DTC 2.0: Why Stores Matter

Store interior
Photo Credit: Unknown Author (CC BY-SA)

When I first started investing in DTC startups over five years ago, most were following the classic DTC playbook – once they developed their product, they would add social content, get SEO right through blog content and site design, collect emails and launch drip campaigns, and, most importantly, pump some money into paid acquisition (back then it was mostly on Facebook or Adwords). Some would also use press to great advantage. Back then, the market for new brands wasn’t that crowded yet, so brands could count on the playbook to build their customer base and revenues.

Today I’m seeing a customer acquisition landscape that is very different for new young brands. First, there’s a huge proliferation of brands in almost every category – just as an example, in the last six months, I’ve received pitches for pre-seed funding for six different new towel and/or sheet brands – in a market that already boasts well-known, well-funded startups including Parachute, Brooklinen and Boll & Branch (not to mention a dizzying array of incumbent brands). And that’s just in a single home textile category.

Therefore there’s more competition for the same customer, especially for those DTC brands that are targeting urban millennial women. As a result, online customer acquisition costs are going up for brands – brands now need to spend more and more on acquiring the customer online because they are competing with their peers (and in many cases more well-funded peers). As a result, many startups are now also having to raise more money in early funding rounds to be able to spend more online for customer acquisition. But I don’t believe this is sustainable for most companies.

What is the solution? I believe that there can be many solutions, but in my mind, offline strategies are absolutely critical – stores, wholesale or other forms of physical retail. Today, I’m seeing DTC startups opening up their own stores or pop-ups, utilizing wholesale or consignment sales to existing brick and mortar retailers and creating offline partnerships and events – all from very early on. And even using that physical presence to create community. A couple great examples of companies who used these strategies early in their evolution are Hatch and Stantt.*

One more trend to note that could become part of the solution for many early stage brands are the new platforms in physical retail, like the bricks & mortar marketplaces Showfields and Neighborhood Goods that bring together a curated set of young DTC brands, thereby providing offline exposure to customers that are expensive to target online.

Today, I believe that the most successful early stage DTC startups will be the ones that are opening up their own stores or pop-ups, utilizing wholesale or consignment sales to existing brick and mortar retailers and creating offline partnerships and events – all from very early on. Those are the kinds of “DTC” startups I’ll be betting on.

*Full disclosure: I am an investor in Stantt.

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