to compound.
What I’m reading
- Rent the Runway co-founder Jenny Fleiss has joined growth equity Volition Capital, after previously running Walmart’s now-defunct personal shopping service, Jetblack. In this Fast Company interview, Fleiss spoke about her time at Walmart, how she thinks Covid has impacted retail, and what types of businesses she’s looking to invest in.
- Direct-to-consumer startups have gotten Facebook ads rejected before for all sorts of bizarre reasons, but here’s one issue I hadn’t heard of before. The New York Times reports fashion brands that sell clothing for people with disabilities have gotten their ads rejected for promoting “medical and health care products and services, against Facebook’s policies.
- As buy now, pay later services become more popular, some people are rushing into using the service without reading the fine print. In a survey commissioned by Reuters and Credit Karma, they found that of 1,038 respondents, 42% had used buy now, pay later services before. Of those, nearly 40% have missed at least one payment.
What we’ve covered
- EatOkra has been building a directory for Black-owned businesses since 2016, but this year hit some important milestones. Its visibility rose thanks to an integration with Apple Maps, and the number of Black businesses listed on the service jumped from 3,000 to 6,700. Long-term, the EatOkra hopes to evolve into more of a marketplace.
- What happens after your product goes viral on TikTok? Modern Gourmet Foods sells a hot chocolate bomb that was the centerpiece in many TikToks last fall, and is expected to do $50 million in revenue this year. CEO Boaz Shonfield said the company is now using TikTok to inform future product launches.
- Crate and Barrel seems to be the new go-to retailer for direct-to-consumer startups in the home goods space. Cookware startup Caraway is the latest company to launch an exclusive collection with the retailer (which already sold out on Crate and Barrel’s website).