A bigger slice of the market

DTCs offer entrepreneurs and investors the tantalising prospect of owning the entire customer experience, rather than being at the mercy of retailers who take a significant cut of every sale. This explains how the e-commerce mattress company Casper managed to raise over $240m in funding over the past four years in a bid to beat traditional bricks and mortar mattress stores.

It explains how Warby Parker raised almost $300m to take on high street opticians by selling designer eyewear online. And it explains why Unilever paid a staggering $1bn for the online subscription business Dollar Shave Club. Over the past few years, digital DTC brands have sprung up in almost every consumer vertical imaginable - from beverages to healthcare.

Each of these new businesses is a bet that the future of retail will be less about jostling for space on shop shelves - or fighting for attention on Amazon - and more about establishing a direct relationship with loyal customers, who discover these brands through friends’ recommendations, Instagram influencers, and carefully targeted ads on social media. And this model can work if the product is distinctively designed, solves a real problem, and occupies an as-yet underexploited niche.

But it also comes with pitfalls. Products which launch without serious backing can struggle to reach a significant audience, as advertising on social media has become increasingly competitive and expensive.

There is also some evidence of consumer fatigue. Do we really want a direct relationship with each and every product we consume? Sometimes it is just more convenient to do a big shop at the supermarket. But DTCs with a unique value proposition and strong brand identity still have immense potential. And with $5bn invested into online retail start-ups last year, there is no sign of the boom coming to an end.

By Guy Cookson, Partner at Hotfoot Design