The speed and scale of change in the retail sector has been accelerating by the week during the pandemic. Iconic companies that started the year with a decent balance sheet are now defaulting on lease payments and filing for bankruptcy. Innovative companies are pivoting to once-unthinkable business models. Startup companies are finding their way to consumers via the shift to Digital 3.0.
But perhaps nowhere has the acceleration of retail been as dramatic as in the direct-to-consumer space. Since the pandemic took hold in mid-March, the very definition of DTC has been completely remade. The best way to see it is through three categories.
The first is newbies. The past week just might have produced several new entries to the DTC space, but time will tell exactly how the situation will play out. Look at some of the bankruptcy filings of the pandemic and it’s easy to see a pattern. There are some very solid apparel brands doubling as retail brands — hybrid brands. In this bucket, Brooks Brothers, Lucky Brand, Guess, J. Crew and others. Before the pandemic these brands were vulnerable for their reliance on outlet stores and their lower profits as well as the general malaise around brick-and-mortar stores. Now they’re vulnerable because of the pandemic, and the combination of these dynamics were too hard to overcome.
The interesting dynamic that has arisen over the past few weeks is in the companies willing to take a risk on the hybrids. They’re companies like Authentic Brands Group that collect and curate fashion brands, such as Frye, Barney’s and Greg Norman. If ABG were to strike a deal for Brooks Brothers, it wouldn’t be to expand or even salvage Brooks Brothers as a retail brand. It would take it as a fashion brand. Despite the body blow of the pandemic — casual work environments and then no work environments — Brooks Brothers never got too far away from its personality. Give it credit for that. But in the new DTC era, Brooks Brothers may find itself as a retail item, not a whole store brand. And it also may find itself as a DTC brand as it struggles to catch up with the digital shift.
Then there’s the Fortune 500. Before the pandemic, if a Fortune 500 company made noise about selling direct, retailers revolted. Consumers were their sole province. That may still be the case, but the risk of wrath has not kept pace with the reward. Pepsi launched two DTC brands during the pandemic as did Ocean Spray. In May, Kraft Heinz launched its first-ever DTC line, “Heinz To Home,” offering bundles of shelf-staple items for home deliveries. Jean Philippe Nier, Kraft Heinz’s head of eCommerce, said now is “the best opportunity to ever try a DTC site.”
The Fortune 500 entry into DTC is a game-changer for many reasons, but the most important might be in marketing. Many DTC brands have minimal marketing budgets and often rely on social media ads as well as influencers to get their message out. Expect that to stay the same, but they will have a harder time getting noticed as the Pepsis of the world bring the full bore of their dollars, media partnerships and sponsorships. The Fortune 500 is a copycat world. Every one of them who can make a case for DTC will be in it.
All of which doesn’t bode well for the SMBs of the DTC world. Most every DTC brand interviewed by PYMNTS since the pandemic has been impressed by their sales and traffic as it played out. What remains to be seen is how they keep up the momentum. It can be done, even in the face of the newbies and the Fortune 500. But it will take innovative product design and brilliant customer-centric marketing to do it. The DTC brands that win after the pandemic subsides will get the right customers and work tirelessly to keep them. Either that or find partners that can help them grow and thrive.