In addition to selling through mature website platforms, e-commerce sellers can also sell "directly to consumers" through the Internet. Brands such as Allbirds , Warby Parker, Stitch Fix and FIGS have pioneered such a new retail method - DTC.
Selling directly to consumers, these brands have seen their valuations soar into the billions on the promise of low overhead, no middlemen and a seemingly limitless customer base.
But since the beginning of 2022, a series of problems such as rising advertising prices in off-site traffic channels, deteriorating advertising measurement, soaring shipping costs, a more sober public market, and a smaller-than-expected customer base are dealing a heavy blow to DTC companies.
Market data shows that these DTC brand companies collectively lost billions of dollars in market value in an already terrible year of 2022 , performing far worse than the market.
An analysis by Big Technology of publicly traded DTC companies with market capitalizations of more than $800 million found that nearly every one of these companies is facing shrinking revenues, declining margins, spiraling losses, or a combination of all three.
So far, soaring ad prices on social have done the most damage to the DTC industry. “In two years, it’s basically doubled or tripled , ” said David Herman, a social media ad buyer, of the cost of advertising on one social site , saying the cost to reach 1,000 people with social ads has soared from $6 to $18.
Then there’s the supply chain. As the pandemic spread, the cost of importing containers from China surged, in some cases increasing 10-fold. The price of shipping a container from China to the U.S. soared to $15,000 from $2,000 before the pandemic, Big Technology reported last May. Today’s prices are even higher, multiple DTC sources say.
In this environment, Allbirds, Hims and Hers, Peloton, Revolve, StitchFix, Warby Parker and Wayfair have all reported significant losses, margin contraction or both in their earnings reports over the past year.
As a result, DTC stocks are taking a beating, too . As of Monday, Allbirds is down 64% in 2022. Stitch Fix and Warby Parker are down more than 40%. All other companies in the category are down at least 19% this year.
But it’s too early to abandon the DTC industry , sources say . Some companies are already looking to return to low-cost social media advertising. And venture capital money is still pouring into the space, with $1.05 billion invested so far in 2022 , according to Pitchbook . DTC Independent website Advertising costs soar |
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