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.
Despite it being the biggest sales week of the year, the early wave of Black Friday sales data looked glum for the retail industry: online sales decreased year-over-year for the first time on both Black Friday and Cyber Monday, according to Adobe Analytics, while retail analytics firm Sensormatic Solutions found that in-store foot traffic on Black Friday was down 28% compared to 2019.
But for direct-to-consumer startups, it was a completely different story.
After experiencing record e-commerce sales last year, many DTC startups generated more revenue this past week compared to Cyber Weeks of years past. I spoke with four executives at DTC startups yesterday afternoon who said that, while sales were still rolling in, they were on track to bring in record revenue on Cyber Monday.
It’s natural that many newer companies continue to see growing momentum on Black Friday and Cyber Monday; any VC will almost certainly say that every healthy startup should see growing revenue year-over-year. But there were a few other factors that helped put the wind in DTC startups’ sales this year especially. While data from Salesforce showed that, on average, discounts were slightly smaller this Black Friday, many of the DTC startups I spoke with said they offered bigger discounts this year than ever before, encouraged by the huge swath of new customers they have acquired over the past 18 months. Additionally, some of the brands I interviewed — particularly those who manufacture those products in Europe or the U.S. — weren’t as susceptible to inventory delays as some of the bigger retailers.
Below are some of the biggest takeaways from my conversations with DTC executives about how Cyber Week looked different this year.
Larger, earlier discounts are the new normal
Most of the DTC startups I have spoken with over the past month said that they offered steeper discounts this year during Cyber Week compared to years past. Some startups only went a few percentage points higher; Peace Out Skincare, for example, offered a 30% off site-wide sale, up from the 25% off it typically offers this time of year. Cashmere sweater brand Naadam, meanwhile, offered up to 60% off of some items on Cyber Monday; Naadam CEO Matt Scanlan told me that it was a slightly deeper discount than the brand had offered in years past.
The brands I spoke with said that they felt they could justify deeper discounts this year, because of the huge sales growth they have seen over the past 18 months, and because they felt the new customer acquisition would be worth it.
“This year, we had a lot of gross margin to give; we had a really successful first half of the year so we knew we could go a little bit deeper,” Scanlan said. “For us, there is great value out of a customer, from a lifetime value perspective, if they come in during the holiday, on discount.”
Sales also typically started earlier this year. DTC furniture brand Floyd started offering discounts eight days before Thanksgiving, about three days earlier than it normally does. Naadam, meanwhile kicked off the holiday season by participating in Singles Day on November 11, which it participated in last year for the first time. Scanlan said that Naadam has started using the event as a way to test and see if its website is ready to handle the site traffic for Black Friday.
Taking advantage of competitors’ supply chain delays
Part of the reason why brands started hosting earlier sales this year was because of the increased discussion around supply chain delays. “We had a lot of people reaching out ahead of [our Black Friday sale] asking when we would hold it, just because I think there is general anxiety around supply chains right now,” Floyd CEO Kyle Hoff told me.
Floyd manufactures its products in the U.S. and thus isn’t as susceptible to overseas delays as other furniture companies. As a result, Hoff said that much of Floyd’s messaging in emails and in social media posts promoting its Black Friday sale focused on what items were in stock, not just on discounts. “I think we have learned a lot in the past eight months about communicating lead times and shipping,” said Hoff. “Versus, in the past, we’ve just leaned very heavily into the discounts.”
Other CEOs said that while they did notice people shopping earlier, it was hard to tell whether people started shopping earlier in order to avoid out-of-stocks, or because of the fact that most brands were offering earlier deals.
“I don’t know if we engineered it or anticipated purchasing behavior, but there was much more of an increased, steady acceleration of sales well ahead of Black Friday and it was much more consistent — it wasn’t these big spikes,” Goodlife CEO Andrew Codispoti told me. The t-shirt brand started offering a discount of 25% off its core essentials the week before Thanksgiving.
Startups are still bullish on brick-and-mortar sales
Early reports indicated that foot traffic was down at a number of big-box retailers ranging from Dick’s Sporting Goods to Best Buy compared to 2019.
But, the opposite was true at the direct-to-consumer startups I spoke with. Now, much of that was due to the fact that these startups have more stores in 2021 than they did in 2019, and that many people avoided in-person shopping during Black Friday all last year. Scanlan said that foot traffic at Naadam’s stores on Black Friday was up roughly 50% to 60% compared to 2020, and was also up over 2019 numbers. The company has opened several new stores over the past year.
Ariel Kaye, CEO of home goods brand Parachute told me that particularly on Saturday and Sunday, “we saw our retail stores really have a ton of foot traffic and high-intent customers coming through the door.”
I asked all four CEOs if there were any tactics they learned from this Cyber Week that they plan to apply next year. While all four said that it’s too early to tell, the consensus was that they anticipate that customers will continue to want to do more of their holiday shopping in November, and brands should prepare accordingly.
“This concept of sales starting earlier in November, I don’t think it’s going away,” Scanlan said. “I think the customer is going to be trained to spend all of November.”
What I’m reading
- Etsy started rolling out a “star seller” badge in September, but some shop owners told Business Insider that they feel the program requirements are too difficult for smaller sellers to meet.
- More CPG conglomerates like General Mills, Clorox and Colgate are looking to launch their own “direct-to-consumer” brands — Thingtesting looks at how those efforts are going.
- Resale sites like Poshmark, TheRealReal and ThredUp continue to report growing sales, and are hoping that more consumers give secondhand a second look in light of supply chain issues.
What we’ve covered
- After a year of supply chain woes, DTC brands are starting to spend more on logistics — investments range from hiring an operations lead to manage inventory delays, to building out more of their own factories.
- Encouraged by exponential sales growth last year, a record number of DTC startups went public this year — but their recent quarterly earnings show that their losses are starting to mount after a promising 2020
- I spoke with Forerunner partner Nicole Johnson about how she’s seen the consumer psyche evolve during the eight years she’s spent at the venture capital firm.