In the mid 2010s, the DTC model was all the rage in retail: Consumers were buying up Casper beds, wearing Warby Parker glasses, selecting new outfits from Stitch Fix and stepping out in Rothy’s flats.
These brands popped up and shunned the usual department stores and retail partnerships in favor of selling products on their own channels. Sleek websites, copious social media marketing campaigns, and quirky branding made these companies stand out and catch the eye of consumers and venture capitalists alike.
Some companies found success in the direct-to-consumer business model, tapping into the 30% increase in yearly share price estimated by McKinsey back in 2023. However, many others leaned too heavily on the strategy.
Now that the DTC hype has died down, how should retailers approach the model?
When DTC was a hot model for cool new brands, venture capital simply couldn’t stop investing in it. With investors pumping cash into businesses that had yet to turn a profit, cash burning practices were not as big of a concern.
There are cautionary tales of DTC brands that flew too close to the sun. Casper, the mattress upstart, reached a valuation of $1.1 billion in 2019 (less than six years after being founded). Its value decreased to $476 million in a 2020 $12 per share IPO, and then was delisted shortly after shrinking to $3.55 per share and being bought by a private equity firm in 2021 for $6.90 per share.
Even established brands hopped on the DTC bandwagon with poor results. One brand was slapped with a class action lawsuit claiming that the sales strategy wasn’t as successful as the brand touted—effectively misleading investors. The brand made a swift return to selling through retailers.
While unlikely, a flurry of investments could start again and inspire another wave of DTC startups. But the debacle underscores this: the tried and true retail approaches still need to be brands’ bread and butter. What we can all learn from the downfall of so many DTC brands is that over-investing in any trendy business model is likely to fall flat.
Many brands learned this the hard way and are diversifying into traditional distribution and retail channels—if they’re still in business.
Simeon Siegel, managing director at BMO Capital Markets, summed it up, telling Retail Dive: “Everyone believed the mantra should be DTC or die because they wanted to eliminate the middle person and make more money… What they finally realized was: No one eliminates the middle person, they simply become the middle person, and that brings its own set of costs.”
While inflation may have slowed, consumers remain price sensitive as retailers look to AI to drive growth. The top trends for the retail industry include AI-driven personalization and omnichannel integration.
Successful brands are embracing wholesale and leaning into retail partnerships. Wholesale distribution can even help attain profitability for newer brands like Vuori—pulling off profitability just two years after being founded. What this apparel brand got right was a diversified strategy based on:
Wholesale is an especially important part of the retail strategy mix. One study found that it was poised to grow 51% in 2024 and account for 60% of brand sales. Compare this growth rate to the 11% expected from DTC brands’ stores and 6% from their websites and it’s clear why the focus on big-box and specialty retailers is a smart move.
So DTC isn’t history, but it’s no longer a viable exclusive selling approach. It has to be part of an omnichannel business model that prioritizes multiple selling channels.
Don’t over-invest in any one channel and certainly don’t shun tried-and-true sales channels. Wholesale might not be the buzziest way to sell and working with middlemen might lower profit margins, but these omnichannel approaches work.
Brands that want to incorporate direct-to-consumer into their strategy must get deeper into customer feedback to learn where their customers are, what kind of retail experiences they value, and then deliver that.
DTC doesn’t have to be the entryway to the brand anymore; having other channels to entice customers can be a great way to get them interested as well. Then they can be converted to higher margin DTC shoppers later on.
