DTC Briefing: At Shoptalk, the retail tech landscape pounces on the DTC boom
This is the latest installment of the DTC Briefing, a weekly Modern Retail column about the biggest challenges and trends facing the volatile direct-to-consumer startup world. To receive it in your inbox every week, sign up here.
This week marked the start of one of the retail industry’s biggest tradeshows: Shoptalk, where executives at direct-to-consumer startups find no shortage of proclamations over what the future of retail looks like.
At this year’s event, buzzy terms like metaverse and Web3 continue to edge their way into the mainstream, but events like Shoptalk also provide a window into how the e-commerce landscape has evolved.
A decade ago, a DTC startup could easily brand itself as a tech company, as the idea of selling mattresses, glasses or other products online was still novel. Now, however, the landscape has changed. Shopify has transformed from an often invisible back-end services company into an e-commerce juggernaut that powers the websites of most DTC brands. As a result, most of the conversation around what tech DTC startups are considering investing in starts first and foremost with what integrates with Shopify. Increasingly, merchants are looking at investing in tech like livestreaming and SMS-based commerce that will help them create a more unique and personalized online shopping experience as online sales growth gets harder to come by compared to the heyday of the pandemic.
At events like Shoptalk, vendors get a chance to showcase their services to DTC startups in search of growth. This year specifically, the e-commerce industry has reached a maturation point where new types of services are being offered while founders put different types of considerations into place.
Rebecca Zhou, a veteran of the e-commerce space who is now CEO and co-founder of skincare startup Soft Services, said that when she started working in the industry nearly a decade ago, DTC brands didn’t have many tech vendors to choose from. Before starting Soft Services, Zhou worked as a consultant and also served as the head of digital product for Glossier, which was in the news earlier this year for laying off the majority of its tech team. In the early days, Glossier had built its own website rather than rely on Shopify. Five to ten years ago, such a tech-heavy move wasn’t unheard of for venture-backed DTC startups, Zhou said.
“It still wasn’t quite clear — if you wanted to build a website that looks different, that had a kind of unique customer experience, but also would allow you to more customize on the back end — what choices do you really have at that point?” Zhou said. “Shopify was still really known for being the solution for more of the mom and pops.”
In the years since, Shopify has become the go-to hosting site for direct-to-consumer brands — more than one million merchants use Shopify. As such Zhou said that a lot of the decisions about what additional tech DTC brands want to invest in starts with, first and foremost, what easily integrates with Shopify.
Another big area of focus for DTC startups is cutting down on customer acquisition costs and relying less on Facebook to acquire new customers. So some of the tech right now that’s gaining the most interest among DTC startups – like zero-party data collection tools – purport to help DTC brands do that.
Laura Kennedy, retail tech analyst at CB Insights, said that the first day of conversation at Shoptalk crystalized “the direction in which e-commerce is heading, which is moving beyond the foundational idea that e-commerce is simple and fast — I think everybody knows and expects that now.”
But, she added, “the technology that is going to get more attention — and certainly is here — is whatever is going to make it more engaging to shop digitally.”
Kennedy cited livestreaming as one example. “I think there’s still a lot of feeling that it has a lot of potential in the U.S. It might look a little different than in Asian countries, but I think there’s a lot of excitement around it.” CB Insights’ data backs this up. Funding to social commerce startups – many of which were livestreaming startups – reached a record $7 billion-plus at the end of 2021.
Firework, a startup that helps retailers enable livestreaming on their websites, raised a $55 million round led by American Express last May. Collectibles-focused livestream shopping startup Whatnot, also snapped up a lot of money last year, announcing a $150 million round that valued the company at more than $1 billion last September.
Kennedy chalks up part of the interest in tech like livestreaming — as well as other tech that purports to help personalize the shopping experience, like text-based commerce or artificial intelligence — to the fact that e-commerce growth is getting harder to come by. According to data from the U.S. department of commerce, e-commerce sales grew 14.2% between 2020 and 2021, compared to 31.8% the year prior.
“As we look to an omnichannel world where stores still make up the majority of sales — e-commerce is the growth driver,” Kennedy said. “You have got to find ways to continue to keep commerce growing.”
Even with the buzzwords and new technologies, founders are trying to balance shiny new objects with core business objectives. Zhou said a big area of focus for Soft Services is simply iterating on different landing pages to see what type of creative and product language might drive the best conversion rates. While she said she’s open to experimenting with newer technology like Web3 or augmented reality, she said that it has to solve an existing customer problem.
“I just think, what would I participate in? And what would get me really excited and would actually underscore the core value of the company we’re building — which is we are trying to help solve your body’s skin issues. And if there’s technology that can help that we’re going to experiment and try it out.”
But ultimately, Zhou said, “We want customers to know us as a company that makes the most effective body products. Not the first [brand] to adopt Web3.”
Breaking down Harry’s marketing mix
As digitally-native startups get older and more closely resemble traditional brands, their marketing mixes evolves. Razor brand Harry’s now advertises across more than 15 different channels, ranging from TV to podcasts according to co-CEO Jeff Raider.
“We’re constantly testing new channels. It’s one of the most fun things that we get to do,” Raider told me.
Video channels are an increasing area of focus for Harry’s, but the company has a formula for figuring out what works. First, it likes to test out shorter video creative on social channels like Instagram, TikTok and even Twitter. Then, “if that works there, we think it can work in places like YouTube or streaming TV or 100 other places where people might want to consume content in their life,” Raider said.
I asked Raider how Harry’s had been impacted by the volatility in Facebook advertising over the past year. He said that in the past Harry’s has previously found success on Facebook and Instagram “when we’ve engaged with customers in a way that feels native to the platform for them.”
But, he ultimately said, “I think for us, given that Facebook is one of many channels, and we weren’t overly reliant on it…it’s not really impacted our business at all. But we’ve recognized the [landscape] last year has continued to change, so we have to continue to innovate.”
What I’m reading
- Makeup entrepreneur Bobbi Brown, who recently launched a new brand called Jones Road Beauty. She’s also started going viral on TikTok with her videos on makeup tips, which in turn have helped drive sales at Jones Road Beauty.
- Victoria’s Secret is trying its hand at startup investing, announcing last week that it had taken an $18 million stake in California swimwear brand Frankies Bikinis.
- Glossier has opened a new Miami location, as the beauty startup shifts its focus back to new store openings.
What we’ve covered
- After opening four new brick-and-mortar locations last year, The Sill is focused on using digital features to drive customers to its plant stores.
- Apparel startups have fallen out of fashion with venture capitalists. The clothing startups that are still attracting lots of investor interest – like Vuori and Jaanuu, are in categories where there is less fashion risk.
- Fitness influencer Cassey Ho is one of a number of YouTubers who now wants to become an e-commerce entrepreneur. With her brands Blogilates and Popflex, Ho says she wants her brands to “become the number one in fit.”