DTC has been a buzzword (or acronym rather) for quite some time. Digitally native DTC brands tout sleek websites, well-targeted ads, incredible customer service, and compelling convenience. This model took flight in the last decade. Warby Parker and Dollar Shave Club hit the internet in 2010 and 2011 and quickly gained speed. Then came the Aways, Caspers, and Glossiers of the world (all three of which earned unicorn status in early 2019). These brands recognized a need for physical retail quite quickly. In 2018, digitally native brands were set to open 850 stores over the following five years.
Now, the ballooning effect of online shopping has been exacerbated. While some of these brands were successful in years past, many struggled mightily throughout COVID-19. A lot has changed in the digitally native market, and the jury is still out on the longevity of some of these brands, but the need for physical space that existed pre-pandemic will remain.
Below are a few “case studies” published before the pandemic and now.
The Digitally Native Brand Builds a Real Estate Portfolio.
- Then – Casper. The online mattress company launched in 2014 and quickly became a social media sensation that sold $1.8mm in mattresses in its first two months. By 2018, the retailer was set to open 200 stores nationwide. The founders of Casper had set out to differentiate the brand from the traditional mattress store model. While adding a physical footprint may sound like the old blueprint, Casper never diverted from its strong online presence. Rather, they wanted to make the shopping experience enjoyable and educational with stores full of interactive exhibits and testable bedrooms.
- Now – The RealReal. This online luxury consignment store was founded in 2011. A few years later, the retailer was dubbed the fastest-growing consignment shop and added its first store in 2017. Unfortunately, The RealReal experienced significant headwinds amid the pandemic, but in Q4 2020, the company noted ~30% of its new consignors came from its retail locations. Therefore, it is logical that The RealReal announced they would add ten additional store locations to their portfolio this quarter (almost doubling their portfolio).
The Digitally Native Brand Enters an Existing Real Estate Portfolio (read here for how these partnerships can be mutually beneficial).
- Then – Harry’s in Target. The men’s grooming products subscription service launched in 2013. The company acquired 100,000 subscribers in just one week during a prelaunch campaign and soared to 1mm customers in its first two years. Then, the DTC company teamed with Target in 2016 because, as their co-CEO, Jeff Raider, stated, “many guys like to shop online, others prefer to shop in stores, and our partnership with Target will help us to serve both audiences while reaching new customers as well.”
- Now – Care/of in Target. Founded in 2016, this vitamin line brand is personally curated for consumers based on an extensive questionnaire. The brand then delivers personalized vitamins and supplements in daily packs. Based on the 6+mm quizzes taken, the wellness brand has created a line to bring to Target locations. The vitamin line will be available via in-store, pickup or delivery beginning March 28.
Lately, we see “direct-to-consumer” swirl around headlines in untraditional ways. However, unlike the examples above, we see a shift where the conventional and experienced brands attempt to capture the successes of the DTC model. DTC sales currently make up 35% of Nike’s sales. Last week, Nike notified that they would cut ties with seven wholesale accounts in an effort to escalate the proportion of DTC sales even further. Nike will continue to sell in Dick’s Sporting Goods and Shoe Carnival to maintain relationships with “strategic partners.” Similarly, Adidas made a call for DTC last month when it announced a four-year plan, dubbed Own the Game, that aims for DTC sales to make up 50% of sales by 2025 (up from 40% in 2020).
It has interesting, to say the least, to follow an ever-changing retail landscape. Whether shopping online or in-person, from a digitally native brand or a mass merchant, the need for physical retail space will remain a common denominator. We look forward to following the direct-to-consumer evolution of companies like Nike and the new DTCs on the block.