Consumer/Analysis/

DTCs, here are the growing pains you need to plan for

A world free of middlemen brings its own challenges

By Amelie Bahr

The rise of the modern direct-to-consumer, or DTC, brand has been all about moving away from the high street experience. For DTC startups, brick-and-mortar retailers are margin thieves that prevent brands from developing closer relationships with their customers.

Killing the middleman is certainly something that has worked for the likes of meal kit startup Gousto and activewear company Gymshark, both of which hit unicorn status in 2020. A wave of other DTCs are following in their footsteps, including beauty startup Beauty Pie, which raised $100m in September, and plant-based meal kit startup allplants, which completed a £38m raise in October.

Yet Sifted’s report on the European ecommerce boom shows that despite these advantages, web shops also face distinct challenges and growing pains. Based on interviews with founders, VCs and industry experts, here are what DTC brands need to look out for.

Marketing madness

With more and more startups hoping to cash in on the DTC playbook, competition is heating up and customer acquisition and retention costs are on the rise. Startups need to get even savvier about marketing by working with influencers and promoting their products across social media channels. At the same time, a new breed of startups is catering specifically to influencers who can leverage an existing audience to burnish their DTC brands.

That’s why we’ve seen some DTC brands adding celebrity angels to their cap tables in a bid to get an edge in marketing. 

Can you really kill the middleman?

Building an online-only brand may allow DTC startups to get off the ground more quickly than their brick-and-mortar counterparts, but not all of them may be able to sustain longer-term growth purely online. Depending on what they’re selling, and whether people need to test it in-person, the future surely involves a combination of online engagement and in-store experiences, whether pop-up or permanent.

Striving for seamless purchases

From the outside, DTC may seem to be mainly about glossy Instagram feeds and eye-catching customer outreach — and while these tactics may be successful at drawing punters in, they’re no guarantee for a completed purchase. And so startups are working hard to make checkout experiences as seamless as possible by expanding their payment options and simplifying login processes.

Sellers are spreading their bets by growing their pool of payment options. “We offer a wide range adapted to each local market, to make the purchase process as convenient as possible,” says Jennifer Baum-Minkus, cofounder of German beauty company gitti. 

Delivery headaches

What DTC startups may be able to save on rent, they may instead have to spend on making sure their logistics run smoothly. Delivery costs are a giant headache — even more so when there are a large number of returned items. On top of that, with consumers increasingly concerned about ecommerce’s lack of sustainability, startups are under increasing pressure to vet the credentials of their suppliers and delivery partners.

Ellipsis Brands, for example, was not spared the early pandemic supply chain chaos, and keeping sufficient inventory remains a big challenge. “There’s a global cardboard shortage which of course has all to do with ecommerce going berserk. Recycling plants can’t cope. Our cardboard supplier can’t cope; they went from a three-week to three-month lead time overnight,” founder Freddy Furber tells Sifted.

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