The Challenges Facing Direct-To-Consumer Companies Now
It’s clear now that the decade from 2010 to 2020 was a golden age for the direct-to-consumer (DTC) business. When brands started selling directly from their websites for less than traditional retailers, it was a win-win for both the brands and consumers. The adoption of smartphones, online shopping and the low cost of reaching consumers via social media supercharged the trend.
It was also a good example of something we’ve seen many times: a new mode of doing business is created and investors overreact. So many DTC companies that never had a viable business model raised and spent tens of millions of dollars.
DTC businesses that are now successful have either loyal customers or a unique way to reach consumers that avoids the cost of social media marketing which has skyrocketed.
For every other DTC company, the question is: what do we do now?
Quo vadis DTC? (Or, Where Are You Going Now?)
Frank Berman, EVP and Chief Marketing Officer at Bloomingdale’s, put it well when he told me, “it’s not that DTC has been disproven, it’s that its future was never what they said. Being where the consumer is was always the only place to be.”
That means selling online isn’t enough, brands still need good old fashioned stores if they want to sell stuff.
Although department stores are not currently considered the cutting edge of retail, their recent performance demonstrates their endurance. Berman’s boss, Bloomingdale’s CEO Tony Spring, made the case to me that, department stores allow consumers to “compare and contrast” products and “validate pricing with comparison shopping” as well as offer a “sense of discovery.”
Lynn Power, CEO and Founder of hair brand Masami, told me at the Innocos Biohacking conference in San Diego that she calls her company’s strategy “DTC-Plus.” Aside from its website, Masami now has a store where it sells its own products alongside other brands whose core values are similar.
Todd Andrews, CEO of bamboo-based athletic apparel brand tasc Performance, told me tasc opened three stores of its own in New Orleans, Houston and Birmingham. Like many other brands, tasc found that the online DTC business in the areas around its stores way outperforms areas with no stores. Both the online business and the stores reinforce each other.
Roy Bernheim, Co-Founder of Decommerce, says brands need to “own and host their own community” to be successful in DTC and his company provides the software tools for community-building. Bernheim says building a proprietary community allows brands to reduce the cost of social media and customer acquisition, communicate with its audience, increase repeat orders and collect data and insights on consumers’ behavior, all of which are necessary for long-term brand sustainability.
The Underpinning of Brands
Daniel Langer, author, professor (NYU and Pepperdine) and CEO of Equite, an advisor to luxury brands including Moet-Hennessy, Ferrari, Ralph Lauren, Richemont and others, also presented at the Innocos Biohacking conference. He said that selling to consumers is not about the channel, it’s about the story.
Langer explains that in a generation, brands have gone from being manufacturers to being retailers, publishers, platforms for connections (like Decommerce above) and ultimately, socio-cultural actors.
The most important thing brands can do, Langer says, is to tell their story in a unique way. Many brands say, “we sell a dream,” and Langer asks, “Which dream? Because your competitors are also selling a dream.” He points out that “many hotels say they are selling ‘paradise’ but so do their competitors.” Taglines become cliches if they do not offer a vision and identity that’s not unique.
DTC was never a story, or a dream, or a business. It’s a channel and as channels go, it’s a good channel, sometimes a great one, but the idea of DTC as a strategy was always a distraction.
Langer says the questions brands need to ask are:
What do we really sell?
Which emotion do we evoke?
How can we make our customers feel differently?
When brands can tell a real and affecting story about meaning and personal values, consumers are moved and that’s what they’re looking for now. It makes consumers buy, come back again, pay full price and tell their friends.
Brands often ask me, “what do I have to do to have a unique voice”? But there’s no pattern to it, if it’s copied it’s a lot less interesting.
The brands that had real success in DTC were doing what brands always did, making consumers feel good. The channel they were on was coincidentally in vogue at the time.
Creating a brand today is so much harder than ever before. The world now is noisier and more crowded with competitors.
Brands that were successful selling direct to consumers online are now opening stores and with good reason: that’s where the customers are.
It was never about the channel, that was just a moment in time. It was always about the message, the product, the belonging and the values. And that’s where brands, DTC and otherwise, are going.