Brands like Warby Parker, Stitch Fix, FIGS Inc, and Allbirds Inc. Launched a new type of retail by selling “direct to consumer” – on the internet — rather than through traditional retailers. These companies’ values rose well into the billions, riding on the promise of little overhead, no intermediaries, and a limitless pool of clients. They appeared to be invincible. Today, however, they’re tumbling hard and there’s no sign of a bottom in sight.
DTC companies are being hit hard by a bleak combo of escalating Facebook ad pricing, poor admeasurement, ballooning shipping costs, newly-sober public markets, and smaller-than-anticipated client bases.
Almost every public DTC company with a market valuation of more than $800 million is suffering with sales shrinkage, falling profits, rapid losses, or a mix of all three, according to a Big Technology review of public DTC businesses with market caps of more than $800 million. In 2022, they collectively lost billions in market capitalization, underperforming the market in an already dismal year.
So far, the most harm has been done to the DTC market by skyrocketing Facebook ad pricing. These businesses have long relied on low-cost Facebook advertising to thrive, a risky investment that is now paying off. They’ve used Facebook to reach customers who would not have visited a physical business otherwise.
Allbirds, Hims and Hers, Peloton, Revolve, StitchFix, Warby Parker, and Wayfair have all reported substantial losses, profitability shrinkage, or both in their earnings reports over the last year in this environment.
With interest rate rises on the sky, the timeframe couldn’t be worse, as investors are less interested in companies that struggle to turn a profit, even if there is potential for growth prospects. Some shareholders are also questioning whether these companies’ valuations are justified, given that the addressable market for their products — Warby Parker’s faux-fancy glasses or FIGS’s costly medical scrubs — may not be infinite. As a result, DTC stocks have taken a beating, with no obvious end in sight.
It’s still too early to call off the direct-to-consumer (DTC) market. Some businesses will shift their focus away from Facebook and onto other platforms, such as TikTok, in order to return to low-cost social media advertising. Others, such as Chewy INC, will discover a sweet spot where the costs are justified due to the high lifetime value of their clients.
Posted March 17, 2022 by hub_admin & filed under E-Commerce, General News/Info/Tips, News.