The Rise of DTC Brands Brings New Marketing and Fulfillment Challenges
What does a disruptive business model mean for stakeholders associated with the existing way of doing things? The continuing rise of DTC brands (Direct-to-Consumer) poses that very question to those of us working with established retailers with increasing urgency, as a sector already uprooted by the demands of eCommerce works out how to handle another important shift.
We've previously covered DTC's expanding influence on many sectors, but the insights gleaned from some time at Rutgers University here in New Jersey last week are too good to keep to ourselves!
Exploring the Emergence of Direct-to-Consumer Brands
DTC brands do exactly what the term describes: take their products directly to buyers, mostly via online platforms, bypassing longstanding retail channels in the process. Physical stores, wholesalers, and various other third-party services are impacted by this direct connection to buyers, including those of us working in and around the supply chain.
This is one of the reasons that Rutgers Business School recently invited us to take part in their second annual Digital Marketing Summit, which gave over its entire schedule to understanding the rise of DTC brands.
The summit explored the kind of marketing strategies used by businesses that embrace this model, while also taking time to cover the reaction of traditional brands and the steps they are taking to avoid losing market share to new competitors.
In addition to hearing from key figures at wildly successful DTC brands like Harry's and Mented Cosmetics, we also got to share the stories of brands we serve. Capacity CEO and co-founder Jeff Kaiden was part of a panel discussing the "DTC Activation and Process Value Chain," which not only allowed him to share decades of fulfillment experience, but also provided a reason to present some of our favorite charts!
The Rise of DTC Brands: CEOs and Marketers Speak
For the first discussion, CEO of Mented Cosmetics KJ Miller shared her story of starting a direct-to-consumer brand before most people knew what this was. Mented crafts makeup for all women that is vegan and cruelty-free.
Tellingly, Miller touches on the importance of maintaining control of the brand throughout her talk.
“As soon as you give your product to a retailer," she begins, "you can’t tell your story in your own way. Our website is a platform where I get to tell our story our way. It has been - and will always be - the best and biggest representation of our brand.”
That extends to social media platforms, where Mented Cosmetics has built an impressive following and continues to develop one-to-one relationships with fans of the brand. Miller highlights the importance of that direct connection as the foundation for developing trust and driving repeat business.
She also touches on the value of her company's data, including who buys from her and the keywords they use to find the brand's products.
When you integrate closely with a massive eCommerce platform like Amazon, for example, you could be handing over the keys to your kingdom.
After all, what's to stop that company from using the data to replicate your customer list and create a cheaper, albeit inferior alternative to what you sell? Allbirds calling out Jeff Bezos and co. for exactly that practice is one recent example, while the hidden disadvantages of Amazon is a topic we've warned brands about in the past.
Suffice it to say, KJ Miller gave us a lot to think about and we were encouraged to see . That gave the next panel a tough act to follow, of course, but with representatives from Warby Parker, Quip, and Harry's in the hotseat, we were in safe DTC hands!
DTC Innovation and the Difficulty of Scale
DTC brands have clearly disrupted the retail status quo. As the examples of Mented Cosmetics above and our own rapid-growth DTC clients like Beauty Bakerie demonstrate, the seemingly simple innovation of going straight to buyers online comes with various considerations and distinct challenges to address.
On the DTC innovation panel, Sebastian Hayto of recently-acquired razor brand Harry's confirmed the difference between starting and scaling the direct-to-consumer business.
“It’s so incredibly easy to start a company online," he says. "What’s difficult is to scale online only. You have to give people the chance to experience your product they are buying, wherever they want to do that.”
Hayto points out that while eCommerce is undeniably the fastest growing way to purchase products, the majority of Americans still shop in stores.
"You should never stand in the way of their ability to engage with your brand,” says Hayto, helping the audience to understand why the acquisition of Harry's by CPG parent company Edgewell provides a positive example of established brands buying into DTC innovation. Edgewell gets that DTC expertise for its own brands, while Harry's has the help it needs to bring a popular eCommerce brand into the lives of customers who don't tend to buy online.
The underlying point is that innovation in the DTC space could actually come in the form of updating traditional channels for your brand's unique offering. Traditional retail is not dead, so to scale effectively a DTC brand will either have to pour ever more money into digital acquisition or consider the opportunities afforded by mass retail.
Capacity's Jeff Kaiden on Order Spikes and Helping Clients Build a Brand
While our primary goal is to listen and learn from the brands that drive our business, we're always excited to share the kind of "behind-the-curtain" perspective that comes with working on fulfillment for such companies. DTC brands are no exception and Capacity CEO and co-founder Jeff Kaiden had several illuminating points to share as he joined an afternoon panel at Rutger's.
“Due to seasonality and carefully-timed sales promotions, our brands may need to go from shipping 25,000 orders on a Monday and back to 100 on Wednesday,” explains Kaiden. That means we need to work closely with the brand's planning team to prepare for such order spikes, as well as having the systems and staff in place to scale fulfillmet up and down when the orders flood in.
On the subject of how Capacity delivers that flexibility and the frictionless fulfillment experience that results, he puts it down to a combination of important factors.
“Locations are key to servicing our brands’ needs," says Kaiden, underscoring the importance of a bi-coastal fulfillment solution in North America. "Additionally, the expertise, passion, and technology that we bring to the table are the primary reasons our clients come to us.”
We also come back to the issue of scale, as Capacity has the ability to help both high-growth DTC startups and established brands ready to embrace the DTC model.
On the subject of growing with the brands Capacity serves, our CEO has a wealth of examples to choose from. He opts to talk about Tarte Cosmetics, a respected brand with whom we have more than a decade of experience.
“When we first worked with Tarte 15 years or so ago, I think we moved the business out of Maureen Kelly’s living room," says Kaiden. "Last year," he continues, "they did hundreds of millions in sales and did not need to craft internal expertise in logistics during that period." This is a reminder of how important it is to select the right fulfillment partner from the outset, as well as just how deeply those relationships can run when both parties understand what the other needs to scale and grow the business.
There was so much to take away from our day at Rutgers that it's tough to fit everything all in one article.
Nonetheless, we hope that this summary offers some insights into the rise of DTC brands and the role that an experienced order fulfillment team can play in helping to take a brand from startup to international success story.