Legacy brands may struggle to compete with direct-to-consumer rivals unless they consider making acquisitions in this space, according to Terry Kawaja, founder/chief executive of LUMA Partners, a New York-based investment bank.

“I am going to go ahead and suggest that it is incredibly hard – almost impossible – for legacy marketers to build DTC brands,” he said. (For more, read WARC’s in-depth report: Can legacy brands compete in the direct-to-consumer era?)

Direct-to-consumer operators are digital-first and mobile-centric, a status that long-standing enterprises will find challenging to achieve given their entrenched models, he reported.

Similarly, many established companies will face difficulty in cutting out the middle men – be it advertising agencies or brick-and-mortar retailers. “You’ve got the distintermediation: That’s part of the ‘D’ in DTC,” said Kawaja.

“In fact, some of them are so successful they are forward integrating into retail – you’ve seen it: Tesla, Untuckit, Bonobos, Peloton [are using] shops to garner new customers.”

While DTC players have vast amounts of first-party data, earlier generations of business typically depend on second- and third-party data sources, too, Kawaja said.

Performance-driven marketing is another feature of the DTC universe, whereas legacy marketers will struggle to adapt in this fashion. “The whole fricking ecosystem is set up the other way. So it’s just not going to happen, okay?” he said.

Older brands, he conceded, can compete with their fledgling rivals in terms of design and content capabilities. But their marketing leadership models also lag behind.

“‘Spend’ doesn’t happen in DTC-land; just results. These are not CMOs, these are chief growth offices,” Kawaja said – a difference epitomised by compensation packages.

“The traditional CMO [gets] a huge, cash-heavy compensation,” Kawaja added, whereas at DTC firms, remuneration is tied to performance and often comes with stock options that could deliver a windfall in the event of an acquisition.

With the caveat that, as an investment bank, LUMA has a certain bias, Kawaja proposed that older brands might need to acquire DTC operators to flourish in this arena, especially as a degree of direct-to-consumer consolidation is inevitable.

Such mergers and acquisitions, in turn, may feed into a type of next-generation house of brands, where parent companies buy several direct-to-consumer properties. “We may see these companies be the next century conglomerate,” he said.

Sourced from WARC