The last decade generated a new category of digital-first, direct-to-consumer businesses that upended how consumer goods were created, priced, marketed, and sold. My company, Mack Weldon, is one of them. Brands like ours have touched nearly every consumer category from cooking pans to mattresses (and yes, even men’s underwear).
This generation of disruptive brands has been propelled by emergent social media, access to capital, and generational shifts in shopping habits and brand perception. It has been the decade of direct-to-consumer.
Then the coronavirus crisis arrived.
While digitally-born and e-commerce-driven businesses are among the best equipped to survive this crisis, the catalysts that drove the DTC boom have changed. The assumptions made about the market, as little as five months ago, are no longer true.
What does the business landscape look like in the era after the pandemic? Here are four things you should hesitate to assume about DTC businesses.
A new outlook toward brick-and-mortar
DTC brands left their digital perches and started opening stores in the last few years. It was a boon both to brands looking to expand their reach and to landlords who were keen to place relevant tenants in their projects. This will all change.
Brands—whether legacy or digital—will be more cautious about when and where they open up doors. We at Mack Weldon opened our first shop last year at the Hudson Yards mall in New York City and had plans to expand through directly-operated stores and third-party partnerships.
Now, we’re looking harder at those plans. How will consumers respond to physical retail when the pandemic recedes and how permanent will those changes be? We’re being careful, but we also realize there will be timely opportunities for leases and new, more flexible formats in desirable locations.
Easy money to launch and expand
The DTC boom was largely driven by access to capital. Venture capital and private equity money fueled the formation and expansion of scores of new brands. According to data from CB Insights, consumer brands have raised more than $3 billion since 2012, and about half of that money was raised in 2018 alone.
But recent market trends and the pandemic have pulled the plug on easy money. High-profile flameouts, including WeWork and Brandless, coupled with an increasingly more expensive digital advertising landscape, changed the calculus for investors. Can new brands make enough noise in a competitive market? Can existing brands find both scale and profitability in this new environment?
Going forward, investors will be more circumspect about opportunities, valuations will come down to earth, and marketing and distribution strategies will be scrutinized. Financing will still find its way to high-quality brands and business models where the unit economics support profitability, but the volume of deals and subsequent valuations will be rightsized.
A return to the original marketing playbook
The digital-first, performance-driven marketing playbook that fueled so much success—ours included—needs an overhaul. Before COVID-19, ad rates on the major networks were climbing and price arbitrage all but nonexistent to support major growth. Once the pandemic took hold, some scale opportunities returned, but it’s clear that as demand comes back into the system, we all need new ways to drive cost-effective, new customer acquisition. For us, we are contemplating our first major video ad test including OTT and linear TV—as well as continuing to invest in channels such as podcasts and radio.
Further, the COVID-19 situation forced all of us to take a hard look at our marketing plans and make some major pivots. We heavily revised our marketing calendar and product launches in order to offer products relevant to our consumers facing drawn-out quarantines. Specifically, we revised the tone of our emails, ads, and social media to be authentic, empathetic, and human, and we prioritized imagery highlighting how our products work well in a WFH environment. What purpose can a brand such as ours serve at a time like this? The customer relationship must go beyond email campaigns and sales promotions. If you meet customers where they are today—they will reward you over the medium and in the long term with loyalty.
Lastly, the pandemic is shifting e-commerce demographics. According to First Insight, online shopping among baby boomers jumped 120% in March of this year as the pandemic finally forced these consumers online. Is there a new population for digital-first brands to access, and if so, how will we reach them?
Business leaders can use this time to adapt the cadence, tone, tactics, and audience focus of their marketing efforts.
There’s enough room for everyone
The first decade of the DTC period has come to an end, and the pandemic is accelerating the rules of its next chapter. We’ve already begun to see some high-profile bankruptcies in J.Crew and Neiman Marcus, and there will inevitably be more. Consolidation is on the horizon—anticipate smaller companies joining forces and larger incumbents making acquisitions motivated by more rational valuations and opportunities.
Furthermore, incumbents will likely emerge with entirely new strategies around their retail footprint and need to build a more robust, digital-first DNA. Likewise, there will be successes in this space, as brands with sound businesses can capitalize on new market realities and new customer preferences.
At my company, we’re cautiously optimistic about the next phase of DTC, bullishly looking ahead. We’re executing on our strategic plan but also keeping an eye on the future as we prepare for limited retail expansion and investment in our digital footprint and product offering.
Direct-to-consumer brands were born of ingenuity and tenacity; the pandemic is once again demanding that of the marketplace as we determine new ways to meet the needs of our customers. The most nimble of us will author the new rules together as we enter this next phase of direct-to-consumer businesses.
Brian Berger is the CEO and founder of menswear basics brand Mack Weldon, which he launched in 2012. Since 2012, Mack Weldon has become a leader within the men’s apparel industry, expanding its product offerings to cover other essentials of a modern man’s wardrobe. Before founding Mack Weldon, Brian served in several leadership positions in internet and media companies, including Comcast and WebMD.