How the Best DTC Partners Became Other DTCs
In another time, relationships with big retailers seemed like the brass ring. Not so much anymore.
In the pre-COVID Before Times, we most often thought the most natural partners of DTC companies would be retailers. Among the perks, big brands offered burgeoning DTCs cachet, new audiences and channels as well as easy brick-and-mortar capabilities. In return, their digital-first counterparts would bring the authenticity and the forward-looking products, oftentimes with fiercely loyal audiences attached.
And when DTCs weren’t partnering with big brands, they were being acquired by them (see: Walmart-Bonobos, Dollar Shave Club-Unilever, and other classic hits.) For years now, this trend has carried on. Back in January, Nordstrom, which had been inking partnerships with DTC brands like Thinx, Glossier, Everlane, Reformation and Hatch, announced it had become the first retail partner of Kim Kardashian West’s shapewear line Skims. If this wasn't a sign of bigger things to come, nothing was. And then the pandemic hit.
The New Paradigms
One upshot of COVID life is that it has rearranged life, along with the economy. Physical retail swooned and eCommerce took over. Frictionless fulfillment became an even more critical component of customer service. And now the seductive siren song of big retail started to register a little off-key. And for digital-native companies, that has meant looking beyond them.
“A lot of brands aren’t even profitable with retailers because of the overhead,” Sal Ali, the founder of the DTC beauty brand Farsali, said about his decision to leave Sephora last week. “There’s the cost of a field team, sampling, gratis to sales associates, in-store testers and the cost of returns. Typically margins are 60% in retail.”
Adding insult to retail’s injury, Ali added that it’s the digital marketplaces—even the big ones that might pilfer the ideas behind your products—that offer a better deal in this climate. “Amazon is a big threat to retailers because brands can sell through Amazon worldwide, but at a much lower cost to operate.” As we reported in July, while digital-first enterprises were kindly rebuffing Amazon back in January of 2020, by summer, many had reconsidered their strategies.
Your Trusted Friends
In recent months, however, another option for DTC partnerships has emerged: Other DTCs. It's both a spiritual and social fit, after all the DTC world is close, if not, downright incestuous. Collaborations between DTC brands have developed with many aims in mind—to ease supply chain woes, to create joint products with limited runs, and to simply boost marketing and acquire more customers.
"[M]ore startups have been turning to partnerships in recent months in order to reach new customers while other marketing tactics like physical pop-ups remain out of the question," notes Anna Hensel at Modern Retail. "These partnerships have included selling co-branded products, as well as giving away or selling one another’s products on each other’s website."
One example is DTC eyewear company Zenni, which paired up with indie sunglass designers Coco & Breezy to create a low-cost line of glasses for kids in the midst of the back-to-school (or back-to-Zoom) season. Such are the rise in partnerships that industry observers and brand fans alike have started speculating on what mash-ups they'd most like to see happen.
To be clear, the behemoths are still attractive. Take CVS, for example, which has expanded an initiative called CVS Launch to bring DTC brands into their pharmacies. Or Casper, which struck deals with major furniture and home goods retailers as well as Sam’s Club, to bring its mattresses into physical stores just last month.
But the model that’s held for so long is now fracturing. And the results are going to be fascinating.