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.
Many DTC brands are going all-in on Black Friday this year with multiple, earlier deals.
Some of the DTC brands that are hosting pre-Black Friday sales or promotions this week include apparel startup Rhone, as well as skincare brands Peace Out and Hero Cosmetics.
Last year, some of the largest big-box retailers started hosting holiday sales in November and even in October, in order to encourage fewer crowds in stores during a time when coronavirus cases were climbing, without a clear timeline for a vaccine. But this year, it’s many of the digitally native startups that are hosting earlier and earlier deals. Armed with a larger customer base, they wante to capitalize on the huge e-commerce growth they’ve seen over the past two years. They are also betting that people are going to want to do their holiday shopping earlier this year, spurred by concerns about shipping delays and inventory shortages.
For years, the narrative has been that DTC brands never go on sale, because they were able to offer a better price by cutting out the amorphous “middle man.” But, the reality is that all of the biggest DTC brands ranging from Casper to Brooklinen have participated in Black Friday for years, because it is too big of a sales holiday for many brands to ignore. Last year, most of the brands I spoke with offered a straightforward 20-30% off during the week of Black Friday and Cyber Monday.
Hero Cosmetics is one of the brands that kicked off its holiday sales earlier than ever this year. The skincare startup promoted a new deal each day between November 8 and 12, ranging from a buy one get one free on products from one of its newest lines one day, to a discount on one of its most popular items, the Mighty Patch, another day.
Amy Calhoun Robb, the company’s vp of marketing, said in an email that Hero Cosmetics ran a similar “daily deals” series last year, but decided to host it a week earlier this year. “Customers were also hurt last year by the domestic shipping delays with the major carriers, and I also suspect they are ordering earlier this year to ensure their items are delivered prior to the holidays,” she wrote.
Calhoun Robb said that in addition to last week’s sales, Hero Cosmetics will be offering another percent off promotion during the week of Black Friday and Cyber Monday, and also offering customers a gift with purchase.
Casey Hart, director of paid social at holding company Win Brands Group, said that all three of the company’s brands — Homesick Candles, Gravity Blankets, and Qalo — are hosting pre-Black Friday sales that kicked off either late last week or early this week. Hart said that the company is hosting pre-Black Friday sales anywhere from two to six days earlier this year, depending on the brand. Discounts range from 20% to 25% off, and that percentage off will increase during the week of Black Friday and Cyber Monday.
Hart said that it will be the best discount that Win Brands Group has ever offered, explaining that the company wanted to give a steeper discount on Black Friday and Cyber Monday this year in part because it is betting that e-commerce will continue to take up a larger portion of holiday sales this year.
“I don’t foresee people going as heavily back to in-store shopping, maybe as some predicted earlier this year,” Hart said. She said that another area of focus for Win Brands Group in the lead up to Black Friday has been on making its discounts easier for customers to redeem — for example, not relying so heavily on promo codes that customers have to type in at checkout.
As brands embrace heavy discounts during Black Friday and Cyber Monday, they are more closely emulating the tactics of traditional retailers. It raises the question of whether or not these practices will lead to more widespread discounting down the line.
Executives at these startups, however, are quick to point to the fact that many people now buy their holiday gifts during Black Friday and Cyber Monday as a reason why they feel like it’s necessary to participate in the shopping holiday. In a Klarna survey from earlier this year, nearly half of shoppers surveyed said they planned to do most of their holiday shopping on Black Friday, while another 38% plan to do it on Cyber Monday. If these DTC startups don’t offer a Cyber Monday sale, they risk losing a sale from someone who wants to buy all of their Christmas gifts on that day.
JP McCary, chief commercial officer at Peace Out Skincare, pointed to the huge e-commerce growth the company has seen over the past two years when asked why the company decided to host an earlier — and steeper — Black Friday sale this year. Peace Out started offering discounts on November 11 — a week earlier compared to last year — in which customers could get a percentage off certain bundles. On Black Friday and Cyber Monday, Peace Out will be offering 30% off site-wide. Last year, the company offered 25% off.
McCary said that Peace Out’s sales grew more than six times between 2019 and 2020, and are on track to grow more than 90% year-over-year by the end of 2021. The way the brand sees it, key sales events like Black Friday and Cyber Monday are a key time to both acquire new customers, and encourage existing customers to buy more, to keep sales climbing.
“We want to focus on ensuring that the consumer can get into the brand if they are new, at an affordable price point to truly be competitive, but also really rewarding our loyal consumer who is maybe self-gifting or buying for their friends,” McCary. “People are looking for value constantly now.”
Casper retreats to the private markets
In case you missed it, Casper announced yesterday that it had been acquired by private equity firm Durational Capital Management. As part of the deal, the mattress brand will go private less than two years after going public. Some of the most notable pieces of information from yesterday’s announcement are included below:
- The deal will value Casper at $6.90 per share, or roughly $286 million. For reference, Casper reached a peak valuation of $1.1 billion during its last spin on the private markets, and closed at a valuation of $535 million at the end of its first day as a publicly-traded company, back in February 2020.
- As part of the deal, co-founder Philip Krim will resign as CEO. Emilie Arel, currently the president and chief commercial officer who has been with the company since 2019, will take over the top executive position.
- Casper cancelled its third-quarter earnings call, which was initially scheduled for 5 p.m. yesterday, after announcing the deal. But the company disclosed that during its third quarter, losses grew to $25.3 million, compared to a loss of $15.9 million during the same period a year ago.
While Casper’s revenue was growing, so too were its losses, and the company hadn’t established a clear path to achieving profitability or becoming a market leader in the mattress space. During its second-quarter earnings in August, Casper reported that it achieved an all-time quarterly sales record of $151.8 million, up 45% from the year before. But the bulk of that revenue growth was driven by new retail partnerships, such as Sam’s Club and Nordstrom.
It’s a cautionary tale for the spate of direct-to-consumer startups that have gone public over the past year, ranging from Warby Parker to holding company Solo Brands. Wall Street will only tolerate losses from retail companies for so long.
What I’m reading
- Supply chain woes mean that there’s less excess inventory– which could spell trouble for off-price chains like TJMaxx. Under Armour and Ralph Lauren are among the brands who have said recently that they are setting aside fewer items for off-price stores, CNN reported.
- CNBC has an overview of e-commerce startups’ holiday advertising plans. Unsurprisingly, brands to invest more in direct mail and TV following Apple’s privacy-related changes, while also more prominently highlighting which products are “ready to ship” in marketing materials.
- Daily Harvest is now valued at $1.1 billion after a new funding round, and is set to open its first store in Chicago next year.
What we’ve covered
- In its first earnings report as a publicly-traded company, Warby Parker disclosed widening losses. Losses totaled $91.1 million, up from $41.6 million during the same period last year. Revenue jumped 32% year-over-year.
- Florida, Texas and Tennessee are becoming increasingly popular places for DTC startups to open stores.
- Financial services companies ranging from American Express to Klarna are investing more in livestream shopping, betting that it will drive a lot more transactions going forward.