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How DTC Startups Respond to Inflation

This is the latest installment of the DTC Briefing, a weekly modern retail column on the biggest challenges and trends facing the volatile world of direct-to-consumer startups. To receive it in your mailbox every week, register here.

Rising prices kept direct-to-consumer executives awake at night for some time as the cost of everything from cotton to shipping containers skyrocketed during the pandemic. But this year inflation has become a much more pressing issue for the average shopper – and it’s only getting worse.

Last week, inflation hit a 40 years tall, according to a new report from the federal government. It’s something retail executives have been preparing for over the past year. Like I have already written onDTC brands have done everything possible to avoid price increases over the past two years, by making more price purchases from suppliers and purchasing raw materials further in advance.

But now, as inflation grows ever more urgent, brands must navigate a new reality: rethinking their value propositions as shoppers become more price-conscious. Many DTC executives, of course, say they already offer high-quality products to customers at an affordable price. But they are also increasingly looking for ways to emphasize the sustainability or value of their products in their marketing messages. Other brands are betting that their cheaper products will generate more sales in the coming months. And as consumers become more cost-conscious, that may mean some brands that experienced hyper-growth at the start of the pandemic will face new realities as shoppers become more selective about what they buy. .

“It’s written on the wall that inflation is rising,” 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 in the past year. Codispoti told me that about 75% of the company’s products are made in the country; despite the rise in the United States, Goodlife has not been as impacted by some of the increased transportation costs in Asia. He said Goodlife has also tried to be more efficient internally in other ways, such as hiring a strategic planner.

Still, Codispoti said it expects customers to become more price-conscious in the coming months. “As people become more demanding, you’re going to worry about product quality and durability in your wardrobe, you’re going to worry about functionality,” Codispoti said.

Accordingly, Codispoti said 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 holds up even after multiple wash cycles. Goodlife has also recently started offering a lifetime warranty.

“Like everything in marketing, it gets iterative, and we’ll continually test new copies and see what works,” Codispoti said.

Other DTC executives I’ve spoken with said they’re betting on their cheaper products to become better sellers in the coming months, for a variety of reasons.

“As a luxury brand, our primary customer is probably less price-sensitive than most,” Lindsey Johnson, CEO of direct-to-consumer towel company Weezie, said in an email. However, she said the company had recently launched a number of low-priced items, such as hair and gym towels, to “serve a customer who may be more price-sensitive given inflation.” . The company’s classic welt-edge bath towel starts at $64 while a hair towel starts at $34

Meanwhile, Sean McGinnis, president of Kuru Footwear, said the orthopedic footwear company expects sandals – which are cheaper than most of the company’s other shoes, such as boots and trainers – become better sellers as the weather gets warmer. For example, some of the company’s cheapest sneaker models are $135, while sandals start from $104. The company is releasing three new styles of sandals this year in anticipation of that, and “like every year, we’ll see more customers choosing sandals, which brings our AOV down slightly from fall/winter,” McGinnis said. in an email.

Like Goodlife, Weezie is also looking for new ways to communicate the quality of its products, Johnson said, as shoppers become more demanding. For example, she said Weezie would do more marketing by featuring behind-the-scenes shots like her factory. Weezie also recently opened its first permanent retail store – the company decided to expand a pop-up it did in Atlanta last year – which Johnson says will give new customers who may be reluctant to buy a chance to feel and test the product. .

None of these tactics are radically different from what the DTC brands have been doing for the past decade. Pioneers in the direct-to-consumer space like Warby Parker and Casper aimed to position how their companies helped customers save money by cutting out the middleman.

But over the past decade, consumers have become savvier – and it’s become more difficult for DTC brands to create a truly unique product. As inflation rises, it will become clearer which DTC brands were able to build business by generating impulse purchases, and which convinced a large cohort of customers that they needed their products.

Kuru’s McGinnis said, for example, that while he expects Kuru’s clients to reduce discretionary spending in the coming months, he believes the company is well positioned to weather continued inflation “because that we solve real work to do for our clients.”

“We’re not completely immune to these pressures, but we 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 these efforts have translated into direct revenue gains across all channels. According to the most recent Modern Retail Study of 88 DTC brands:

  • 59% of DTC brand respondents said they had increased their marketing budgets over the past year
  • But only 48% reported a wholesale income increase
  • Meanwhile 54% reported seeing an increase direct retail revenue

You can read the full report here.

what i read

  • The percentage of online sales as a share of total retail sales began to decline, falling back to roughly pre-pandemic levels. The Wall Street Journal has an important article on what this resources for brands and distributors.
  • jewelry brand Kendra Scott released its first watch collection. This is the brand’s latest attempt in recent months to attract more consumers through product expansion. Last year, Kendra Scott also launched her first jewelry collection for men.
  • Business Insider has a look at nine venture capitalist young brands DTC gotta know.

What we’ve covered

  • Member exclusive: Modern Retail examines how three mainstream brands – Good life, W&P and Coffee Partners – approach retention.
  • Rental and resale services like Rent the track and ThredUp are among the companies hoping take advantage of inflationbecause they believe that consumers will become more selective about the new products they buy.
  • Plant-based ice cream brands to like sun visor and Dear Bella are building direct-to-consumer sites and expanding their business footprint in hopes of becoming household names.