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Yes, It Is Possible For DTC Brands To Grow In Today’s Economic Climate

The highest inflation in forty years has caused consumer confidence to dip to a three-month low, forcing many to forgo new home, appliance and car purchases, according to the Conference Board. Despite these headwinds, retail as a category is predicted to continue growing, albeit at a slower pace than we have seen for the past two years. Mastercard’s
most recent Spending Pulse reports that US retail sales remained steady in April, up 7.2% over last year.

While digitally native direct-to-consumer (DTC) brands excelled during the pandemic due to a number of factors, including lower real estate exposure, inexpensive customer acquisition costs, and a surge in online shopping, today a different strategy is required for success. The past eighteen months have seen a rapid sea change in the success of performance marketing due to the rollout of iOS 14. Paired with ongoing supply chain shortages, recruiting challenges, and now, lower consumer confidence, digitally-native DTC luxury and beauty brands need to consider new avenues for growth:

Explore New Retail Formats: Identifying smart ways to optimize all consumer touchpoints is another key to success, with controlled distribution remaining a major success factor for most DTC luxury brands. So much so, in fact, that Chanel Beauty recently told Business of Fashion that in the coming years it will move to more of a DTC format by reducing its dependence on wholesale partners. The article reports that the luxury beauty giant’s ecommerce sales were up 32% last year, and it also opened 50 stand-alone Chanel Beauty boutiques. In reverse, identifying the right retail partner or pop-up location can help digitally native DTC brands acquire new consumers. Pangaia, the sustainable digitally native DTC materials science brand which creates athleisure wardrobes made from its sustainable fabrics, selectively opens pop-ups globally so that consumers can engage with and experience their products in real life before buying online.

Test New Digital Platforms: While the market for luxury shopping in the metaverse is still in its infancy, brands including Balenciaga, Louis Vuitton, and Burberry are all experimenting with different formats to understand who the customer is in this new virtual world. Many brands feel that the once-in-a-lifetime opportunity to be a Web 3.0 pioneer is a compelling proposition for new customer acquisition. Other non-traditional platforms can be equally rewarding. Digitally native cosmetics, skincare, and fragrance brand Charlotte Tilbury has delved into the electronic gaming world by offering masterclasses and other digital events on gamer streaming platform Twitch. Testing new platforms before they are oversaturated and overpriced allows DTC brands to engage with consumers globally in an organic and authentic way.

Grow Internationally: Ecommerce allows for borderless shopping, which is especially appealing to younger Gen Z and Millennial consumers. Enabling cross-border ecommerce is one of the most cost efficient and effective ways brands can scale their business. The key to success, however, is “glocalization.” Fluency in the local language, pricing in local currency, promotions that are timed to a local calendar, offering global access with local expertise, and eliminating hidden surprises by providing shipping options that is inclusive of local tariffs and taxes are paramount for success. Embracing cultural differences is another key success factor. Digitally native CTZN Cosmetics has mastered glocalization from its inception. Founded by three American sisters of Pakistani descent who grew up in Dubai and live in London, CTZN’s “nudiversal” colors match all skin tones, have been popularized by celebrities and TikTok influencers, and are shipped to consumers in the US, Europe, and the Middle East.

Act Sustainably: Pangaia is just one example of a DTC brand that has embraced sustainability that has allowed them to cultivate a loyal consumer audience while also standing apart from their competitive set. Another is Vegamour, the plant-based hair wellness brand which has just received investment from Nicole Kidman. Vegamour products address hair, lash, and brow growth. It began selling its products on Amazon
and also offered a subscription service. It grew its fan base through social media, and now is available at Sephora.com as well as its own proprietary website. By offering vegan products, Vegamour appeals to a wide segment of the population embracing clean beauty. The brand uses its plant-based, non-toxic ingredients as its hero messaging, enabling authentic content and messaging which appeals to a growing consumer base. Embracing sustainability by sourcing eco-friendly ingredients, reducing carbon footprints in manufacturing, identifying more sustainable delivery and logistics options, and using less packaging in ecommerce shipments are just a few sustainable ways DTC luxury and beauty brands can be more responsible global citizens.

Brands that are prepared to take chances when the world is changing around them often thrive more exponentially than they would have under more favorable—and predictable—business conditions. The DTC brands that are willing to embrace change and act on the opportunity presented by today’s economic environment will emerge much stronger and more resilient.