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DTC failed, you lose your margin on Facebook and Google

Brands such as Tristan Walker’s Bevel, a men’s grooming start-up that has expanded into retail, are being touted as shining examples of how it’s possible to carve out a niche in the direct-to-consumer market, but DTC has seen better days, according to a Silicon Valley startup investor.

Bevel rose through the retail ranks by catering to the unmet grooming needs of black men, but that was before covid, inflation and the predicted coming recession. In 2018, Bevel’s parent company, Walker & Company, was acquired by Procter & Gamble. Bevel made the big time.

Direct-to-consumer (DTC) marks sell products online directly to customers, bypassing third-party retailers and wholesalers. Some DTC brands have physical locations, but for the most part their core business is online.

Vibhu Norbya San Francisco-based startup founder and investor, says he’s helped launch more brands than anyone, and he’s not optimistic about the future of direct-to-consumer.

“An opinion I was afraid to share: I think DTC failed, overall,” Norby tweeted recently. “The brands that we present as beacons have not been profitable for years. Each IPO tanks. Acquisitions quickly expire.

Norby is a venture capital partner at Interlace Ventures, an early stage venture capital that invests in founders who are reinventing commerce. He founded b8ta – a software-powered retailer designed to improve the customer and manufacturer experience – in 2015. The company ceased operations in the United States in 2020 but has stores in Tokyo and Dubai. He also founded the software development company Stealth.

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He laments how difficult it is to run a successful DTC brand today.

“To run a DTC brand today, you install 50 different apps and platforms. Leak all your slack and more on Facebook and Google,” he said. “If there’s slack left, you give it to your supply chain, which is a waste. No one has the cash to overcome seasonality.

“For more than 10 years now, we have said that DTC is the future of branding. The income is there, but is it working for anyone? Are there true positive cash flows, profitability, equity value? Norby tweeted.

Norby admitted he was wrong before so there is a chance he is wrong on DTC. “I was afraid to say this because I talked a lot about the death of wholesale when b8ta was built,” he tweeted.

Norby estimated that e-commerce giant Shopify’s market capitalization is greater than all the brands on its platform combined.

When things don’t work out in DTC, he tweeted, “you add subscriptions, installments, insurance, warranties. Adds additional income, but not enough. »

Buyers prefer aggregation, Norby concluded. “Amazon is just a better shopping experience than any DTC site. Big retailers operate on low margins which is great for brands that sell. Anything half decent gets a thousand clones of ‘Alibaba, much faster than people think. Theragun is a perfect example of this, within months of bursting into the mainstream there were hundreds of clones.

DTC brands have struggled to avoid raising prices over the past two years, but with inflation at its highest level in 40 years, “the writing is on the wall,” said Andrew Codispoti, co -CEO of the Goodlife t-shirt brand, in a Modern retail report.

Buyers are increasingly price conscious and groups need to rethink their value proposition. For example, Goodlife recently made a marketing campaign on the quality of its T-shirts, offering a lifetime guarantee.

According to the most recent study on modern retail report of 88 DTC brands, 54% of DTC brand respondents said they had seen an increase in direct retail revenue over the past year, 59% said they had increased their marketing budgets over the past year and 48% reported an increase in wholesale revenue.

Photo: Walker & Company Brands CEO Tristan Walker speaks at TechCrunch Disrupt NY 2015, May 6, 2015. Photo by Noam Galai, https://www.flickr.com/photos/techcrunch/
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