February has been a chilly month for direct-to-consumer brands. Birchbox laid off a quarter of its staff. Brandless shut down. Casper’s IPO has underwhelmed investors. And so on.
For Matt Sargent, senior vice president of retail at consulting firm Magid, a brand’s natural expansion from loyal customer base to a wider audience is filled with pitfalls. Along with moving too quickly, a leading danger is the potential for challenger brands to drop their narrative—the thing that drives customer loyalty—along the way.
“There are some assumptions that are made when someone’s in a niche market and doing well that may not translate as well to the broader market,” Sargent said.
Leading up to Adweek’s Challenger Brands summit next month, we spoke with Sargent about the importance of a coherent story and why moving slowly can often get brands further along.
Nail down a narrative
After identifying a unique pain point in the marketplace, the first thing a young company should do is find a clear way to communicate that it has the solution, according to Sargent.
“Having that initial narrative in place is important,” Sargent said. “A lot of companies want to jump to the flash without the substance. Having that substance in place is key.”
One company that Sargent argued hasn’t done a good job of distinguishing itself from the competition is online furniture seller Wayfair, which laid off 550 employees last week amid its struggles to make a profit.
“Wayfair’s done a good job from a logistic perspective, but I would argue they haven’t necessarily created a sense of brand loyalty,” Sargent said. “If I had to look at Wayfair and look at some of their concerns, they haven’t really done anything that’s substantially different or nuanced that they can communicate.”
On the flip side, Warby Parker, Sargent argues, has done well at not only locating something customers want—affordable eyewear—but also being transparent about how it does it.
“You’ve got to try to find what you can that makes you different,” he added.
After identifying a niche audience and establishing a group of devoted customers, the next step is expansion.
Sargent cautions against doing this too quickly, even if venture capitalists are pushing for it.
“Direct-to-consumer brands, by their nature, have good transactional and behavioral information about their customers and how they interact with their brand—it’s a huge advantage,” Sargent said.
At the same time, he added, they sometimes have blind spots when it comes to knowing how their customers live their lives beyond their brand. Young companies therefore tend to overestimate their ability to scale swiftly beyond their core following.
While by no means a DTC brand, Sargent offered the 82-year-old outdoor retailer REI as a company that has successfully gained market share by slowly broadening its purview from hardcore campers to casual outdoor enthusiasts.
“They’ve managed to build a very dedicated audience,” Sargent said. “I think they’re a good example of how direct-to-consumer companies should try to grow.”
As for if DTC brands should launch their own stores, Sargent once again said that it’s wiser to walk first, run second.
“If you have a brand narrative that you’ve created and communicated and broadcast broadly … you can utilize that physical location, which reinforces and connects those dots,” he said. “I think it has to happen in that sequence, versus jumping right to a physical store and hoping that you can turn somebody into a fan.”