fbpx

Investor Bails On Direct-To-Consumer Startups: DTC Has Failed, You Leak Away Your Margin To Facebook And Google

Investor Bails On Direct-To-Consumer Startups: DTC Has Failed, You Leak Away Your Margin To Facebook And Google

DTC

Photo: Tristan Walker, CEO of Walker & Company Brands, speaks during TechCrunch Disrupt NY 2015, May 6, 2015. Photo by Noam Galai, https://www.flickr.com/photos/techcrunch/ https://creativecommons.org/licenses/by/2.0/

Brands such as Tristan Walker’s Bevel, a men’s grooming startup that went big in retail, are held up as shining examples of how it’s possible to carve 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 ranks of retail by meeting Black men’s unmet grooming needs, but that was before covid, inflation and the predicted coming recession. In 2018, Bevel’s parent company, Walker & Company, was bought by Procter & Gamble. Bevel made the big time.

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

Vibhu Norby, a San Francisco-based founder and investor in startups, claims to have helped launch more brands than anyone else, and he is not optimistic about the future of direct-to-consumer.

“An opinion I’ve been afraid to share: I think that DTC has failed, overall,” Norby tweeted recently. “The brands we hold up as beacons have been unprofitable for years. Every IPO tanks. Acquisitions are quickly sunset.”

Norby is a venture partner at Interlace Ventures, an early-stage VC investing in founders reimagining commerce. He founded b8ta — a software-powered retailer designed to improve the customer and maker experience — in 2015. The company ceased U.S. operations in 2020 but has stores in Tokyo and Dubai. He also founded software development company Stealth.


Are you interested in getting smart on Life Insurance?
No Doctor Visit Required, Get Policy for as low as $30 per Month
Click here to take the next step

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

“To run a DTC brand today you install 50 different apps and platforms. Leak away all of your margin and more to Facebook and Google,” he said. “If there is margin left you give it to your supply chain, which is a mess. Nobody has the cashflow to overcome seasonality.

“It’s been 10+ years now where we’ve been saying DTC is the future of brand building. Revenues are there but is it working for anybody? Are there real positive cashflows, profitability, equity value?” Norby tweeted.

Norby admitted that he has been wrong before so there’s a chance he may be wrong about DTC. “I’ve been afraid to say it because I widely talked about the death of wholesale when building b8ta” he tweeted.

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

When things aren’t working in DTC, he tweeted, “you add subscriptions, installment pay, insurance, warranties. Adds some incremental revenue but not enough.”

Shoppers prefer aggregation, Norby concluded. “Amazon is just a better buying experience than any DTC site. Large retailers run at thin margins, which is great for brands selling in. Anything halfway decent gets a thousand Alibaba clones, much quicker than people think. Theragun is a perfect example, a few months after they broke 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 a 40-year high, “the writing is on the wall,” said Andrew Codispoti, co-CEO of T-shirt brand Goodlife, in a Modern Retail report.

Shoppers are getting more price conscious and brands are having to rethink their value proposition. For example, Goodlife recently did a marketing campaign on the quality of its T-shirts, offering a lifetime guarantee.

According to the most recent Modern Retail Research report of 88 DTC brands, 54 percent of DTC brand respondents said they saw an increase in direct retail revenue in the past year, 59 percent said they increased their marketing budgets over the last year and 48 percent reported a wholesale revenue bump.

Photo: Tristan Walker, CEO of Walker & Company Brands, speaks during TechCrunch Disrupt NY 2015, May 6, 2015. Photo by Noam Galai, https://www.flickr.com/photos/techcrunch/
https://creativecommons.org/licenses/by/2.0/