The rise of direct-to-consumer commerce is coming to an end.
A once-bustling group of companies, backed by billions in venture capital funding, experienced a record year for IPOs in 2021. Now, three years later, the majority of those direct-to-consumer, or DTC, companies, They still struggle with profitability.
“It’s that profitability angle that now separates the winners in DTC from the losers,” said GlobalData Retail CEO Neil Saunders. “One of the problems with many direct-to-consumer companies is that they are not profitable and many of them don’t really have a compelling path to profitability. And that’s when investors get very nervous, especially in today’s market where “capital is expensive.”
Allbirds, Warby Parker, Rent the Runway, ThredUp and others once represented a new era of retail. These ultra-modern, digital-first companies rose to prominence in the 2010s, fueled by the rising wave of social media advertising and online shopping. With the cohort came a huge wave of venture capital funding, underpinned by low interest rates.
In just under a decade, venture capital funding has skyrocketed, from $60 billion in 2012 to a staggering $643 billion in 2021. Thirty percent of that funding was channeled into retail brands, and more than $5 billion went specifically to companies that crossed e-commerce and consumer products. As the Covid-19 pandemic moved most shopping online, venture capital funds bet on digitally native direct-to-consumer companies.
According to a CNBC analysis of 22 publicly traded DTC companies, more than half have seen a 50% or more drop in their stock price since going public. Notable companies in the sector, such as SmileDirectClub, which went public in 2019, and Winc, a wine subscription box, filed for bankruptcy. Casper, a direct-to-consumer mattress company, announced it would go private at the end of 2021 after a lackluster year and a half of trading. More recently, meal kit subscription service Blue Apron delisted from the US stock market after being acquired by Wonder Group.
Now many of these so-called DTC darlings are forced to reevaluate their business model to survive a changing consumer landscape.
Watch the video above to find out what happened to the DTC favorites of the 2010s and how the direct-to-consumer cohort is changing in the new decade.