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Coronavirus Slammed Retail. Can Direct-to-Consumer Brands Prevail?
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The coronavirus pandemic has upended the lives of people around the globe. Doctors, nurses, and other essential workers are on the front lines fighting the outbreak, and the rest of us are doing our best in isolation, trying to stay sane and help curb the spread of the virus.
Along with the halting of our daily routines, the way we operate as consumers has been dramatically altered, as restaurants, retailers, hotels, and other non-essential businesses have either temporarily closed their doors or shuttered for good.
Maybe we’re ordering takeout from our favorite local restaurant to help support their business, but we’re mostly spending money on groceries and paper products, stocking up at Walmart (WMT - Free Report) or Costco (COST - Free Report) for weeks at a time.
Maybe we’re buying some new loungewear to spruce up our stay-at-home wardrobe, but we’ve mostly stopped spending entirely for fear of a looming economic crisis.
Maybe we were planning on taking a once-in-a-lifetime trip to Europe this summer, but we’ve mostly put any future travel plans on hold until it feels safer to do so.
Industries across the board are feeling the effects of this new, more cautious consumer, but retail is taking the brunt of it. We still don’t know what the lasting impact of the pandemic will be, and what retail will look like afterwards.
Right now could be the beginning of a direct-to-consumer takeover, where shoppers can buy from their favorite brands and not worry about any middlemen. But what brands would be leading the way?
What are Direct-to-Consumer Brands?
Direct-to-consumer brands are just that: brands that sell their product directly to consumers, via an online platform and forgoing a supply chain and third-party distribution. It allows start-up businesses to have control over their growth story, their image, their price range, and their expansion.
This kind of retail model has surged over the past few years, and new companies selling running shoes or mattresses were seemingly popping up out of the blue. Brands like Away, Allbirds, Outdoor Voices, Interior Define, Warby Parker, and Casper exploded in popularity, and each boast a loyal following.
What differentiates direct-to-consumer from traditional retail?
Primarily, it’s the focus on not only the relationship between customer and company, but creating an appealing, approachable brand.
Let’s look at Away.
Founded in 2015, Away has successfully shaken up the saturated luggage market. Coming in at a much lower price point than Tumi or Rimowa, Away offers luxury, functionality, and most importantly, approachability.
Away isn’t “just another luggage company,” as they like to say, but a broader travel company, churning out travel-related content through their magazine, Here, and even hosting a podcast a couple years back.
The company has also smartly utilized social media platforms like Instagram—they currently have 550k followers—and partnered with influencers and celebrities to help showcase their product.
This kind of marketing expertise and customer engagement helped Away reach unicorn status last year.
Many D2C companies have begun to open brick-and-mortar store fronts as well. Here in Chicago, on Armitage Avenue in the Lincoln Park neighborhood, is where many brands have set up shop, so to speak (others like Glossier and Everlane built pop-up stores in the West Loop neighborhood last year).
Even though there’s more overhead and operating costs in brick-and-mortar, there’s a reason the model has yet to completely disappear. A specific type of customer connection is formed while shopping in-store, and D2C companies have used that to capitalize on their already strong brands.
But there’s also a reason why retail giants like Nike (NKE - Free Report) have adopted the D2C model.
Gone are the days where a company must depend on a third-party distributor to sell their product. Now, Nike can sell its shoes and apparel online directly to the consumer, enhancing its core brand and improving every aspect of the customer experience.
Will the D2C Model Prevail?
It’s important to understand that D2C companies are not immune to the negative impacts from the pandemic.
Just like many other retailers, Away, for instance, had to furlough roughly half of its team and is laying off an additional 10%. This is not surprising news, since air travel is at a standstill and consumers are saving rather than spending.
What we have to think about now is the after. What brands and companies will survive?
That, of course, is the million-dollar question.
D2C companies inherently have all the right components to succeed in a changed retail landscape. I can purchase new sneakers, home goods, and even eyeglasses all from the comfort of my home, from brands that I trust, and without having to visit a crowded mall or store.
Those brands that already had a difficult time attracting customers to their website and stores before the coronavirus crisis took hold will find it even tougher to draw in shoppers in a tightened economic environment.
The companies that will thrive, I think, will go beyond just cutting costs or offering deep discounts; they will be the ones that maintained a strong connection—this could be anything from more personal marketing campaigns to simple communication about the state of business—to their customers.
It’s an extremely emotional time for everyone, and there’s something to be said about a sense of community. When brands listen, trust is built. And trust will be key for retailers going forward.
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Image: Bigstock
Coronavirus Slammed Retail. Can Direct-to-Consumer Brands Prevail?
The coronavirus pandemic has upended the lives of people around the globe. Doctors, nurses, and other essential workers are on the front lines fighting the outbreak, and the rest of us are doing our best in isolation, trying to stay sane and help curb the spread of the virus.
Along with the halting of our daily routines, the way we operate as consumers has been dramatically altered, as restaurants, retailers, hotels, and other non-essential businesses have either temporarily closed their doors or shuttered for good.
Maybe we’re ordering takeout from our favorite local restaurant to help support their business, but we’re mostly spending money on groceries and paper products, stocking up at Walmart (WMT - Free Report) or Costco (COST - Free Report) for weeks at a time.
Maybe we’re buying some new loungewear to spruce up our stay-at-home wardrobe, but we’ve mostly stopped spending entirely for fear of a looming economic crisis.
Maybe we were planning on taking a once-in-a-lifetime trip to Europe this summer, but we’ve mostly put any future travel plans on hold until it feels safer to do so.
Industries across the board are feeling the effects of this new, more cautious consumer, but retail is taking the brunt of it. We still don’t know what the lasting impact of the pandemic will be, and what retail will look like afterwards.
Right now could be the beginning of a direct-to-consumer takeover, where shoppers can buy from their favorite brands and not worry about any middlemen. But what brands would be leading the way?
What are Direct-to-Consumer Brands?
Direct-to-consumer brands are just that: brands that sell their product directly to consumers, via an online platform and forgoing a supply chain and third-party distribution. It allows start-up businesses to have control over their growth story, their image, their price range, and their expansion.
This kind of retail model has surged over the past few years, and new companies selling running shoes or mattresses were seemingly popping up out of the blue. Brands like Away, Allbirds, Outdoor Voices, Interior Define, Warby Parker, and Casper exploded in popularity, and each boast a loyal following.
What differentiates direct-to-consumer from traditional retail?
Primarily, it’s the focus on not only the relationship between customer and company, but creating an appealing, approachable brand.
Let’s look at Away.
Founded in 2015, Away has successfully shaken up the saturated luggage market. Coming in at a much lower price point than Tumi or Rimowa, Away offers luxury, functionality, and most importantly, approachability.
Away isn’t “just another luggage company,” as they like to say, but a broader travel company, churning out travel-related content through their magazine, Here, and even hosting a podcast a couple years back.
The company has also smartly utilized social media platforms like Instagram—they currently have 550k followers—and partnered with influencers and celebrities to help showcase their product.
This kind of marketing expertise and customer engagement helped Away reach unicorn status last year.
Many D2C companies have begun to open brick-and-mortar store fronts as well. Here in Chicago, on Armitage Avenue in the Lincoln Park neighborhood, is where many brands have set up shop, so to speak (others like Glossier and Everlane built pop-up stores in the West Loop neighborhood last year).
Even though there’s more overhead and operating costs in brick-and-mortar, there’s a reason the model has yet to completely disappear. A specific type of customer connection is formed while shopping in-store, and D2C companies have used that to capitalize on their already strong brands.
But there’s also a reason why retail giants like Nike (NKE - Free Report) have adopted the D2C model.
Gone are the days where a company must depend on a third-party distributor to sell their product. Now, Nike can sell its shoes and apparel online directly to the consumer, enhancing its core brand and improving every aspect of the customer experience.
Will the D2C Model Prevail?
It’s important to understand that D2C companies are not immune to the negative impacts from the pandemic.
Just like many other retailers, Away, for instance, had to furlough roughly half of its team and is laying off an additional 10%. This is not surprising news, since air travel is at a standstill and consumers are saving rather than spending.
What we have to think about now is the after. What brands and companies will survive?
That, of course, is the million-dollar question.
D2C companies inherently have all the right components to succeed in a changed retail landscape. I can purchase new sneakers, home goods, and even eyeglasses all from the comfort of my home, from brands that I trust, and without having to visit a crowded mall or store.
Those brands that already had a difficult time attracting customers to their website and stores before the coronavirus crisis took hold will find it even tougher to draw in shoppers in a tightened economic environment.
The companies that will thrive, I think, will go beyond just cutting costs or offering deep discounts; they will be the ones that maintained a strong connection—this could be anything from more personal marketing campaigns to simple communication about the state of business—to their customers.
It’s an extremely emotional time for everyone, and there’s something to be said about a sense of community. When brands listen, trust is built. And trust will be key for retailers going forward.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
See their latest picks free >>