How DTC brands can succeed today

It’s been a rough year for so-called direct-to-consumer brands, but building a direct relationship with customers is more important than ever before. While startups like Everlane and Allbirds represent a certain class of prominent venture-backed DTC startups, they certainly do not represent all modern consumer brands that have built a close relationship with consumers. The consumer setting has shifted significantly since these companies first burst onto the scene. Platforms like TikTok Shop are just a few years old and did not exist when those companies first launched. These insights were shared on Wednesday afternoon, when Glossy and Modern Retail reporters and editors gathered with Glossy+ and Modern Retail+ subscribers to discuss the future of DTC, with the full video of the presentation available exclusively for subscribers.

Modern Retail Executive Editor Anna Hensel argued that companies can still be considered DTC brands even if they do most of their sales through third-party retailers like Target and Walmart, provided they have a close relationship with the buyer. Rather than sticking to rigid sales structures, she believes a successful DTC brand today has a clear understanding of what the purpose of each channel is.

Hensel suggested it no longer makes as much sense for brands to stay entirely direct unless they sell a custom product that is tricky to sell through other retailers or they are exceptional at acting on customer feedback. The places that people discover new products are changing, and startups need to ensure they keep up with the times. The emphasis is on adapting to new discovery methods.

Many audience questions during the town hall centered on what channels made sense for startups to spend their time on, especially regarding customer acquisition. One attendee wondered where they should spend $100: TikTok, Meta, or Amazon. The question highlights the confusion marketers face when allocating budgets across an increasingly fragmented media environment.

Related: Anthropologie revamps its beauty line

Listening for Feedback

Glossy and Modern Retail Editor Jill Manoff said she believes a successful DTC brand is one that listens to the customer for data and feedback to inform their next steps. She thinks they have a two-way dialogue where the customer feels accessible and heard, allowing the brand to best serve them. Furthermore, Manoff noted that such brands possess a strong identity and are very clear about who they are and what they stand for. She cited the fashion brand Favorite Daughter, founded by sisters Sara and Erin Support, as a prime example. During a recent podcast with serial brand-builder Emma Grede, Sara Support mentioned knowing the names of the top 20 spenders by name, demonstrating a deep attunement to customer data. If a regular customer has not bought something in their usual timeframe—such as a pair of jeans every two months—the brand will send them a gift to prove they know their customer.

Modern Retail Special Projects Editor Melissa Daniels noted that early DTC brands like Casper and Warby Parker found success by exploiting marketing arbitrage. At that time, they acquired huge numbers of customers through Facebook advertising, which was then a relatively untapped channel, while major retailers had not yet caught on to social media advertising. That dynamic has since changed. Daniels argued that product differentiation is now more important than ever for building a brand with staying power. She suggested that selling the same product in pretty new packaging might no longer justify a premium price, particularly as consumers hunt for value. As an example of a company growing through word-of-mouth with a truly differentiated product, she pointed to Tin Can, a startup selling a modern version of a landline.

Building a 100% pure DTC brand that sells only through its own website and stores is difficult in the current market. Reformation, which recently went public and derives 90% of its revenue through its DTC site, is likely one of the closest modern examples. Consequently, brands must be strategic about which wholesale partnerships they pursue. If they pick the wrong wholesale partner, it can result in a lot of wasted resources. Senior Fashion Reporter Danny Parisi observed that successful primarily DTC brands are utilizing an integrated model. While they may have a handful of wholesale partnerships, these are chosen carefully and are often not very numerous. Parisi cited Universal Standard, which now sells through Anthropologie, and Mejuri, which recently launched a major shop-in-shop in Nordstrom, as examples of this strategic approach.