Think about the first time you purchased furniture.
Chances are you trudged along in a warehouse or department store, making sense of store displays, and taking a decent amount of time out of your day to either arrange for the item to be delivered — at an astronomical cost — or rent a truck yourself to go pick it up, 12 weeks after the original order was placed.
Kabeer Chopra and Stephen Kuhl faced this exact problem when they were seeking out furniture for their apartment in business school. They had to select between an old furniture warehouse or inexpensive disposable furniture that would still need to be delivered to their doorstep.
This clunky, time-wasting shopping experience was once seen as table-stakes. Up-and-coming retailers mimicked it, department stores envied it, and customers were simply accustomed to it.
But the past decade in retail has seen a monumental shift — one in which the shopping experience is more tailored to what is convenient and easy for the consumer, rather than the retailer.
Kabeer and Stephen saw an opportunity to improve the way people purchased furniture. They created a modular product that could be made bigger or smaller depending on the size you wanted — and, better yet, consumers could have the pieces delivered directly to their doorstep.
This easy process of delivering a product directly to a consumer is relatively new to retail, with brands like Bonobos and Glossier making the first pivot into the distribution model in the mid-2010s.
Coined “direct-to-consumer” or DTC, this movement started first in easy-to-ship items like skincare, makeup, and fashion. Now, higher-priced and more complex items like smart home technology are also seeing success in the DTC space.
The overall landscape of online sales continues to grow — with nearly 14% of US total retail sales estimated to come from ecommerce channels by 2021.
This growing opportunity is the main reason why traditional brick-and-mortar retailers are starting to jump online — and for many, they take a DTC approach.
A direct-to-consumer model looks a little different depending on the brand, the consumers, and the area of the market they work with.
- Some incorporate marketplaces — like eBay and Amazon — into their channel mix.
- Some open up permanent or pop-up shops in brick-and-mortar locations.
- Some rely on brand partnerships to capture mutual audiences with like-minded retailers.
But one thing is certain: plenty of brands are seeing success and making headlines by using a direct-to-consumer model.
What is Direct-to-Consumer Retail?
Direct-to-consumer is defined as the promotion and sale of products directly from the creator or manufacturer to new customers — removing any intermediate channels like marketplaces, middlemen, brick-and-mortar stores, and third-party retailers.
Although DTC brands can be found in any vertical — from vehicles (Tesla), to airfare (LinearAir), all the way through to fertility tests (Modern Fertility), the DTC model is most commonly used in fashion, consumer goods, and houseware verticals.
With less reliance on third-parties, fewer contract negotiations, and less limitations on branding and fulfillment, the DTC model is an attractive avenue both for up-and-coming brands who need an easy entry into a market, as well as legacy brands who are eager to grow their online presence while also paying close attention to the customer journey.
How Do Brands Win With the DTC Model?
In February 2020, cornerstone DTC brand Brandless announced that they were ceasing operations.
Seen as one of the first headline-catching DTC brands, the announcement left many to question what exactly went wrong: was it their product diversification? Branding (or lack thereof?) Pricing? Lack of customer acquisition strategies? Or any combination of the above?
While the answer isn’t clear, one thing is: An increasing amount of brands choosing to use the direct-to-consumer strategy, paired with the legacy DTC brands entering a more seasoned and refined state of business, will inevitably fate the industry for a shakeout.
Many experts are predicting 2020 to be the year of acquisitions and closures in the DTC space. So what should brands do stay relevant in this age of increasing scrutiny and competition?
Get a headstart with these ideas.
1. Brand authenticity.
Many successful DTC brands are born out of mission-driven initiatives — it’s not just about high-quality products. These brands excel because of their distinct personalities — whether they’re focused on disrupting an industry like Glossier with skincare, are focused on sustainable initiatives like 4Ocean, or simply removing barriers to entry to products, like Ro for men’s health.
New industries like CBD are also primed for a direct-to-consumer approach because there is more room for experimentation.
Why does brand authenticity matter? Because consumers care about the interactions they have with brands. In a 2018 RetailMeNot survey, two-thirds of respondents said that brands should take a public stand on important social values.
There is more transparency in retail than ever before — and DTC brands are using every channel possible to communicate the in’s and out’s of their operations:
- How they’re giving back to the world through charitable or sustainable efforts,
- How they’re listening to and applying feedback from customers, and
- Giving real ahead-of-the-curve insight into product and location launches.
LARQ Water Bottles donates a portion of proceeds to 1% for the Planet. Source: LARQ Website
Brands are even speaking up when things go awry. The “Letter from the CEO” is becoming increasingly popular, and brands are using this outlet to let customers know about upcoming changes or past hiccups.
In an email to customers, Passion Planner remarks on how they’re improving their customer service experience.
Look at any direct-to-consumer brand, and you’re sure to find thoughtful ways of how they personalize the shopping experience for their customers.
There are two facets of personalization:
- Within the shopping experience, and
- Within the product experience.
In a personalized shopping experience, an ecommerce brand uses your previous shopping, search, and browsing history to tailor the way you navigate through their website. This could be as simple as prompting you to log into your account so that your order history, payment, and shipping details are pre-populated. Some brands – particularly those who use the DTC strategy – go even farther.
In a personalized product experience, the items offered by the shop can be personalized. This is becoming increasingly popular for gift-givers and tech enthusiasts who want a personal touch on their everyday carries.
For a tasty gift, BonBonBon shoppers can create a personalized box by picking the perfect flavors. Image source: BonBonBon website
LARQ water bottles can be personalized with names. Image source: LARQ website
3. Digital by design.
DTC businesses not only rely heavily on the digital ecosystem, but they were also born as digital natives, with social media and ecommerce coded into their brand.
Essential Label’s website has a section where you can shop directly from their Instagram posts.
4. Community and advocacy.
Humans are naturally social creatures. We need to belong to a social group, and DTC brands have put great emphasis on building and nurturing their own social communities and online fan base — either by consistently mentioning customer reviews, incorporating them into their marketing efforts, or developing product roadmaps based off of customer feedback.
An email from Hickies reminds readers of the positive reviews they’ve received.
5 Direct to Consumer Trends for 2020
2020 is slated to be an interesting year for direct-to-consumer brands. As more and more competitors enter the arena, DTC brands must find a way to differentiate — either by product diversification, acquisition, partnerships, or simply something new.
What are our predictions for direct-to-consumer brands in 2020? Keep an eye out for the following:
1. Subscription-based products.
We’ll be honest: this is less of a “trend” and more of a tried-and-true customer retention method. There are three main methods for subscription services in ecommerce, as outlined in this graphic from a McKinsey & Company report:
We continue to see more direct-to-consumer businesses incorporating subscriptions into their business model — either as the main product (like Birchbox, Blue Apron, and Stitch Fix) or as an additional offering.
In addition to off-the-shelf bottles and accessories, customers of OliveOilLovers can enroll in their Olive Oil of the Month Club for a special treat every month.
2. Opening brick-and-mortar stores.
Certain areas in tech hubs are becoming havens for DTC-turned-brick-and-mortar retailers.
Think Hudson Yards and The West Village in NYC — with brands like Everlane, Warby Parker, and Brooklinen lining the streets.
We even have a mini-DTC neighborhood in Austin, Texas — South Congress Ave.
Within a two block span, you’ll find TOMS, Marine Layer, Warby Parker, Kendra Scott, and Madewell, and soon-to-be Howler Bros and Jeni’s Ice Cream.
Image source: Curbed Austin
The intention behind this strategy is wise. Not only do you give more options to customers who want to purchase your products — you also open more opportunities to build communities with your customers. In these retail stores, DTC brands offer classes, workshops, and even farmers’ markets.
When there are a cluster of DTC brands in a certain area, it’s even better. You’re sharing foot traffic, and thus, customers.
4. Traditional retailers are moving to DTC (and vice versa).
In an effort to grab more market share and appeal to different types of customers, older and traditional retailers are either acquiring DTC brands or creating in-house brands that mirror the branding and strategy of DTC brands.
For example, take Target’s Good & Gather private label food and beverage brand. In addition to salsas, spices, and oatmeal, its sparkling water sits on the shelf as competition to trendy local seltzers and the market-leading LaCroix.
Image source: Target
On the other side of the store, Target’s Everspring brand of household cleaners and soaps line the shelves next to Mrs. Meyers.
Image source: Target
The design and aesthetic of these in-house labels mimics that of many direct-to-consumer brands: serif fonts, muted colors, crisp logos. These, alongside Target’s other in-house brands, are an attempt to appeal to consumers who are attracted to purchasing DTC brands.
If you can’t beat them, join them. A number of large legacy retailers are also sneaking into DTC-land by way of acquisition. Unilever made the first DTC-acquisition headlines by acquiring Dollar Shave Club in 2016.
5. DTC brands are pivoting into new categories.
Product diversification is one of the most common ways in which DTC brands are achieving greater success after launch.
Diversification mitigates risk in the event of an industry downturn and allows for an extra barrier against competition.
There are two diversification techniques often used by DTC brands:
- The brand expands personalization, color, and sizing options of existing products.
- The brand expands into completely different products.
A perfect example of product diversification is the brand Away — who recently rebranded from a “luggage” brand to a “travel” brand to encompass their product diversification.
The two founders — alumni from Warby Parker — started with one product, The Carry On, in November 2015. By October 2016, they introduced other sizes, including a larger version of The Carry On and standard-sized luggage.
In May 2019, Away raised an investment round with the purpose of expanding their products to include more than just luggage.
3 New Brands Using the DTC Ecommerce Model
Chances are you’ve heard of one of the marquee direct-to-consumer brands (think Allbirds, Glossier, Warby Parker, etc.), but almost on a daily basis, new and disrupting DTC brands are launching. Keep an eye out for these new names in 2020.
Built off of the idea that furniture should be practical, usable, and easy-to-build, Burrow brings a fresh look to the furniture industry.
With the tagline “the luxury couch for real life”, Burrow sells couches and other home decor for people who want quality furniture with the associated high-ticket price. Read more about the Burrow and BigCommerce story here.
2. Hyphen Sleep.
Image source: Hyphen Sleep website
One of many seemingly-endless DTC mattress companies like Casper and Leesa, Hyphen Sleep differentiates themselves with an innovative design made with ethically sourced materials.
Image source: Hyphen Sleep website
Image source: 4Ocean Website
4Ocean is an innovative bracelet company that pulls a pound of waste from the sea for every item purchased. In addition to one-off purchases, they use a subscription model for consumers who want to show long-term support.
Over the past several years, the direct-to-consumer landscape has shifted consumers’ attention from legacy retailers to nuanced, smaller shops.
While the competition in the DTC world continues to rise, brands now need to shape up and innovate or run the risk of falling into irrelevance.
As 2020 kicks off a new decade, the DTC space will certainly continue to evolve — perhaps more so than ever before. Expect a continued focus on customer experience, product diversification, and industry acquisitions and mergers.