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Direct-to-consumer brand competition hits all-time high (2022)

The DTC market has exploded in the last two years with major players like Nike joining the race. The number of Shopify stores has grown 200% since March 2020. To put this in perspective, that’s 2.5 million stores - the population of Los Angeles. Today, we're unpacking the current state of affairs and exploring DTC tactics for brands to stay ahead of the competition.

Pandemic boom

Source: Smart insights

During the pandemic lockdowns, DTC Ecommerce and subscription brands thrived. With restaurants and shops closed, consumers with disposable cash could go online to get their usual treats delivered. As for replenishable goods such as speciality coffee, subscription brands such as UK roastery, Pact Coffee rushed to fill that niche. Commenting on this specific period for the company’s annual Transparency Report, CEO Paul Turton said,

“With coffee lovers resigned to their residences, the demand to enjoy speciality coffee at home skyrocketed. The business grew 46% and remarkably, we didn’t have to make any redundancies.”

2022 gloom

The Suez Canal is just one news bulletin in a long line of recent supply chain disasters

Two years on, the DTC Ecommerce picture is a little different. Post-pandemic life has resumed and with it a litany of problems including a cost of living crisis, global supply chain nightmares and market volatility. Consumers are tightening their belts and cutting down on luxuries. It shows in the numbers, Ecommerce spending plunged 7.9% in March. 

Despite this dip and the various problems, Ecommerce spending isn’t set to stall long-term. In fact, it’s predicted that by 2025, the industry will have ballooned to $7.4 trillion, up 50% since 2021. By and large, the biggest problem DTC brands face is the sheer scale of competition. It’s not just scrappy start-ups with cash injections on the scene anymore, corporate giants like Nike have joined the race to be among the world’s biggest DTC brands.

Household names are pivoting to DTC, and struggling

Nike has doubled down on its direct-to-consumer efforts

In the last 4 years, Nike has been quietly pivoting to a DTC model, moving away from retail and concentrating on direct sales. But just 4 months on from the official announcement that Nike was on a mission to become one of the fastest growing DTC brands, sneaker staple analysts have come out publicly and announced “DTC isn’t all it’s cracked up to be.”

Nike analysts have cited ‘additional costs’ as being the culprit. While Nike didn’t specify what those costs are, we can take an educated guess and assume paid advertising is a big chunk. It's no secret paid advertising is a tough nut to crack right now, with CAC rising beyond belief. If household names like Nike are struggling, the rest of the DTC industry is surely feeling the effects too.

Nike has pivoted to a DTC model

Adidas and Under Armor have also announced they’ll be shifting away from retail and wholesale in the following months and years in a bid to carve out a DTC future. 

Fashion and apparel make up 32% of all US Ecommerce sales, but food and drink follows hot on the heels with 16.7% of US online spend concentrated in this area. 

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Only the most remarkable will survive

The writing is on the wall: DTC brands are ten a penny and the market is reaching saturation point. More competition often means less profit and you may be questioning ‘are DTC brands profitable?’ 75% of US DTC brands make less than $1 million in online sales.

Of these US DTC brands, 27,000 are believed to be subscription brands. This sounds promising as recurring revenue is a great thing for growth, but when you dive into the churn rates the picture looks more alarming.

Source: PipeCandy 2022

This table from PipeCandy shows just how volatile the DTC subscription market can be. In many cases the current to past subscriber percentage ratio is the same, or more. Losing as much subscription revenue as you gain is a scary picture, particularly as funding starts to dry up and acquisition costs explode.

While there are various levers you can pull to retain more of the customer base you’ve got, having an incredible product and stand-out USP should be number one priority.

What makes a DTC brand remarkable?

To be a remarkable DTC brand in 2022, you need to be memorable, sell something people want and have a bulletproof brand identity. The best-loved DTC brands on the market today have at least one of the pictured traits, some have all four.

Jot Coffee

Jot Coffee sell liquid iced coffee

In the US, Jot is one of the fastest growing DTC coffee brands and it’s easy to see why. A liquid-concentrated caffeine solution. One tablespoon can be added with water to create instant iced coffee.

The theatre, convenience and originality of this brand has got people excited and it shows with a 55k strong following on Instagram, Jot has also been hailed as FastCompany’s most innovative 2022 brands.

If your DTC brand sells something less exciting than magic coffee, it doesn’t mean you can’t pull various levers to stand out. Most DTC brands can attest to being described as one of the above (see image), some can attest to being all of them.

Who gives a crap?

Take the UK brand, Who Gives a Crap? Toilet paper isn’t the most interesting replenishment in the world, but the brand has managed to nail the ‘remarkable DTC brand’ brief with its line of recycled bamboo toilet paper. 50% of company profits are donated to build toilets for the 2.4 billion people worldwide without one and their latest product line is a clever take on the nostalgic ‘Where’s Wally’ game. 

And the hard work has paid off, Who Gives a Crap? has grown its subscription model by 250% in the past two years. It just goes to show that innovation can happen in the most unlikely products.

DTC competition is not all doom and gloom though, if you have a brand that is doing good for the planet, a little competition can be a good thing. This is the case for healthy drinks brand MOJU. Growth Marketing Manager, Josh says,

“MOJU’s mission is to democratise wellness to make proactive health and wellbeing choices more accessible for every body. Ultimately, if more brands exist to help us reach that goal, it benefits everyone."

Josh Lewis, Growth Marketing Manager

MOJU Drinks

Continuing, Josh says "We are always doing what we can to break barriers, create fearlessly and shake shot up - be it through new and existing product development, limited editions, new online platforms, pushing boundaries with our design and tone of voice and testing and iterating as we go. On top of that, our dedication to providing the best possible experience for our customers (both retail and DTC) has people coming back again and again for more.”

DTC brands must drive more revenue from existing customers

7 out of 10 customers buy from a brand once and never return, and 70% of first-time online carts are abandoned. Imagine the annual difference in growth if DTC brands could increase their repeat customer rate by just 5%. With acquisition costs through the roof and fierce competition everywhere you look,optimizing your holistic customer journey and driving more revenue from your existing base is the only way to shake off the competition.

Source: PipeCandy 

There are 3 easy and effective ways to start transforming this today:

1. Target more effectively

Although targeting accuracy has dropped off a cliff with paid advertising, there are levers brands can pull when it comes to email marketing. Predictive data has become very sophisticated and there are now market solutions which sync with Klaviyo and analyze all customer data to make the best possible predictions around optimum repurchasing and subscription adoption times.

2. Optimize your email flows

Do you have effective flows in place to funnel customers at every stage of the journey? Reactive campaigns tend to steal a lot of the limelight and discounting race to the bottom reigns supreme, but consider whether you have the right flows and segmentation in place to really hold onto those customers. Key flows include:

  • Abandoned Cart Flows
  • Welcome Flows
  • Replenishment Flows
  • Cross-sell Flows
  • Winback Flows

3. Make repurchasing frictionless

36% of customers will stop engaging with a website if they find the UX poor. Take a look at the repurchasing experience. Are you driving customers to the same old clunky landing page? Do customers have to faff around with log-in details to buy again? All of these barriers to purchase can be streamlined.

Conclusion

The appetite for DTC Ecommerce brands is greater than ever before, but so is the competition. As corporate giants pile on to get a slice of the pie and external forces shrink time and budgets, the only way to become a resilient DTC brand is to drive more revenue from your existing customers.

At Relo, we’re laser focused on getting existing customers to buy again, try a subscription and stay on subscription. Discover how we’re helping the world’s best DTC brands generate 17 x more repeat revenue.

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