Member Exclusive   //   December 21, 2021

DTC Briefing: The 3 biggest e-commerce stories in 2021

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. More from the series →

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

At the beginning of 2021, many DTC startups were coming off of a banner year of growth — but they faced a ton of uncertainty. 

While the coronavirus vaccine rollout had just started, it was unclear what people would be most interested in spending their money on in 2021. The question was if people’s shopping habits had been permanently altered, or if the e-commerce growth in 2020 was just a flash in the pan. 

Still, 2021 proved to be another banner year for e-commerce startups. Some of the earliest movers in the modern DTC space went public like Warby Parker and Allbirds and certain categories like buy now, pay later and one-click checkout saw an explosion in funding. 

To me, the biggest story in 2021 was how dramatically the e-commerce startup space has evolved. It’s more than just a bunch of brands selling a single product with Red Antler-approved branding. There’s more money than ever going into startups that either sell products online, or help companies sell more products online. 

Not all of these startups are going to make it. But, it’s noteworthy how many new sectors formed within the e-commerce startup space. With all this in mind, below are what I think were the three biggest themes permeating the DTC space in 2021: 

Holding companies are becoming more popular
After Amazon aggregators like Thrasio and Perch amassed hundreds of millions in venture capital funding, it was only a matter of time before the model made its way into the Shopify world.

2021 marked the launch of a few new holding companies, including Founders Fund-backed OpenStore. Meanwhile, startups like Pattern Brands and Harry’s pivoted from building individual brands to acquiring them.

The thesis behind all of these holding companies is that by building multiple brands under one company, they can reach scale and profitability more quickly through sharing teams across brands.

But where these companies differ is in how many brands they are looking to buy, and in which categories. OpenStore is category agnostic, willing to acquire brands in any e-commerce sector. The company also plans to snap up dozens of startups, thanks to a proprietary algorithm it developed that can place bids in as quickly as a day.

Other startups are taking a more methodical approach. Pattern Brands is sticking to the home goods category. Win Brands Group, which focuses on the home and wellness categories, plans to acquire three to five brands a year, CEO Kyle Widrick said earlier this year. 

Some of these models could create some strategic pitfalls. “The drawback [of holding companies] is if you get too diverse…you really don’t have much to gain by having common ownership,” Keith Anderson, svp of insights at analytics firm Profitero, previously told me.

What all these companies have in common: So far, they’ve mostly zeroed in on bootstrapped startups. Win Brands Group acquired Gravity Blankets. Pattern Brands bought GIR, which sells silicone spatulas. Harry’s snapped up natural deodorant brand Lume. Next year will shed some more light on which of these holding companies has the right approach.

More DTC startups went public, despite questions of long-term profitability
A record number of startups went public this year. Among the e-commerce startups that jumped into the fray were: Bark, Figs, Warby Paker, Allbirds, Honest Company, Olaplex and Rent the Runway. 

As Native deodorant founder Moiz Ali told me in an interview earlier this week, it was an exciting milestone, to “realize this industry isn’t nascent anymore, but it is commonplace and becoming a real part of the Dow Jones and NASDAQ.” 

While many of these startups reported a first day IPO pop, the rest of their tenure on the public markets have been rocky. The stock prices of Bark, Honest Company, Allbirds and Rent the Runway have fallen more than 50% since going public. 

With the exception of Figs and Olaplex, none of the aforementioned companies are profitable. As Casper’s recent decision to go private once again shows, the public markets will only tolerate losses from e-commerce brands for so long. 2022 will prove which of these newly-public companies will have staying power, and which will quietly retreat to the private markets. 

E-commerce software startups are seeing an explosion in funding
Ten years ago, even large retailers were struggling to keep their websites functioning on busy shopping days like Black Friday and Cyber Monday. 

Now, there are more e-commerce software startups than ever before. Take Yotpo, founded in 2011, which helps brands manage everything from customer reviews to SMS marketing. Many of these companies got their start on Shopify’s app store, which has become a kingmaker in its own right

Indeed, a once-nascent cottage industry predicated on an e-commerce app store has become a thriving ecosystem. “[Shopify] has invested a lot in trying to be the hub for these [small and medium-sized] businesses,” Jason Goldberg, chief commerce at Publicis, told me.

Some of these startups reached significant milestones in 2021: Buy now pay later provider Affirm went public in January. Yotpo achieved a $1.4 billion valuation while snagging a coveted investment from Shopify. Money poured into the one-click checkout space, with Bolt raising a $393 million round in October valuing the company at $6 billion, while Fast raised a $102 million Series B in January. 

All of these startups are betting on the fact that if they can get a fraction of e-commerce brands to use their services, they can build billion-dollar businesses, thanks to a greater share of retail sales taking place online. According to eMarketer, U.S. e-commerce sales are projected to hit $933 billion by the end of the year.

But going into 2022, the space is still very fragmented. One startup can quickly leapfrog over others by getting a well-known investor or securing a big retailer as a customer. They can also fall behind if they fall afoul of Shopify. As with the DTC space, it’s still early days in the e-commerce software industry. 

How TikTok drove 2021 style trends

Another major story of 2021 was just how big of a role TikTok played in setting trends — the short-form video app convinced a bunch of people to make baked feta pasta in February, and helped make Gap’s logo hoodie cool again in January.

According to styling service Stitch Fix’s inaugural “style forecast,” the number of client requests mentioning “TikTok” jumped 75% year-over-year. And according to Vogue’s review of Google’s year in search report, many of the top indie style search terms this year coincide with what was trending on TikTok this year, such as “cottagecore” and “’90’s outfits.”

The bottom line is, TikTok is playing a bigger role in driving product sales, particularly in fashion, and that is likely to continue into 2022.

What I’m reading

  • In other TikTok news, the app is going to launch delivery-only kitchens in partnership with Virtual Dining Concepts starting in March 2022. The menu will consist of recipes that have racked up some of the most views on TikTok, such as the baked feta pasta and pasta chips. 
  • From an adaptogenic tea brand to yet another Oatly competitor, Thingtesting has a roundup of brands launching in 2022
  • Custom suit maker Indochino is getting into womenswear in 2022. Founded in 2007, Indochino currently has 79 retail locations, which include both standalone stores and Nordstrom shop-in-shops.

What we’ve covered

  • Native deodorant founder turned angel investor Moiz Ali thinks the spate of IPOs and direct listings from companies like Warby Parker and Honest Co were good for the DTC space in 2021 – even if not all of them will stay public forever. 
  • Bark has been quietly growing its roster of retail partners since going public, and started selling its products in REI this month
  • Rebag is trying to stand out in the crowded resale space by investing in its own image recognition that instantly recognizes and prices, among other tools. Founder Charles Gorra spoke with Modern Retail about the benefits of Rebag’s in-house tech approach.