The future of DTC brands

Is the direct-to-consumer model dying? If you look at Allbirds’s recent stock stumble, it would seem like it.

Just a couple weeks ago, the footwear retailer reported a 47% dip in its shares and attributed the slow growth to its DTC channels, among other factors. In fact, its current revamp plan includes adding more wholesale partners.But Allbirds alone is not responsible for this seeming downfall of DTC. Retailers Nike and Adidas have also pulled back from DTC-focused strategies in favor of wholesale ones. Per David Schneidman, senior director at Alvarez & Marsal Consumer Retail Group, a key reason behind the market slowing down is the high cost per acquisition.

“With the current economic volatility, brands need to be tighter with their cash and their burn…it cannot be a place where you live and die because you will have to get into diversifying your revenue channels, particularly with wholesale and retail,” Schneidman told Retail Brew.Omnichannel is also something the aforementioned brands have relied on as a long-term strategy. But it wasn’t always like this. 

DTC’s origins

Once upon time, the industry had a rosier view of DTC brands, which started gaining traction around the early 2010s, with the likes of Everlane, Warby Parker, Casper, and Away leading the charge. Away, for instance, notched $12 million in sales during its first year after launch in 2016, subsequently turning that into $125 million in revenue by 2018. Likewise, California-based Everlane, which got its start in 2010 as a largely online company, has generated over $100 million in sales in its first six years.

The current state of DTC

Despite the recent hiccups, not all DTC brands are on a downward spiral. In fact Brooks, Steve Madden, and Under Armour, for example, have reported record sales numbers mainly due to their DTC businesses. Meanwhile, in its latest five-year strategic plan, Canada Goose has said it aims to generate 80% of its sales via its DTC channel by 2028. Point being, DTC is clearly an important component in the retail ecosystem but brands that have successfully utilized it know that it’s not the only component.

“The state of DTC was at its height years ago and then got a big boost again during the pandemic, and obviously, those digitally native brands and even e-commerce brands, have seen a little bit of a slower trend,” Schneidman explained. “Now, with everything opening up [after the] pandemic…retail wholesale specialty [which] has been around forever, is here to stay. So, finding a quality omnichannel approach to consumers is essential for sustainability.”

So, what’s next for DTC?

He added that incorporating this omnichannel strategy is especially important once the brand has established itself and wants to scale. But for newer brands, DTC may simply be a great starting point. “It will be very difficult for a new brand to immediately get shelf space, because shelf space is limited, so the best way to launch your brand is to ensure you have the right product, you have the right consumer, you have the right marketing like a product market fit,” Schneidman said. 

Schneidman, however, does not foresee DTC expanding as a channel in the near future, as money is tight when brands are starting out and driving profitability when it comes to consumer goods brands is “very important.” That means there are just going to be fewer brands trying to enter the market, and if they do, they will have those high cost per acquisition rates to deal with. Still, if as a brand you’re in it for the long run, Schneidman has one solid piece of advice: Don’t put all your eggs in one basket. Instead, diversify your channels.

“Because it drives unique penetration, lowers cost per acquisition, and attaching yourself to a retailer can help not only with sales, but with brand recognition,” he said.—JS