You’ve probably seen them, the ads before your YouTube video promising to “cut out the middleman” and “offer premium products at an affordable price,” all while a witty narrator explains their company’s mission and values. Then you check your favorite news website or social media and the same company appears in banner ads and in Instagram sponsored posts.
This company may be part of an exciting new business model called DTC (Direct-to-Consumer). And these brands are changing the value proposition of most industries, and no industry has been remodeled quite like the fashion industry — menswear included!
What is DTC?
There are three main factors that differentiate the business model of recent DTC companies
- disintermediation of traditional retail channels (they primarily if not entirely sell online, rather than in stores)
- ownership of marketing, and
- control of sales data
It is this last feature especially, ownership of sales data, that has allowed DTC companies to raise billions in funding. Famously, Dollar Shave Club, a DTC delivering razors to your home each month, was purchased by Unilever for $1 Billion in 2016.
But how can these companies hope to compete with established brands who have superior logistics and brand recognition?
“They cut out the middleman,” of course!
But what does that mean?
Well depending on the industry, and even the company you ask, that can be very different.
What it most often means in fashion is that you will not find these brands in a Macy’s, JC Penny, or similar department store. DTC brands are, mostly, ecommerce businesses and by limiting their channels they can limit inventory, better control their own sales data, and avoid the middleman markup.
How Did They Start?
Warby Parker became one of the first DTC brands when their founders asked, “why are glasses so expensive?” And this trope is an often-repeated founding initiative of numerous DTC stories.
Why are mattresses so expensive? Led to Casper.
Why are razors so expensive? Led to Dollar Shave Club.
DTC companies have been founded for other reasons too.
Where are the comfortable, all-natural wool shoes? All Birds.
Where is the simple method to get personal care prescriptions? For Hims.
The Power of Pricing Control
Nike and Polo Ralph Lauren fit the definition of DTC except for one important factor: their lack of sales data control, and thus ability to price. This also creates challenges with respect to information sharing contracts with their retail (often department store) partners. This lack of data can cause a company like Adidas to be a price competitor with itself, when sold through different retail partners and channels — allowing prices to vary considerably.
These established brands also often have corporate owned boutiques and outlet locations. This further complicates their pricing strategy, as customers are able to find items on sale at department stores or outlet malls, which impairs the brand’s ability to sell at a premium in their flagship stores.
Ever Growing Customer Acquisition Costs
Venture capital has flowed gobs of money into DTC brands because of the business model’s advantages. But cracks have begun to appear as DTC has shown its own weaknesses.
The chief issue brands and investors have found is the never ending cost of customer acquisition. These brands cannot count on foot traffic or retail partner advertising. Instead, they need to consistently reach out to customers. This means hefty bills to Google Search, Facebook ads, and maintaining influencer relationships.
CPC (Cost per Click) is an advertising model where brands pay a publisher, such as Google or Bing, when an ad is clicked. Brands must bid at auction for keywords; and as more DTC brands enter the fray, and receive ever higher funding, the keyword prices for “full-grain boots” and “Italian leather shoes” become more expensive. Some of the most popular keywords can cost brands up to $10, or even more, per click!
And with how customer acquisition is calculated, the cost for a paying customer isn’t only the cost to show that customer the YouTube ads, banner ads, and CPC for Google, but also the cost of the non-purchasing visitors who saw the same YouTube ads, banner ads, and who click the Google search result but do not purchase. A cost breakdown for a $200 product often looks similar to: –$100 materials and manufacturing, -$25 shipping, –$30 for returns and customer service, –$35 in customer acquisition — leaving thin profit margins for the DTC brand.
Is DTC the Most DTC?
Many DTC brands do not manufacture a majority of their own products. These brands find companies in Italy, Spain, and Mexico (among other locations) to make the vast majority of their products. (Keep in mind these manufacturers are often some of the best.)
Meanwhile established brands like Red Wing, Allen Edmonds, and Alden own their own factories, employ the skilled workers and manage their own stores. So how is Red Wing or Allen Edmonds NOT a DTC?
Additionally, some DTC brands have begun to follow their retail ancestors and have opened physical locations in major cities, where the rent can be as high as $40,000 per month. So these brands are starting to become more like their more established competitors.
Why Do I Like DTC Brands & What Do I Look For?
Here’s why DTC brands appeal to me.
Original Designs
The DTC model enables brands to experiment with and create original designs. Many brands will advertise their production “in small batches,” so it is important to grab up appealing designs quickly, because they may not be offered again!
And then there are the truly groundbreaking companies, like Undandy, which allow for extreme customization. Choose your toe-box, choose your leather, choose your sole, laces, finish, and color — all integrated into a design web-app on their website so you can easily dream up your shoe on your lunch break.
Customer Service
In my experience with DTC companies, the customer service is just unmatched. The last thing a new DTC brand can allow to happen is a torrent of poor online reviews, so these companies go above-and-beyond to make sure you are satisfied with your purchase.
A Mission and an Original Value Proposition
Many DTC brands are built around a problem the founder encountered. They couldn’t find an item at a reasonable price, they couldn’t find the right style, or they wanted to spend money at a company which shares their values. The start-up nature of DTC brands mean that they have a unique insight or identified a hole in the market—and it just may be that the hole they now fill is exactly what you are looking for.
Brands I Love
Koio: Superior sourcing from Italy and the highest quality materials. This brand is more expensive among DTC brands; their flagship shoe, the Capri, is $248. But Koio is delivering ultra-luxurious products with clean, yet unique designs. My favorite product of theirs is the Capri Triple White. (Our review here.)
Thursday Boot Company: The founders wanted an affordable boot that you could wear to work and then out to socialize. I have worn their famous Captains, in the Brandy leather from the Le Farc Tannery, to job interviews, to dates, and to work in an office setting. This go-anywhere boot costs $199 and I really like their pricing strategy — always the same price and no waiting for sales. (Our review here.)
Oliver Cabell: They make the absolute best GAT (German Army Trainer) out there. I am also a huge fan of their price breakdown and transparency. Additionally, Oliver Cabell has been really expanding their collection, just recently adding a whole line of really interesting boots. The most well known shoe of theirs is the Low 1, selling for $188. (Our review here.)
Gemi: This brand is working to keep the great tradition of Italian artisan shoemaking alive, and we as customers get to benefit from their superior workmanship. They produce all of their product in Italy and are committed to sustaining small to medium sized family-owned factories. The Lucente, their take on the classic white shoe, goes for $228.
Final Thoughts
I am always on the look-out for unique pieces that can fill a specific need in my wardrobe. Luckily, we now have the DTC model which fills the holes left in the market by the traditional retail model. Founders are discovering these opportunities and are disrupting the established brands. But many DTC businesses struggle to maintain profitability, and attract customers, without losing all of their profit margin to online advertising.
In the meantime, we as customers win! We can find high quality, thoughtful designs at affordable prices from companies that share our values. Often their products are “made in small batches,” so make sure to act quickly before the product — or the company — is gone!
Editor’s note: This article is an op-ed. The views expressed herein and in the video are the author’s and don’t necessarily reflect the views of Stridewise, LLC. Claims, assertions, opinions, and quotes have been sourced exclusively by the author.
Daniel Pati
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