DTC Briefing: ‘The writing’s on the wall’: How startups are responding to inflation
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.
Rising prices have been keeping direct-to-consumer executives up at night for a while, as the cost of everything from cotton to shipping containers has exploded over the course of the pandemic. But this year, inflation has become a far more pressing issue for the average shopper — and it’s only getting worse.
Last week, inflation hit a 40 year high, according to a new report from the federal government. It’s something that retail executives have been preparing for over the past year. As I’ve previously written about, DTC brands have been doing everything they can to avoid raising prices over the past two years, by doing more price shopping with vendors as well as buying raw materials further in advance.
But now, as inflation only gets more urgent, brands have a new reality to consider: rethinking their value propositions as shoppers become more price-conscious. Many DTC executives, of course, say that they already offer high-quality products to customers at an affordable price. But they’re also increasingly looking for ways to emphasize the durability or the value of their products in their marketing messaging. Other brands are betting that their less expensive products will drive more sales in the coming months. And as consumers become more cost-conscious it may mean some brands that saw hyper-growth at the beginning of the pandemic will face new realities as shoppers get more selective about what they buy.
“The writing is on the wall that inflation is going higher,” Andrew Codispoti, co-CEO of t-shirt brand Goodlife told me.
Goodlife — which sells t-shirts starting at $48 — hasn’t had to raise prices over the past year. Codispoti told me that roughly 75% of the company’s product is manufactured domestically; despite rising in the U.S., Goodlife hasn’t been as hurt by some of the increased transportation costs in Asia. He said that Goodlife has also tried to get more internally efficient in other ways, such as by hiring a strategic planner.
Still, Codispoti said that he does expect that customers are going to get more price-conscious in the coming months. “As people become more discerning, you’re going to care about the quality and the durability of the product in your closet, you’re going to care about functionality,” Codispoti said.
As a result, Codispoti said that the company is working on a few marketing campaigns that will emphasize the durability of Goodlife’s products — for example, that the quality of the t-shirts stands up even after multiple wash cycles. Goodlife also recently started offering a lifetime guarantee as well.
“Like anything in marketing, it becomes iterative, and we’re going to continually test new copy and see what works,” Codispoti said.
Other DTC executives I spoke with said that they are betting on their less expensive products to become better sellers in the coming months, for a variety of reasons.
“As a luxury brand, our core customer is likely less price-sensitive than most,” Lindsey Johnson, CEO of direct-to-consumer towel company Weezie said in an email. However, she said that the company had recently launched a number of lower-priced items, such as hair and gym towels, to “service a customer who might be more price-sensitive given inflation.” The company’s classic piped-edge bath towel goes starts at $64 while a hair towel starts at $34
Meanwhile, Sean McGinnis, president of Kuru Footwear, said that the orthopedic footwear company is expecting sandals — which are less expensive than most of the company’s other shoes, like boots and sneakers — to become better sellers as the weather gets warmer. For example, some of the company’s least-expensive sneaker models go for $135, while sandals start at women’s sandals start at $104. The company is releasing three new styles of sandals this year in preparation for this, and “like every year, we will see more customers selecting sandals, which drives our AOV down slightly compared to Fall/Winter,” McGinnis said in an email.
Like Goodlife, Weezie is also looking for new ways to communicate how high quality its products are, Johnson said, as shoppers get more choosy. For example, she said Weezie will is doing more marketing showcasing behind-the-scenes shots as its factory. Weezie also recently opened its first permanent retail store – the company decided to extend a pop-up it did in Atlanta last year – which Johnson said will give new customers who might be on the fence about buying a chance to feel and test out the product.
None of these tactics are that radically different from what DTC brands have done over the course of the past decade. First movers in the direct-to-consumer space like Warby Parker and Casper were all about positioning how their businesses helped customers save money by cutting out the middleman.
But over the course of the last decade, consumers have gotten savvier — and it’s gotten harder for DTC brands to build a product that’s truly unique. As inflation rises, it will become clearer which DTC brands have been able to build a business by driving impulse purchases, and which ones have convinced a large cohort of customers that they need their products.
Kuru’s McGinnis said for example that while he expects Kuru’s customers to cut back on discretionary spending in the coming months, he believes the company is well-positioned to navigate continued inflation “because we solve a real job-to-be done for our customers.”
“We’re not totally immune to these pressures, but we do tend to be less affected by these cycles than our category as a whole,” McGinnis added.
Stats of the week
While many DTC brands have increased their marketing budgets over the past year, not all of those efforts have translated into direct revenue gains across all channels. According to the most recent Modern Retail Research of 88 DTC brands:
- 59% of the DTC brand respondents said they increased their marketing budgets over the last year
- But, only 48% reported a wholesale revenue bump
- Meanwhile 54% said they saw an increase in direct retail revenue
You can read the full report here.
What I’m reading
- The percentage of e-commerce sales as a share of total retail sales has started to decline, dropping back to roughly pre-pandemic levels. The Wall Street Journal has a big feature on what this means for brands and retailers.
- Jewelry brand Kendra Scott released its first watch collection. It’s the brand’s latest attempt in recent months to appeal to more consumers via product expansion. Last year, Kendra Scott also launched its first jewelry collection for men.
- Business Insider has an overview of nine venture capitalists young DTC brands need to know.
What we’ve covered
- Member exclusive: Modern Retail examines how three consumer brands – Goodlife, W&P and Partners Coffee – approach retention.
- Rental and resale services like Rent the Runway and ThredUp are among the companies that hope to benefit from inflation, as they believe consumers will become more selective about what new products they buy.
- Plant-based ice cream brands like Sunscoop and Dear Bella are building out direct-to-consumer sites and expanding their retail footprint as they hope to become household names.