Why Retailers Should Keep an Eye on These Rising DTC Breakers – Sourcing Journal
Hosted by The Lead, the fifth annual Foremost 50 Forum took place in Manhattan this week.
The list of Foremost 50 Direct-to-Consumer (DTC) brands, presented in partnership with cart.com, was honored at the event by recognizing three winners each in five categories – Best Omnichannel Strategy, Storytelling, Creative Customer – further highlighted acquisition, product innovation and assortment strategy, culminating in the sole winners in the Trailblazer Award and Icon Award categories, which went to homewares company Pattern Brands. Accepting the award were co-founders Nicholas Ling and Suze Dowling, who started out as a branding agency, Gin Lane, before growing into Pattern in 2019 and growing it into a $99 million company selling products and promoting and buying other DTC brands.
Many online-based brands that save on operational costs by slashing retail costs are hoping to be taken over by bigger fish.
But as Connor Wilson, co-founder and CEO of The Boot Company, discussed Thursday, and Richard Kestenbaum, partner at Triangle Capital and Forbes contributor, during an alumni panel discussion, it may not be possible to use this rapid infusion of capital for a “parachute exit,” like Wilson described receiving no longer being the best practice for DTC companies.
“Raising excessive capital can be a mistake; raise as little capital as possible,” Wilson said. “You can take a little exit anywhere along the way, but the good brands get diluted.”
Channel diversification is key for DTCs, according to Wilson, as is more product line novelty, as evidenced by his company’s upcoming launch of a denim jacket.
“If you start building a business with the idea that you’re going to leave it in five years, then you’re probably not doing it right,” Sonal Gandhi, The Lead’s chief content officer, told Sourcing Journal. “A lot of the brands are now thinking about sticking with the business long-term, mainly because they’re also not opting for these huge VC investment rounds.”
As a result, Gandhi said, more focus than ever is on product quality.
“The product, really, is the basic premise of why you want to launch a new brand [to market]. All that clever marketing and all that way you go about it with packaging have all been great, but at the end of the day when you strip it all off, can the product stand on its own? She said. “I see this focus on the product much more intensely now. It’s always been there, but people just keep getting smarter in terms of marketing and [customers] I really want to know if this product delivers?
That’s just one of the many changes she’s seen in this business model, which has been popular for about a decade. A focus on attracting customers more creatively, ensuring profitability early on, and a post-pandemic push to wholesale are other sea-changes witnessed by Gandhi.
The need for an omnichannel platform that includes wholesale in brick-and-mortar retail stores is something New York-based apparel company Flag & Anthem knows well, which started wholesale in 2016 and has only navigated to DTC in the past few years.
“In this group of companies, there are a lot of people who are DTC-native but are kind of exploring the omnichannel side, while we’ve taken a more reverse approach,” Brad Gartman, CEO of Flag & Anthem, a Macy’s and Lord graduate student & Taylor, to Sourcing Journal. “I think that was the incentive for us to win this award.”
Gartman said his company currently does about two-thirds of its business through wholesale and one-third through DTC, which he expects to shift to 60/40 by the end of the year.
“We have a multi-channel and very balanced sales distribution model that gives us the ability to rotate,” Gartman said. “We have a pretty solid subscription base … and we always knew there was a vision for the DTC side.”
Flag & Anthem distributes in more than 1,500 stores nationwide, but given some of the backlog of inventory that’s emerged in the wake of the brick-and-mortar resurgence following the pandemic, direct-to-consumer digital sales are likely to be very expensive for the remainder of the year.
“If we ship wholesale, we don’t know exactly what it’s going to look like on the floor,” Azod Mohit, co-founder of Flag & Anthem, told Sourcing Journal. “We don’t have our own business, so our website is our business and we can really control how it looks.”
However, it is a goal for Flag & Anthem to have its own storefront by early 2024.
“We want to test that with probably three to five locations over the next year,” Gartman said, adding that cities like Nashville, Chicago, Austin and Dallas would make ideal locations based on a “consumer heatmap.”
Another benefit of the DTC approach is better access to and control over customer data, and not just customer data, Mohit points out, but the relationships built on the trust of sharing an email address or phone number.
“We text with our community, and if someone gives you their phone number, it means they’re loyal,” Mohit said. “It’s sort of the most lucrative part of the sales funnel.”
Gandhi said that being in control of data is attractive to larger, more established brands.
“Data is [the] most important part of it,” she said. “They want to know who their customers are, what they want, so they can create the right product for them and the right message.”
For smaller brands, the term messaging is mostly communicated as storytelling, which was a separate category at Tuesday’s awards.
Storytelling winners included skincare brand Fig 1, cannabis tonic Cann and St. Louis-based menswear and womenswear company The Normal Brand, run by three brothers Jimmy, Conrad and Lan Sansone.
Jimmy Sansone said they were so short on resources that the brothers/CEOs had to do their own modeling, and as three out of 10 brothers, the key to their storytelling was staying “rooted in the family.”
Gandhi said she created the Foremost 50 list based on interviews with each brand, taking into account a number of factors. Beyond mere profitability or capital raised, Gandhi finds themes in the interviews, be it intensive research and development, omnichannel or product innovation, and uses this information to form a baseline.
She tries to diversify the list to include a balance between fashion, beauty, food and drink, and other products, but in recent years, sales of DTC fashion and clothing have declined significantly.
“When we started, we featured a lot more fashion apparel and clothing brands,” Gandhi said. “But we kind of follow the money, and a lot of the money lately has gone into beauty and wellness, personal care, food and drink.”
The Foremost 50 included several other fashion brands to watch, including L Catterton-backed plus-size platform BloomChic, veteran-owned active apparel startup Born Primitive, and premium handbag and outerwear label Brandon Blackwood. Healthcare apparel maker Care+Wear also received a shoutout on the list, giving lingerie innovator Harper Wilde and Italic, the luxury without the luxury price tag, a nod.
Madhappy, the Los Angeles streetwear brand that received LVMH endorsement, was also tapped as a rising star. Made-in-Spain Margaux was recognized with menswear retailer Mugsy for its premium women’s shoes in all sizes. Mens and womens upscale footwear brand Oliver Cabell and materials science disruptor Pangaia join the fashion upstart along with Public Rec, a menswear and womenswear imprint playing in a sandbox much like Rhone. State & Liberty’s athletically tailored men’s shirts put the Michigan-based startup on the list, where it rubbed shoulders with Carhartt’s workwear rival Truewerk.
Wolf & Shepherd, the technically advanced footwear brand owned by Nordstrom and Brooks Brothers, and peloton challenger Hydrow, which sells Fabletics branded training apparel, crowned the Foremost 50.
https://sourcingjournal.com/topics/retail/foremost-50-dtc-flag-and-anthem-margaux-the-normal-brand-public-rec-madhappy-truewerk-422465/ Why Retailers Should Keep an Eye on These Rising DTC Breakers – Sourcing Journal