Fashion

The debriefing | Making sense of direct-to-consumer computing

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About a decade ago, a number of flashy direct-to-consumer brands selling high-end products and promising to cut the middleman out of retail appeared on the scene. Quickly, names like Warby Parker, Allbirds and Glossier caught investors’ attention with war cries of disruption, sparking a DTC boom. They have managed to raise hundreds of millions of dollars and achieve multi-billion dollar valuations. However, the market as a whole has largely failed to meet exorbitant expectations. How should the model change?

“For the last year or so, investors have looked around and said ‘wait a minute, you told us you’d get pretty big and the profits would come. Where are the profits? said BoF Deputy Editor Brian Baskin. “Consumers also looked around and said, ‘Okay, I’ve got my Allbirds sneakers – what else do you have for me? “”

  • The pandemic has exposed a huge flaw in the DTC model: Ultra-fast scaling without the support of multi-brand retailers is difficult – and often requires heavy outlays for customer acquisition. In private and public markets today, investors have little patience for brands that are not profitable.
  • Today, DTC brands are either adopting other distribution channels in order to grow or choosing to grow more slowly.
  • Growing a profitable DTC brand can be done with tight control over expenses, disposal and smart marketing. AYR – a staple brand that started in 2014 as a subsidiary of Bonobos and was later taken over independently by its co-founders – is on track to hit $60 million in sales, having only received ‘approximately $6 million in funding.
  • Why the DTC Model Can Still Work: At a time when many online brands are moving to wholesale or opening stores, womenswear brand AYR sees a future in the old e-commerce model, with a few key changes.
  • Direct-to-consumer calculation: For fashion start-ups, raising funds and increasing sales has become easy. But with rising costs and elusive profits, securing a happy ending for investors is proving much more difficult.

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