8 Ways DTC Retail Will Evolve During and After the Coronavirus Era

Haus founder Helena Price Hambrecht and 2PM founder Web Smith share their bold predictions for DTC's future.
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Francis Scialabba

· 6 min read

During the pandemic, DTC may as well stand for “due to coronavirus.”

In the short term, COVID-19 has leveled many DTC brands along with specialty mall retailers and local mom and pop shops. Like it did for the broader sector, the coronavirus revealed financial turmoil and unprepared supply chains lurking beneath DTC brands’ carefully curated images. Companies including Casper and Away have furloughed or laid off workers to conserve cash; Everlane employed rare discounts to move inventory; ThirdLove called off plans to open brick and mortar stores.

But there are some bright spots: DTC brands that sell CPG products are reporting a spike in sales, and brands are working together to produce PPE for medical workers. DTC is struggling, but there’s room for innovation.

With so much uncertainty now, we have to wonder: What does the future of DTC look like if and when the the pandemic eases? In a recent Retail Brew panel, we asked Helena Price Hambrecht, founder of Haus, and Web Smith, founder of 2PM, to weigh in.

Price Hambrecht and Smith shared bold predictions for the future of DTC retail every professional should be aware of. Read their biggest takeaways, or tune in to the entire panel, below.

1. Companies that own their supply chains will have the upper hand. The reason? They’ve got the flexibility to adapt to unexpected circumstances like, say, a global pandemic.

“[At Haus], we actually saw quite a bit of criticism from folks in the investor space or other direct to consumer founders because direct to consumer started with not owning supply chain as an advantage,” Price Hambrecht said. “For us, we decided to do it because it could make us more nimble and because we could be ready for some sort of supply chain curveball if it came our way. Obviously we didn’t know that would be a pandemic, but now that we’re here, we’re lucky that we’re not affected at all on the back end.”

The alternative, Smith said, has consequences. “There are companies that have no control over their supply chains at all. So, they’re missing out on shifts because they can’t get in touch with their one factory in Thailand. They’re dependent on outsourcing every aspect of their company’s operations to maintain this lean, front office, performance marketing approach to business, and then when mayhem starts they don’t have control.”

2. DTCs will hold off on brick and mortar expansion. For DTC brands, Smith called stores “a means to an end”—their primary function is directing traffic back to websites. In leaner times, they’re not a wise investment.

And legacy brands would do well to back off the bricks as well. “We’re over retailed by a factor of probably two, so we’re at 23.5 square feet per capita, Canada’s at 16, most of Europe’s at around 11 or 12, China’s at 2.8,” Smith added. “Building strategies around a direct to consumer-first business is probably the best route for a lot of legacy brands. And if not, they’re going to end up shuttering their stores.”

3. Paid is back, baby. Advertising costs across Facebook, Google, and the like have suddenly declined. If brands can take advantage, they should. “We’re seeing more efficiencies than we’ve ever seen around paid, and we don’t really pursue paid as a primary mode of growth,” Price Hambrecht said. “It’s weird because we were just talking about how the paid era was dead. If you can do the math and you can see return on your ad spend where you don’t lose money on it, then now’s the time to play around.”

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4. DTC won't give up on venture capital—but investors will be more selective. “Venture capital will still be quite interested in direct to consumer, [but] I think there’s going to be a lot of rethinking of what’s important in terms of an investment,” Price Hambrecht said. “There will be more scrutiny applied to true domain expertise that doesn’t mean going to Harvard Business School and coming up with a great idea in class. It’s true domain expertise: Having at least one founder that has either a deep family heritage in the industry or many, many years of deep work on the back end of the industry.”

As Smith noted, e-commerce hasn’t reached its peak yet, setting the stage for further investments: “I actually think that investment in direct to consumer will grow as people realize that we are relatively behind the curve as it relates to e-commerce, versus our global competitors.”

5. Restaurants may give rise to new CPG brands. Dining rooms across the country are closed now, but Price Hambrecht explained their recipes could be converted to products sold at Whole Foods or Target. “To me, that’s a whole new ecosystem that may come out of this, and I’m excited to see who will end up leading that charge and bringing these vendors together,” she said.

6. DTC won’t move down market. “Direct to consumer brands for now are more luxury than they are goods for the everyday human being and I think that’s not going to change anytime soon,” Smith said. “Everyone that uses e-commerce services, whether it’s from Amazon or Target or from your favorite direct to consumer brand, I think that we believe that it’s a natural thing to do. In reality, it’s a practice that’s almost exclusively for the upper-middle to upper-class societies of America.”

7. Customer loyalty will become an even greater priority. But there’s a catch: Loyalty hinges on the early interactions shoppers have with brands. “A lot of [LTV] just comes down to experience,” Smith explained. “When brands are trying to understand how LTV is going to change, as the times change, I think it will all boil down to the initial experience a company undergoes and distributes, and how much they can maintain those relationships over time.”

Case in point: the continued loyalty Price Hambrecht’s observed at Haus. “Our repeat behavior is very akin to a wine club, in that we have a high retention rate and our repeat buyer buys every three weeks. We launched subscriptions based on observations of that behavior. We haven’t pushed it at all during the pandemic, but we’re still seeing huge growth in subscription despite not pushing it,” she said.

8. DTCs still need good PR. But they need to be deliberate about generating it. “It's impossible to predict when and why a reporter may choose to write about your company, and it's about getting on their radar long before you're looking for coverage,” Price Hambrecht said.

“When the pandemic hit, we started seeing coverage in Vogue and GQ on roundups of where to buy alcohol online. The Washington Post covered our virtual happy hours. That said, these were relationships we were cultivating long prior to COVID, and it just happened that we fit into those narratives right now.”

Retail news that keeps industry pros in the know

Retail Brew delivers the latest retail industry news and insights surrounding marketing, DTC, and e-commerce to keep leaders and decision-makers up to date.