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Publicly-traded DTC brands may be digitally native, but they are no longer digital-only.
Seeing growth from ecommerce distribution and efficient marketing, a group of direct-to-consumer brands founded over the last decade grew large enough to go public over the last several years. Now, they are pursuing new avenues as they seek to find new growth in a bear market, and reach customers that are making in-person stores a part of their shopping mix once again. While these brands started by selling through their own websites, most are now distributing through a mix of channels that ranges from wholesale and in-person stores to ecommerce marketplaces. At the same time, they are adding marketing mediums and growing into new markets to help reach a wider range of consumers.
Earnings calls to recap the third quarter provided a look at how the different approaches being taken. Here’s a look:
Allbirds: Stores and wholesale
A year after its initial public offering, footwear brand Allbirds has laid the groundwork to have a bigger presence in physical retail. Currently, this area is driving more growth in active customers and spend than the digital channel, executives said on the company’s third quarter earnings call.
This includes a mix of opening its own stores, and working with larger retailers through wholesale relationships.
On the company’s third quarter earnings call, co-CEO Joey Zwillinger said the brand’s owned stores channel grew 53% year-over-year. By the end of 2022, it expects to have 57 total stores: 42 in the U.S. and 15 internationally. This includes the opening of eight new stores in the third quarter, including six in the US. Here’s how Allbirds sees the channel as helping the brand:
“Our stores remain a powerful acquisition tool, allowing us to gain leverage on marketing spend to lower customer acquisition costs, increase the penetration of valuable omnichannel repeat customers, and are ultimately the best expression of our brand,” Zwillinger said.
The stores can also drive lifetime value (LTV) among customers, as Allbirds wants to provide a great customer experience through the stores, CFO Mike Bufano said. In cities where Allbirds has concentrations of customers, the brand believes that stores can help the company “infill” in those areas, said co-CEO Tim Brown.
This channel is still in early development. Zwillinger said nearly half the stores are still in ramp-up mode. That typically takes four quarters, but is taking even longer now due to the economic headwinds with inflation and consumer spending shifting away from discretionary funds.
As for the stores that are open, traffic is still below pre-pandemic levels.
“The slow traffic recovery appears to be consistent across our industry and that we believe that we will recover the majority of this traffic,” he said. “The timing of that recovery is unclear given the operating environment.”
Zwillinger also highlighted expanding wholesale relationships with REI, Dick’s and Nordstrom. The brand currently is available in just over 100 doors collectively, so it believes there is room to grow in this channel. The brand believes these wholesale partnerships are a way to reach consumers who have not yet heard of Allbirds.
“We believe that our third-party footprint is already increasing new customer acquisitions and brand awareness,” Zwillinger said. “In fact, we have found very little overlap between our direct channel customers and those of our third-party partners, providing a fantastic runway and opportunity for brand discovery.”
In the end, Zwillinger said, the company’s digital, owned retail and third-party channels act as a “system.” From the Motley Fool transcript:
“We're building a very smart marketplace with distribution to fuel what is increasingly a fantastic product engine to deliver products that customers are going to really want. So as we add incremental doors in our third party as an example, we really do expect that to drive great awareness for the brand.
They may transact with that retailer. They may also just learn about the brand and come back to our direct channel. But we expect, even if they're buying in our retail partners' four walls, that is going to translate to great what we would consider new customer acquisition inside of our direct channel. And that's going to buoy not just our digital but also our physical doors.”
Solo Stove: Replacing the Costco knockoff
While home and outdoor lifestyle brand Solo has a number of wholesale partners, a new tie-up to sell its product at Costco this quarter was among its biggest headlines of the quarter.
On the company’s earnings call, CEO John Merris said this partnership came about over multiple years of conversations. Previously, the brand had decided not to work with Costco, and found that the retailer was selling a knockoff of its product. But this year the conversations were resurrected, and the companies revisited pricing and other parts of the strategy. This time, the partnership was ultimately signed.
“Our focus with wholesale is to be where our customers want and need us to be. And secondarily, we look to be in partnerships or with retailers that are bringing us an audience that we may not already be in front of,” Merris said. “We believe that Costco does both of these things for us.”
Now, it is looking to expand the Solo SKUs available at the stores. Meanwhile, the knockoff product is no longer appearing in Costco aisles.
While Costco gets it in front of a lot of traffic, a key will be to “balance” its relationships with other retailers.
“We have been careful with the amount of inventory that we are putting there, so that we are not oversaturating or taking away from our other retail partners,” Merris said.
Purple: Speeding up premium through acquisition
Inside a Purple showroom. (Photo via Purple)
With its DTC ecommerce channel declining by 36% year-over-year, Purple is pursuing a similar strategy to Allbirds, as it opens more stores and engages wholesale partners. However, it looks a bit different since it is doing so with mattresses, which requires a larger customer layout than shoes and apparel.
The brand opened 11 new showrooms in the quarter, with 55 expected to be open by the end of the year. Revenue in this category increased 110.4% over the last year as it opened new showrooms. Wholesale, however, was flat, as the brand sees “headwinds” from the economy. This channel comprised 41% of net revenue for the quarter, compared to 33.9% in the same quarter last year. To see more growth from wholesale, the brand is deploying education and training to partners, so that sales reps can be armed with more knowledge about how to present the brand as they sell its mattresses.
“Without it, the brand simply doesn't perform well enough to get the most out of what it's capable of. So it really is just understanding the needs of what it takes to be a good wholesale partner and then trying to deliver that,” CEO Robert DeMartini said.
Uniquely, Purple acquired another company in its space during the quarter as a move to seek growth. The acquisition of Intellibed brings intellectual property around gel material that has been licensed by Purple under its ownership. It also helps Purple enter the luxury category more quickly than it could on its own, accelerating product development by several years. Next year, it will retire the Intellibed brand, and launch premium categories including Purple Lux and Purple Premier. Another category, called Purple Essentials, will be its most “accessible” pricepoint. The premium products will be available through wholesale channels, as well as DTC.
“The business is small relative to Purple today but we see ample opportunity to expand Intellibed products into our existing wholesale door network in addition to adding the premium line to our showroom footprint,” said CEO Robert DeMartini. “We don't expect to mature this set of our business overnight but we're excited about the longer-term opportunity this combination offers.”
Blue Apron: Marketplace expansion, marketing shift
For meal kit service Blue Apron, expansion has included moving into new ecommerce channels. In June, Blue Apron made its meal kits available on Walmart.com. By October, they were available on Amazon to customers without a subscription, as well. The company also made gift cards available through Costco. Behind the scenes, the company has upgraded infrastructure to make these happen.
“Some of the most exciting things that we're doing on those ecommerce partnerships are really about the technology that we built in order to support it that allows us to ship within one day and increase our distribution channels further,” said CEO Linda Findley.
However, the company is also taking a familiar DTC approach in marketing, as it prepares to invest more into performance channels. In the third quarter, the company’s marketing spend was down 21% from the quarter before. Findley said the company saw the cost of search marketing reach “unsustainable levels,” and so it is redirecting into performance marketing channels.
“Over the past two years, we built a solid marketing foundation, including significantly strengthening our brand equity. In parallel, we have also invested in key tech improvements,” Findley said. “These efforts will allow us to shift our marketing strategy efficiently to be more data and performance-driven.”
Amber Minson was recently hired to helm these efforts as chief marketing officer. She previously served as CMO of the photography-focused ecommerce agency Foreground and NBCUniversal’s Bluprint/Craftsy.
Warby Parker: Contact growth
Warby Parker is a pioneer among DTC brands pursuing omnichannel, as it initially opened a physical store in 2013. It is continuing on a path to open 40 new stores by the end of the year.
But for the third quarter of 2022, another metric stands out at the eyewear brand: Average revenue per customer increased to a record high of $258, up 7% year-over-year.
“Importantly, the primary driver of this increase was not due to price increases, but rather due to a higher percentage of customers purchasing multiple products and from customers opting in to higher price point offerings like progressives and annual supplies of contacts,” said co-CEO Dave Gilboa. “We continue to believe that our unique value proposition will hold up well in a challenging economy as consumers are more conscious about where to spend their dollars.”
The company started with glasses, then expanded into contact lenses to add more products in the vision category. This line also benefits from the ability to offer a subscription that replenishes frequently, rather than relying on an annual renewal. Contacts are now 7% of the business, up from 5% in the third quarter of 2021. Typically, they account for 15-20% of an optical business.
“Contacts customers are some of our highest-value customers given the replenishment nature of contacts and the propensity of these customers to go on to purchase glasses,” Gilboa said.
YETI: Growing the product line
YETI posted a 20% year-over-year sales increase in the third quarter, which was larger than expected. The brand sells its cooler and drinkware products through a mix of channels. It has direct-to-consumer ecommerce sales, as well as a presence on Amazon’s marketplace. It expects to have 13 owned stores by the end of the year, and also has a wholesale business. In the third quarter, wholesale growth outpaced DTC, at 25% vs. 15%.
This is in part because the brand has been rebalancing inventory throughout the year, and is heading into 2023 in a place where it can evaluate each one.
CEO Matt Reintjes called the owned stores in particular “great brand beacons.”
“They change the assortment that a consumer considers,” Reintjes said. “So, they work the entire funnel from consideration all the way through to purchase and we think it also benefits our omnichannel.”
But stores remain a “small piece” of the brand’s overall mix.
“At the end of the day, the focus in our DTC business is really the buildup and strength of our ecommerce and our dot-coms,” Reintjes said. “And that's really that investment we're making and continue to make in our advanced analytics to understand consumer behaviors, to understand buying behaviors and that's where, I would say, the disproportionate focus is among our DTC.”
Building from the foundation of its cooler technology, YETI is also expanding its product line as it seeks to create gear that fits with specific scenarios and is lightweight. The expansion comes about after paying close attention to customer feedback and data. In the quarter, YETI rolled out two flagship soft coolers, extensions of its tote, two new wheeled coolers, a drinkware line and its first lightweight bottle. They’ll be appearing throughout the company’s channels in the fourth quarter, and into 2023.
Figs: International expansion and B2B
An expansion area of note for Scrubs brand Figs has been in international markets, where revenue grew 49% in the third quarter. It is seeing good performance in Canada, the UK and European markets. In the fourth quarter, it has also entered the UAE, Israel and New Zealand. Being a DTC brand allows Figs to expand quickly, and in a “capital light way,” said CEO Trina Spear.
“As we focus on driving brand awareness internationally, we expect to enhance the customer experience through language translations and dedicated marketing support,” Spear said. “In addition, we plan to launch localized marketing campaigns to engage with the community and elevate the customer experience through tailored messaging.”
The brand also sees opportunity to grow in B2B, which it calls the teams business. This is benefitting from its new ability to offer extended sizes, as well.
“We built a first-of-its-kind platform so that administrators could order for their entire department, their entire clinics, their entire office,” Spear said. “And we make it really seamless to…order hundreds, thousands of sets of scrubs for your entire team.”
Hims & Hers: Mass marketing channels
After posting third-quarter revenue gains of 95% from the year prior and an 80% rise in subscriptions, the telehealth, OTC and personal care product service is eying profitability in the fourth quarter.
With growth, the company is investing in marketing campaigns that extend the brand’s reach. A few years ago, this may have meant more investment in Facebook or Instagram. In the post-iOS14 landscape, however, the company is moving into channels that reach a larger audience.
In the third quarter, Hims launched TV advertising campaigns with the NFL during prime time games on Sunday, Monday and Thursday. Nodding to the growth of CTV, Hers is appearing more during Hulu programs. It also has a celebrity lined up for 2023, but isn’t announcing who just yet.
“As other companies across the landscape continue to decrease their marketing investments, we have seized a significant opportunity to capture mindshare, generate high ROI and further deepen the relationship people have with our brand,” CEO Andrew Dudum said. “This year, we have doubled down on high-profile opportunities that focus on specific demographics and extend our reach to new audiences.”
Olaplex: Sampling with existing retail partners
Olaplex CEO JuE Wong (left) on stage at ShopTalk. (File photo)
Olaplex, a haircare brand that specializes in bond-building, revised its forecast for full-year sales downward to project 12-15% lower than its previous estimates. With this, professional channel sales declined 16% year-over-year vs. a 58% increase in the same quarter of last year, while 2.6% to $39.3 million, following an 87% increase last year. The brand also saw a key US DTC customer reduce orders to meet lower targeted levels of inventory.
As it seeks to address this, one of the company’s goals is to accelerate demand, CEO JuE Wong said on the company’s third quarter earnings call.
“In the U.S. we have relaunched our pro affiliate program, providing stylists with the ability to receive a commission on net sales when their customers buy Olaplex using an affiliate code at olaplex.com,” Wong said. “In our specialty retail channel, we are enhancing exposure with several of our key retail partners and introducing programs that are designed to drive trial and customer acquisitions.”
One of the ways it is doing this is by starting to participate in sampling for Buy Online Pickup in Store (BOPIS) at Sephora next year. Through this, 500,000 samples of the brand’s No. 3 Hair Perfector will be made available.
It will also be testing a new initiative with Ulta Beauty.
“At Ulta, we will be tapping into a 360 retail salon cross-shop strategy starting in January, providing our No. 3 sample with any Olaplex salon service,” Wong said. “When we tested this at another retailer with a salon presence, we saw nearly 100% conversion to full size, and hope to also see positive results at Ulta.”
At both retailers, a third-party field sales team that is trained by Olaplex will also be deployed into 75 of the top stores next year. The brand sees a big opportunity for growth in this area, Wong said.
“In the specialty retail channel, we have significant white space in penetration. In Sephora U.S., we believe approximately 12% of total Sephora shoppers purchase Olaplex, while a best-in-class brand across categories is closer to 20% to 25%. We have significant room to grow,” Wong said.
Grove Collaborative: Pharmacy and grocery store expansion
Home and personal care goods marketplace Grove Collaborative said net revenue declined 18% year-over-year in the third quarter, while total orders were down 26% year-over-year, and active customers were down 15% year-over-year. Meanwhile, DTC net revenue was up 7% year-over-year. The brand is in the midst of executing a plan to overhaul itself, which included a reduction of 18% of its corporate workforce as it sought to reduce operating expenses.
While it sells a mix of brands on its marketplace, goods that are made and sold by Grove Collaborative made up 46.9% of revenue in the quarter. While it continues to hone its DTC platform, the products are also starting to appear in more physical retail stores. There’s an opportunity to meet demand there, as 90% of sales in personal care take place in-person, said CEO Stuart Landesberg.
The company inked its first partnership with a drugstore, making its products available in 2,200 CVS stores. It also partnered with regional grocery chains Harris Teeter and H-E-B.
“We continue to generate strong interest in our brand with retail buyers, and we look forward to announcing additional partnerships as we are able,” Landesberg said. “We remain incredibly excited about this capital-efficient growth channel.”
Trending in Marketing
Labor disputes on the West Coast could cause further disruption heading into peak season.
When the first half of 2023 is complete, imports are expected to dip 22% below last year.
That’s according to new data from the Global Port Tracker, which is compiled monthly by the National Retail Federation and Hackett Associates.
The decline has been building over the entire year, as imports dipped in the winter. With the spring, volume started to rebound. In April, the major ports handled 1.78 million Twenty-Foot Equivalent Units. That was an increase of 9.6% from March. Still it was a decline of 21.3% year over year – reflecting the record cargo hauled in over the spike in consumer demand of 2021 and the inventory glut 2022.
In 2023, consumer spending is remaining resilient with in a strong job market, despite the collision of inflation and interest rates. The economy remains different from pre-pandemic days, but shipping volumes are beginning to once again resemble the time before COVID-19.
“Economists and shipping lines increasingly wonder why the decline in container import demand is so much at odds with continuous growth in consumer demand,” said Hackett Associates Founder Ben Hackett, in a statement. “Import container shipments have returned the pre-pandemic levels seen in 2019 and appear likely to stay there for a while.”
Retailers and logistics professionals alike are looking to the second half of the year for a potential upswing. Peak shipping season occurs in the summer, which is in preparation for peak shopping season over the holidays.
Yet disruption could occur on the West Coast if labor issues can’t be settled. This week, ports from Los Angeles to Seattle reported closures and slowdowns as ongoing union disputes boil over, CNBC reported. NRF called on the Biden administration to intervene.
“Cargo volume is lower than last year but retailers are entering the busiest shipping season of the year bringing in holiday merchandise. The last thing retailers and other shippers need is ongoing disruption at the ports,” aid NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said. “If labor and management can’t reach agreement and operate smoothly and efficiently, retailers will have no choice but to continue to take their cargo to East Coast and Gulf Coast gateways. We continue to urge the administration to step in and help the parties reach an agreement and end the disruptions so operations can return to normal. We’ve had enough unavoidable supply chain issues the past two years. This is not the time for one that can be avoided.”