The Return of Retail and 5 Other Direct-to-Consumer Trends to Watch in 2019

In 2018, it looked like there was no end in sight when it came to what direct-to-consumer (DTC) brands (also known as digitally native vertical brands, or DNVB) were willing to experiment with. Many brands opened pop-up shops, some made acquisitions and, of course, several expanded their product lines. This while companies also tested ecommerce on platforms like Snapchat and Instagram, all in an effort to remain Amazon-proof and grow their business. This year, trends will include more retail, disruption in new categories like the kitchen and valuation corrections. Expect more partnerships and marketplaces Currently, consumers find out about new brands in the DNVB space through word of mouth or a Facebook or Instagram ad. But that’s expected to change this year, with more brands working together either through partnerships or in a marketplace. “DNVB holdings companies that operate as a full-service marketplace, while owning each brand that they feature, will begin making their way to market,” said Web Smith, founder of 2pm Inc., an ecommerce newsletter and community. “It’s a win-win: streamlined infrastructure, higher margins, built-in audiences and more sales across the collection of like-minded brands.” For now, Smith points to Instagram as an “early-stage marketplace,” since brands need it to grow. Paul Munford, founder of Lean Luxe and an investor in Great Jones, a cookware company, and Italic, a luxury goods marketplace, agrees that a marketplace is necessary to navigate the plethora of brands out there for a single category—and it’s a space that can ignore SEO and ad words to give consumers an unfiltered look of what brands they can shop. Steve White, vp, commerce strategy at Publicis Sapient, said brand partnerships, such as the one between Macy’s and b8ta, are likely to happen more often. In the case of Macy's, the retail giant was not only part of b8ta's latest round of funding but is also using b8ta to expand the Market @ Macy's concept. At the same time, b8ta gets to use Macy's retail locations to sell its products. The hottest new categories are the kitchen, living room and healthcare “There aren’t that many brands in the CPG [consumer packaged goods] and DNVB space that are doing things in the kitchen, in the living room or the garage,” Smith noted. Sensing an opportunity, cookware brands like Great Jones, Material, Potluck and others are part of a new wave of companies trying to claim cabinet and stovetop space. Munford includes Year and Day and Snowe as part of this trend—even though those companies focus less on products like pots and pans and more on drinkware or flatware. “You’re starting to see those companies expand into other categories and expanding the brand that way,” he said. Another part of the home that’s on brands' radar is the medicine cabinet, with Hims, Hers, Roman, Ritual and Care/of starting to experiment in healthcare. “We’ve been seeing more and more stuff connected to healthcare in all different shapes and sizes,” said JB Osborne, CEO and co-founder of Red Antler, a branding agency. “That’s such a massive problem and pain point in our country and in people’s lives that there’s so much unraveling to do. There’s a still a ton of runway to do new things to go to market.” The opposite of a retail apocalypse It’s no secret that it's costly to acquire customers through online channels like Facebook and Instagram. Enter retail, which Smith said companies will approach in a surprisingly traditional way: instead of experimenting with pop-up shops, brands will open stores. Nicole Quinn, partner at Lightspeed Ventures, explained that previously, expanding a brand’s retail footprint was seen as a “cost-neutral marketing channel.” Now it’s a “profitable marketing channel” in which stores can “break even in just 12 months.” “The store attracts customers in, drives a good word-of-mouth effect and also has a halo impact on the online sales in that geography too,” Quinn said. Karen Howland, managing director at CircleUp, a fin-tech company, said retail is another “capital-efficient way” for DNVBs to grow their business. “We’re finding that as advertising goes up, customer acquisition goes up, [and] the authenticity of influencers keeps getting questioned, more companies are looking at retail as a less expensive way to grow their business and a pretty significant shift from what we were hearing three to four years ago,” she said. More technology to help DNVBs is on the way Robin Li, vp at GGV Capital, said while these DNVB companies try to figure out an offline or wholesale strategy, new AI companies are coming on to deal with inventory, shipping and payment. Li pointed to companies like Affirm or AfterPay. “This new era of payments and helping the customer in a manner that’s positive for them as opposed to feeling bad about a purchase will do well for this year,” Li said. Osborne thinks the DTC space is ripe for a scenario similar to what happened in payments, such as when PayPal bought BrainTree and Venmo. “I can imagine a world where existing DTC businesses start acquiring new DTC businesses to broaden their expertise,” Osborne said. Brands are in for a wake-up call on valuations When P&G bought Walker & Company Brands late last year for a rumored $20 to $40 million, it was a sign of things to come for acquisitions of DNVBs. Companies such as these had been taking in money solely to dump into Facebook and Instagram ads, said Li. But now there's a value correction as brands try to innovate around a “non-Facebook strategy.” Zach McMurray, a former client solutions manager at Facebook who worked with companies like Away, Allbirds and Hubble, echoed this observation, saying companies that are “capital conscious” will have the “most successful outcomes”—such as Stadium Goods, which only raised about $4.6 million in funding but was acquired by Farfetch in December for $250 million. Community, content and influencers are coming together for DNVBs In order for DTC companies to keep growing their community, Munford believes brands need to start building more of their own direct relationships with their customers away from platforms like Instagram and into concepts like the LinkedIn-type network that Girlboss is building or Glossier’s Into the Gloss blog. “I think you’re going to start to see these companies maintain that tradition of owning everything and owning their own platforms and, within that, doing things that they aren’t able to do on current platforms,” Munford said. “They like to own everything—especially that direct relationship with their customer, in a way that’s most beneficial to the brand, that’s not dictated by Facebook.” Content, particularly from publishers, is also going to play a bigger role in customer acquisition, said McMuray. Driving ads to a publisher that recommends the DTC products, he said, delivers better results than linking to the brand's own content. Influencers and founders will also play a big role in the success of brands. Quinn said the power of micro influencers will rise this year. “Gone are the days when glossy magazines marketed your brand," said Quinn. "Now it's the Instagram influencer doing the talking.” David Perell, a consultant, said even more notable than influencers promoting other brands is the trend of their creating their own companies. Recent examples include Ladders, a company created by LeBron James, Cindy Crawford, Lindsey Vonn and Arnold Schwarzenegger, and High Key, a collaboration between virtual shopping app Dote and YouTube star Emma Chamberlain. “I think what’s going to happen is you’re going to see a lot of the biggest DTC brands are going to have really powerful founders, and that is going to be the differentiation,” Perell said. “If you look at people with reach or people with influence, they start off from day one with way lower customer-acquisition cost and that right there is the delta between failure and success.” Get access to more analysis. Sign up for Adweek’s ecommerce newsletter today.