The direct-to-consumer boom is coming to an end.
A group of companies that were bustling with activity, supported by Billions in venture capital fundingmarked a record year for IPOs in 2021. Now, three years later, most direct-to-consumer, or DTC, companies are still struggling with profitability.
“It is now the profitability angle that determines DTC winners from losers,” said Neil Saunders, managing director of GlobalData Retail. “One of the problems with a lot of direct-to-consumer companies is that they're not profitable and a number of them don't really have a compelling path to profitability. That's when investors get very nervous, especially in the current market where capital is expensive.”
Allbirds, Warby Parker, Rent the Runway, ThredUp and others represented a new era in retail. These very young, digital-first companies emerged in the 2000s, fueled by the rising tide of technology. Social media ads And online shopping. With this group came a huge wave of venture capital funding, supported by low interest rates.
In less than a decade, venture capital funding has exploded, from… $60 billion in 2012 to $643 billion in 2021. Thirty percent of that funding went to retail brands, and more than $5 billion went specifically to companies that cross over. E-commerce and consumer products. With the COVID-19 pandemic pushing most shopping online, venture capital funds have been entirely focused on local, direct-to-consumer digital companies.
According to a CNBC analysis of 22 publicly traded DTC companies, more than half have seen their stock prices decline by 50% or more since going public. Notable companies in this space, such as SmileDirectClub, which went public in 2019, and where are youwine subscription box, you have it Declared bankruptcy. Casper, a direct-to-consumer mattress company, announced it will go private in late 2021 after a year and a half of lackluster trading. Meal kit subscription service Blue Apron recently exited the US stock market after it was acquired by Wonder Group.
Now many of these so-called DTC companies are having to re-evaluate their business model in order to survive in the changing consumer landscape.
Watch the video above to find out what happened to DTC enthusiasts in the 2000s and how the direct-to-consumer product mix pivoted in the new decade.
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