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.
In the Georgetown neighborhood of Washington, D.C., M Street has long been home to upscale mall stalwarts like Nike, Lululemon and Sephora. But these days, you can’t walk more than a block without running into a new store from a formerly online-only fashion or apparel startup.
There’s more than a half-dozen DTC brands located along a half-mile strip on and around M Street including Rothy’s, Bonobos and Brilliant Earth.
This isn’t the only street that’s becoming increasingly crowded with the same DTC brands. On South Congress Avenue in Austin, brands like Everlane and Allbirds have stores a stone’s throw from each other. A similar phenomenon is playing out in Abbott Kinney in Los Angeles, 12 South in Nashville, and is starting to emerge in cities that are becoming increasingly popular for retail openings, like Dallas or Miami.
DTC brands — while they are reticent to acknowledge a herd mentality — are all flocking to the same retail strips. It’s a trend that’s likely to continue this year: buzzy brands ranging from Allbirds to Vuori have unveiled plans to ramp up their store count to more than one hundred within the next several years. However, changes in foot traffic largely caused by the pandemic have led some of these companies to rethink where their most sought-after retail locations are, with more DTC brands looking south as they seek to open more stores.
Soho used to be the go-to neighborhood for brands to open stores. For many, it was simply a matter of convenience — Warby Parker, for example opened its first store in Soho because its office was located in that neighborhood. And over the years, other DTC brands followed suit.
But the past two years of the pandemic has upended where people are spending their time. More people have decamped from New York and San Francisco in favor of the Sun Belt. Rebekah Kondrat, founder of consultancy Kondrat Retail, said she’s seeing less interest from brands in opening stores in Soho, as foot traffic from office workers and tourists has yet to return to what it was pre-pandemic.
Additionally, the bigger a startup gets, the more they want to become a nationally recognized brand. Hence the rush by some brands to open more stores in places like Dallas and Atlanta, once they’ve proven they can make it in New York or Los Angeles.
Sasha Koehn, co-founder of basics clothing brand Buck Mason said in an email that his company typically operates on a “hub and spoke” strategy when it comes to physical retail, or as he explained it: “opening multiple stores in market areas to maximize operational efficiency and provide a better experience for our guests.” This year, he said Buck Mason plans to open at least six new stores, with an emphasis on expanding Buck Mason’s presence on the East Coast and in the South. Openings are planned in Dallas’ NorthPark development, as well as in Houston’s Montrose and Washington, D.C. ‘s Georgetown neighborhood.
When these brands do start to expand outside of New York, they are often congregating toward the same shopping districts. The answer as to why is simple: the most important data point that brands have long considered when deciding whether or not to open stores is where the majority of their e-commerce shoppers are located. Matt Scanlan, co-founder of cashmere brand Nadaam, told Modern Retail in the fall that his company looked at customer sales data, in addition to social media activity, when deciding to open a recent store in Dallas, for example. “Dallas and Austin are both having a renaissance,” he said.
Because all of these startups are targeting a similar young and affluent customer, most of them have high concentrations of shoppers in similar parts of the country.
Take M Street — it’s a strip that’s desirable for DTC brands because it’s not too far from D.C.’s Georgetown neighborhood, and is already an established destination for shopping in the neighborhood thanks to the high concentration of other retail stores.
“We consider our neighbors when selecting locations, but we don’t desire to be in proximity to specific brands,” Koehn said. Buck Mason currently has 17 retail stores, including in popular locations like 12 South, Abbott Kinney, and South Congress.
Kondrat that while some of her clients do want to be in close proximity to other established DTC brands like Warby Parker and Everlane, it’s not so much that they view Warby Parker and Everlane as the most desirable brands ever — but rather, that they figure if these companies can succeed in a neighborhood, so can they. “These are recognizable brands that draw their same customers,” she said.
As more DTC brands look south when opening stores, there’s less of an established playbook for where to go. “[All of my clients] are kind of poking around Florida,” Kondrat said, but they are not all sold on one particular area — some are looking to Palm Beach, others to Miami, particularly in the Design District and Wynwood developments.
While retail traffic has yet to resume pre-pandemic patterns in some areas, Kondrat says she continues to field a lot of questions from uncertain founders about where they should be opening stores. And that in particular, media articles – like this one – about where startups are opening stores continue to prompt a lot of industry chatter.
A few weeks ago, she had a founder forward her an article about where DTC brands are opening stores, and asked her if they should be opening stores there too.
“They are trying to stay ahead of the curve, which is really hard to do because you’re trying to predict the future,” Kondrat said.
Disney turns to DTC brands to promote latest Pixar film
Pixar has partnered with some Asian-led food and beverage brands on limited-edition products to promote its upcoming film, Turning Red. The film, which is out on Disney+ on March 11, is Pixar’s first full-lenght film to feature a main character who is Asian.
Fly by Jing, which sells pantry staples like chili crisp and frozen dumplings, released a limited-edition lunchbox in honor of the film. Meanwhile, beverage brand Sanzo is releasing a limited-edition Lychee can on its website on March 1.
For Fly by Jing, it’s the brand’s first partnership with an entertainment conglomerate. “As a brand, we are constantly trying to challenge the expectations and assumptions that people may have about what an Asian food brand should or shouldn’t do—so we would love to do lots more collaborations like this across new media spaces, whether that be in music, fashion, or art,” the company’s founder, Jing Gao, said.
But it’s not the first time Disney and its various properties have worked with DTC brands in recent months. Sanzo, for example, released limited edition cans to promote recent Disney films Raya and the Last Dragon, as well as Marvel’s Shang-Chi and the Legend of the Ten Rings. Simu Liu, the lead actor in Shang-Chi, has since become an investor in Sanzo.
Sanzo founder Sandro Roco said that he first got connected to Disney and Pixar through his affiliation with Gold House, a nonprofit collective of Asian & Pacific Islander founders and creatives.
“[Gold House] serves as creative consultants now to every major studio that is releasing or is writing a film that touches on [related] cultural topics,” Roco said. “Disney especially approached them about, ‘hey we are looking to do more authentic activations with brands in your space,’ and that’s how we got the introduction to Disney.”
Roco said that in the first two weeks of the Shang-Chi partnership, Sanzo saw over a 6X increase in direct-to-consumer sales. But, he said “where we are seeing the real return on that investment is increased retailer and distributor interest.” At a time when there are more DTC food and beverage brands than ever before, a partnership with a huge entertainment company is a critical way for brands like Sanzo and Fly by Jing to stand out.
What I’m reading
- Coinbase wasn’t the only company to use QR codes during the Super Bowl. Rocket Mortgage’s ad featured a child actor wearing a shirt with a Stock X QR code, which took eagle-eyed viewers to a StockX page where they could bid on exclusive prizes.
- In case you missed it, Tonal ran its first-ever Super Bowl ad, featuring one of its investors Serena Williams. CNBC wrote about the strategy behind the ad.
- Customer acquisition jobs are hot right now, Business Insider reports, particularly as direct-to-consumer startups like Andie and Public Goods look for help navigating Apple’s recent privacy updates.
What we’ve covered
- Affirm’s revenue grew 77% year-over-year during its fiscal second quarter earnings, thanks in large part to expanded partnerships with Amazon and Shopify.
- Startups like Doe Lashes are collecting customer data through quizzes, particularly in light Apple’s recently privacy-focused updates and the death of the third-party cookie.
- Venture capital firm Interlace Ventures released a new database called Unbundled, which aims to demystify what tech vendors top e-commerce startups use to power their website.