It’s been a rough year for so-called direct-to-consumer brands, but building a direct relationship with customers is more important than ever before.
In just these past six months, Everlane sold to Shein in what was rumored to be a fire sale, while Allbirds pivoted to becoming an AI company.
But it’s worth noting that these two companies represent a certain class of prominent venture-backed DTC startups. They certainly don’t represent all DTC brands, or even those modern consumer brands that have built a close relationship with consumers.
In turn, on Wednesday afternoon, Glossy and Modern Retail reporters and editors gathered with Glossy+ and Modern Retail+ subscribers to discuss the future of DTC. Some highlights from the discussion, along with the full video of the presentation, are below, exclusively for Glossy+ and Modern Retail+ subscribers.
DTC is a state of mind
Modern Retail Executive Editor Anna Hensel argued that companies can still be considered DTC brands — even if they do most of their sales through third-party retailers like Target and Walmart — if they have built a close relationship with their customers.
The consumer landscape has changed since startups like Everlane and Allbirds first burst onto the scene. TikTok Shop, for example, is just a few years old.
In turn, she argued it no longer makes as much sense for brands to stay entirely DTC, unless they sell a custom product that is tricky to sell through other retailers, or they are really good at acting on customer feedback. The places that people discover new products are changing, and startups need to make sure they keep up with the times.
Rather, she believes that “a successful DTC brand today has a clear understanding of what the purpose of each channel is,” she said.
In turn, many of the audience questions during the town hall centered around what channels it made sense for startups to spend their time on, especially when it comes to customer acquisition.
One attendee wondered: If you had $100 to spend on advertising, should you spend it on TikTok, Meta, or Amazon?
How you collect and act upon customer feedback is also important
Glossy and Modern Retail Editor Jill Manoff said that she believes a successful DTC brand today is one that “listens to the customer for data and feedback to inform their next steps. I think they have a two-way dialogue with the customer where the customer feels accessible, the customer feels heard, so that they can best serve their customer. They have a strong brand, and they are very clear about who they are and what they stand for.”
She cited the example of Favorite Daughter, a fashion brand from sisters Sara and Erin Foster. During a recent podcast with serial brand-builder Emma Grede, Sara Foster “said something to the effect of, ‘I know the names of our top 20 spenders by name,'” Manoff recalled. “She’s very attuned to the customer data. If [someone] hasn’t bought something and they’re used to buying a pair of jeans every two months, [Favorite Daughter] will send them a gift.” It’s just one example of how much brand loyalty can be created by proving that you know your customer.
Product differentiation is what builds DTC brands today
Early DTC brands like Casper and Warby Parker found success because they took advantage of a marketing arbitrage. They acquired huge swaths of customers through Facebook advertising, at a time when it was a relatively untapped channel, and major retailers hadn’t yet caught on to advertising through social media.
However, that has since changed. Modern Retail Special Projects Editor Melissa Daniels argued that product differentiation is more important than ever if you want to build a brand with staying power.
“If you’re selling the same old, same old thing just in a pretty new packaging, that might not be enough anymore to make someone feel like it’s worth the premium,” she said, especially while consumers are on the hunt for value. She cited Tin Can, a startup that sells a modern version of a landline as one example of a company that has built customer loyalty and grown through word-of-mouth by selling a truly differentiated product.
Being strategic about wholesale partnerships
It’s tricky for brands today to build a 100% pure DTC brand that only sells through their own website and stores. Reformation, which recently went public, is probably one of the closest modern examples — the brand does 90% of its revenue through its DTC site.
So, brands have to be strategic about which wholesale partnerships they choose to pursue. If they pick the wrong wholesale partner, it can result in a lot of wasted resources. “I feel like a lot of the DTC or primarily DTC brands that I talk to that seem to be doing really well are all doing an integrated model,” Senior Fashion Reporter Danny Parisi said. “They have some sort of wholesale partnerships, they have a handful of other channels, but I think the common thread with a lot of the successful ones is they’re very strategic about them and they are often not very numerous. He cited the examples of Universal Standard, which now sells through Anthropologie, and Merjuri, which recently launched a big shop-in-shop in Nordstrom.
You can check out the full video below:
