9 Emerging DTCs to Watch in 2021

A lot has changed since Warby Parker and Dollar Shave Club entered the scene. In an increasingly crowded space, brands need to find what sets them apart.
Retail Dive
Retail Dive
March 30th 2021Mar 30, 2021

When Warby Parker and Dollar Shave Club entered the market in 2010 and 2011, respectively, the so-called first class of DTC darlings was born.

It was a time when 148.1 million U.S. consumers were making purchases online, and U.S. e-commerce sales reached $301.69 billion, according to eMarketer.

DTC was almost "a synonym for the internet," said Emmett Shine, co-founder of multi-brand consumer goods company Pattern (formerly branding agency Gin Lane).

In the decade since, consumer appetite for buying online and through direct-to-consumer models hasn't slowed down. In 2020, e-commerce soared to $795 billion, up 32.4% year over year, according to eMarketer data.

Now even traditional retailers are jumping onto the DTC trend. Adidas earlier this month announced goals to have direct-to-consumer make up 50% of its sales by 2025, and Nike has invested more into its direct-to-consumer business as it exits more wholesale partnerships.

"I think you'll see those traditional players lean into the model more and more," Michael Felice, a principal in the consumer and media practice of Kearney, said.

The pandemic has actually helped fuel growth for direct-to-consumer brands as consumers were forced to shop online virtually overnight when businesses temporarily shut their doors and individuals became warier of trips they made outside their homes. It's also presented an opportunity for brands to attract a new set of customers who may not have opted to shop online previously.

"Everybody went online. Even our consumer base, which tended to be millennials, for the first time had 70-year-olds," Monika Kochhar, CEO and co-founder of SmartGift, said.

But the pandemic also introduced some new obstacles these brands will have to face. Over the last year, buy online, pick up in store really became mainstream. Everyone from Lowe's and At Home to Macy's, and even DTC brands like Casper, were touting their BOPIS features to consumers.

"COVID really did create a whole new baseline online behavior," Kochhar said. "I want to buy online, but I want to pick it up today." The challenge that creates for retailers, however, is having to spend more on things like last-mile delivery and increased fulfillment capacity. The heightened expectations from consumers around fulfillment come on top of problems many DTC brands already faced before the pandemic around shipping and logistics.

Brands entering the scene now not only are faced with the challenges of those first digitally native companies but also more competition, increased scrutiny to uphold their values and a constantly changing playbook for success.

How DTC is changing

While digitally native brands were born online — and some initially even swore they wouldn't venture away from the channel — the limitations of selling exclusively through e-commerce are becoming ever more apparent.

Among the few DTC brands that have entered the public markets, many have failed to reach profitability while at the same time continued to spend more and more on their marketing budgets to acquire customers.

To combat this, brands have turned to physical retail, whether through pop-ups and owned leases or, in some cases, partnerships with traditional retailers — causing brands to walk back on that original notion of "cutting out the middleman."

Many brands have landed in Target, Walmart and Nordstrom, and those traditional retailers are actually more receptive than ever to form those brand partnerships, according to Kochhar. "They realize the voice of the customers," she said. "There's a movement there, and they're all trying to capture the movement."

For Eric Prum, co-founder of Very Great — a company that oversees three DTC brands: Wild One, W&P and Courant — the need to operate as an omnichannel business was present from the start.

"In general, I think it's critical that while we do have a digital-first mentality, actually, for some of our business, the majority is actually B2B," Prum said.

To that end, Prum points to W&P as being a brand that has a beautiful website, a big focus on DTC and a strong emphasis on its digital community, "but we're actually bigger with our B2B relationships with Crate and Barrel, Sur la Table, Williams Sonoma, West Elm than we actually are on our own website."

Other DTC brands also launched as "pure plays" in the sense that they focused on one key product. However, in order to retain and broaden their customer bases, they've needed to expand their assortment. For example, Casper — which sells mattresses, a relatively infrequent purchase — has moved into other product categories, launching a smart nightlight, dog beds and CBD gummies, among other things.

For some of the brands featured in our list — which sell in categories benefiting from circumstances brought on by the pandemic — a return to "normal" may result in adjacent category expansions.

"How they continue to differentiate themselves versus another makeup brand or another cookware brand that capitalizes on an influencer or a movement within an industry will be critical for them to succeed," Felice said.

What consumers are looking for now

Not only is the channel in which consumers shop changing, but the decisions behind those purchases are as well.

"I think people want to support businesses that they feel an affinity to. They liked the story, they liked the branding, they liked the quality of the product, they liked what a business stands for. I think people do vote with their wallet," Shine said. "E-commerce is just continuing to grow and dominate in forms of commerce in many ways that America is actually behind. I think there's a ton of room to go and grow, and I think that the innovations will just continue."

Consumers, especially those of the younger generations, have been more vocal about wanting to shop with brands that are more environmentally friendly and take a stand on issues that matter to them. This behavior has resulted in a shift in language around companies' branding.

"It seems that the voice has changed. The voice has become much more purposeful, much more driven by causes. That shift really did happen over the last, I would say almost three to four years, with the rising levels of consumer consciousness around fast fashion or fast food," Kochhar said.

"For the longest time — and I was in the markets for a long time — everything was about quarterly revenue," she added. "Every company is just forced to trade decisions that are three-month-long decisions just because of earnings pressure. But now, I think the consumer's voice is actually getting them to say that, 'You know, we actually want to make a change and this is really what we stand for.'"

And the pandemic, which caused many to feel a strong sense of isolation, may have heightened consumers' longing for a sense of community within the brands they shop.

"We've lost a lot of our people connection and our inert ability to want to be around others, and be lifted up by others," Felice said. "I think sometimes we feel we can express that through the brands we use, which show our uniqueness, our creativity and our curated selves. Finding that in a brand means that not only am I thinking that I think the product is unique, but I want the brand to speak almost like me."

But as these brands shift to more cause-driven branding and foster a community of trusting consumers, they're being held to a higher standard to actually uphold the missions they tout on social media.

"There's definitely the ability to hold brands accountable," Prum said. "If their business strategy ratchets up to a retailer like Target, Target can take notice and not carry that brand. You can't fake certain things when it comes to sustainability."

In the past several years, brands like Outdoor Voices, Away and Everlane have also had their corporate culture questioned.

I think people want to support businesses that they feel an affinity to. They liked the story, they liked the branding, they liked the quality of the product, they liked what a business stands for. I think people do vote with their wallet. - Emmett Shine, Co-founder of Pattern

But from the investor side, brands are being held more financially accountable to achieve long-term growth. Previously, there was a notion for DTC brands to "grow at all costs." But now, investors are looking for more sustainable and profitable growth.

"The barriers to entry for new brands are the lowest they've ever been. But the barriers to success and scale are increasing daily," Felice said, adding that "as more people flood the market, they'll be looking to gauge faster exits and more profitable growth than just rewarding pure out top-line growth."

Prum says success lies in having fundamentally sound business economics related to supply chain, profitability and securing that first purchase.

"In the Casper, Warby, Harry's days, there maybe was that value in customer acquisition and the idea that it was going to lead to some great outcome. But I'm not sure there has been a really great outcome yet," Prum said. "The investment community is more eyes wide open than ever."

How to succeed in today's environment

Creating a brand online has never been easier, which has made the DTC space saturated with competition.

Brands must differentiate themselves and resonate with consumers to succeed, and doing that comes down to a couple of things.

Bringing on board people that understand the "unsexy" aspects of a business like SEO, paid marketing and retargeting will make a huge difference, Shine said. But ultimately, it boils down to testing a product and making sure it works for consumers.

The biggest things SmartGift's Kochhar looks for in potential clients and partners are: personalization, which can be a brand providing more colors, styles, fits, sizes; community and a brand that "attentively voices their overarching values because that's what consumers want"; and how quickly a brand goes from a product mindset to an overarching industry narrative.

To the latter point, Kochhar points to mattress brands that have been able to shift from pushing out a sleep narrative to a holistic living narrative.

As more brands continue to enter the market Retail Dive took a look at nine emerging DTC brands to keep an eye on in the year ahead. View the full article and list here.