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.
As summer comes to a close, e-commerce executives are already looking to Black Friday and beyond.
For many brands, holiday planning actually starts during the summer — but this year it began even earlier. Brian Berger, CEO of menswear brand Mack Weldon, said his company started planning for the holidays at the end of the first quarter this year. That’s three months earlier than Mack Weldon normally does.
Last holiday season, a record amount of people shopped online, which meant that carriers like UPS and FedEx were stretched thin. DTC brands struggled to have enough inventory to make it through the holiday season, and get goods to people on time.
This year, DTC brands are trying to get ahead of the problem by manufacturing and importing inventory further in advance — but the growing threat from the Delta variant threatens to throw a wrinkle in some of their contingency planning. It’s not the only challenge brands will face these holidays, as the digital marketing landscape has also been upended the last several months by some of Apple’s privacy-related changes.
While brands are in the thick of holiday planning, I interviewed four DTC startup CEOs about what is top of mind as they plan for a fourth quarter that is likely to be just as hectic as it was in 2020. Below are some highlights from their responses:
Everyone is trying to get ahead of port delays and container shortages: “The big challenge last [holiday season] was really related to the domestic part of the supply chain,” Berger said. As carriers like FedEx and USPS didn’t have enough capacity to deal with all of the e-commerce orders, some companies were hit with unexpected shipping limits. The expectation this year, Berger said, is that carriers will be better equipped to deal with e-commerce orders.
But still, when asked what their number one concern was headed into the holidays, all four CEOs responded that delays in the global supply chain heading into the holidays were their biggest concern. Specifically, the shortage of shipping containers, as well as ongoing delays at the Long Beach and Los Angeles Ports. After all, if companies can’t get enough products into the U.S. in time for the holidays, then that severely hampers their holiday sales goals.
The most obvious solution is to get products into the country well ahead of the fourth quarter — and many companies are already working on that. But importing all that extra inventory ahead of schedule brings with it its own extra costs. Kathrin Hamm, CEO of weighted blanket brand Bearaby, said that her company now has space at three warehouses, up from one last year.
“Last year was a balancing act,” Hamm said explaining that Bearaby was also hampered by the fact that its two suppliers — located in China and India respectively — were often shut down at opposite times due to rising cases in both countries. This year, she expects the balancing act to continue.
Rising coronavirus cases globally further threaten factory output: All the CEOs I spoke with said that they didn’t anticipate that a rise in coronavirus cases in the U.S. — caused mostly the Delta variant — would dramatically impact their operations. After all, many of these companies had to get used to working remotely last year.
But, the surge in coronavirus cases in the U.S. will likely force them to press pause on some activities they had hoped to resume. Bearaby’s Hamm said for example said that her company would now wait to return to the office until next year. Jordan Nathan, founder of cookware brand Caraway, said the recent spike made the company revisit some in-person marketing activations he had hoped to resume in the second half of the year.
But what’s happening globally is just as much of a concern as what is happening domestically — and if other countries continue to see a rise in coronavirus cases, it could further complicate holiday planning if key partners abroad have to temporarily close; port delays could be exacerbated, leading to more factory shutdowns.
Mack Weldon’s Berger, for example, said that while virtually none of the factories he worked with shut down — most of their factories are located throughout Southeast Asia “we are seeing factory closures all throughout Asia” this year.
Adjusting to a new marketing landscape: The coronavirus pandemic isn’t the only thing throwing a wrench in brands’ holiday plans. Brands also have to adjust to a new marketing landscape this holiday season. Namely, it will be the first holiday season since the iOS14 update has been in effect, which will hamper brands’ ability to target ads to customers on Facebook who have opted out of ad tracking.
Bearaby’s Hamm said that as the result of the iOS14 update, her chief growth officer was receiving more outreach than ever before from companies looking to collaborate on exclusive product or giveaways, as a more cost-effective way to reach new customers compared to Facebook advertising. It’s a trend she predicts will continue into the holidays.
And as is the case every holiday season, online marketing costs are expected to rise as more companies — and more traditional brick-and-mortar retails — advertise online to reach new customers.
“Competition for traffic online has never been greater as e-commerce has exploded over the last year. That is going to challenge a lot of business models built in a different time with a different set of unit economics,” Stu Landesberg, CEO of green cleaning purveyor Grove Collaborative, said in an email.
All the founders I spoke with emphasized that they believed their learnings from last year’s holiday season put them in a better position to survive the craziness this year.
“The most successful digitally native & e-commerce-based businesses this holiday season will be the ones that are nimble with constructing their digital experience and offerings,” said Caraway’s Nathan.
Supply chain woes, by the numbers
Talking to e-commerce founders about supply chains can feel a bit like a Groundhog Day scenario — supply chains are just as messed up as they were 18 months ago, and likely will be through the end of the year. What can be helpful, is looking at specific numbers to contextualize the problem.
Here are some interesting stats about supply chain challenges — and how brands are dealing with them — that recently caught my eye:
- At the end of July, 33 ships were waiting for a spot to open up at the Long Beach and Los Angeles ports –– ports that account for about one-third of all U.S. imports.
- Bigger brands are able to settle on more expensive solutions to ensure their inventory gets to the U.S. on time — Home Depot, the third-largest importer by sea freight in the U.S., according to some estimates, has now contracted its own cargo ships as a workaround to container shortages and port delays.
- Starbucks is buying green coffee 12 to 18 months in advance in order to get ahead of rising prices.
What I’m reading
- Business Insider rounded up the 14 beauty brands that have received the most VC funding, according to Pitchbook, and how they are trying to stand out in the crowded personal care space.
- Minimalist branding is infiltrating baby food and kids clothing brands, as startups target Generation Alpha, Vox’s The Goods reports.
- Direct-to-consumer backpack brand State Bags is launching an exclusive collection in Target, in time for the back-to-school shopping season.
What we’ve covered
- Ready-to-drink cocktail brands are ready for their moment in the spotlight. As hard seltzer sales slow, startups are hoping that customers will ditch their White Claws for a canned gin and tonic or tequila seltzer.
- A new crop of grocery startups including Fridge No More, Gorillas and Joker have flooded New York City, claiming to offer delivery in 15 minutes or less. But questions abound over whether or not super fast grocery delivery is sustainable in the long run.
- E-commerce startups like Poshmark and Verishop are testing out Snapchat mini apps.