The changing world of DTC

Many digitally native brands are rethinking their expansion into physical retail while some traditional brands, like Nike, are reconsidering their pivot to DTC.

What’s happening

• Rents are going up after being reduced during the pandemic, and consumer spending on discretionary items is falling as the cost of living increases. For DTC brands, there’s a new focus on profitability rather than top-line growth.
• Funding has dried up: in 2021, $5bn of capital went to fund DTC businesses but two years later that had fallen to just $130m, according to data from Crunchbase.
• Shoe brand Allbirds is planning to close a third of its stores, Modern Retail reports, while Athleisure brand Outdoor Voices has closed all its retail outlets; mattress company Purple has said it will slow new store openings and focus on its existing sites.

The Nike case 

• Sports brand Nike is an example of a brand that has invested significantly in a DTC operation that aims to provide a seamless experience across its own websites and stores while reducing dependence on third-party retailers.
• That thinking is shifting as the brand reinvests with its wholesale partners (who continue to represent three-quarters of the market in unit terms). “The consumer is still clearly shopping in multi-brand retail,” Nike CFO Matthew Friend told a recent earnings call.
• CEO John Donahoe added that “we must lean in with our wholesale partners to elevate our brand and grow the total marketplace”. 
• “We recognize that our wholesale partners help us scale our innovation and newness in physical stores and connect our brands in the path of the consumer,” he said. 
• In Q3, Nike direct sales in North America were up 23% but wholesale was up 32%. 

Key quote

“I think they [DTC brands] might be surprised to learn how their online sales are affected in these markets where their stores are closing. Retail is like a muscle that needs to be exercised. And so, if you stop exercising any muscle, it atrophies” – Rebekah Kondrat, founder of Rekon Retail.

Sourced from Modern Retail, Seeking Alpha