What has it taken to grow a brand in 2024?

Much has changed in the years since digitally native brands Casper and Glossier launched.

These companies launched with business models built on the premise that, by selling directly to consumers, they could control the customer experience while also enjoying higher profit margins. Yet, a global pandemic, several wars, and a record-breaking rise in inflation later, the economics aren’t quite working. Not to mention the impact of Apple's privacy-boosting iOS updates in 2021. Today, the cost of doing everything — from shipping inventory to hiring staff and pushing adds an on social media — has risen, eroding profit margins in the process.

At the same time, cash has become more difficult to come by, thanks to a combination of interest rate rises and venture capital investors (many of whom rode the initial disruptive, direct-to-consumer wave) returning to investing in bread-and-butter software and tech companies. In November 2023, Crunchbase reported that just $130 million was put into U.S. direct-to-consumer companies by investors — down 97% from 2021's peak.

Some companies have folded under the pressure, including aperitif brand Haus (which has since relaunched with new owners), sunglasses company Genusee and men’s clothing rental company Seasons, along with countless others that have quietly shuttered. Others appear to be teetering on the brink, with the share prices of Allbirds, Peloton and Rent the Runway all flatlining.

Does that mean the days of finding success with an upstart consumer brand are over? Hardly — but the playbook has certainly been given an update.

Today, instead of pouring money into a growth-at-all-costs strategy, brands have shifted their focus to achieving profitability as quickly as possible, and founders are returning to the fundamentals of business building, rather than pursuing virality.

“We lived through an era driven by venture capital where many of the consumer brands we were interacting with were not profitable, and that was generally accepted as OK,” says Emily Heyward, the co-founder of branding agency Red Antler known for its work with Casper, Allbirds and Brandless. “[Brands today] can’t count on continuing to get funding without being profitable, or on a very clear path to profitability.”

To get costs in line, press and marketing spending has been slashed, with some brands going as far as to reformulate their products to reduce cost of goods sold (COGS) and create supply chains less vulnerable to economic shocks. Instant ramen brand Immi, for example, reengineered its recipe in 2022 to use dry noodles rather than the vacuum-packed cooked noodles it launched with in 2021 to absorb a projected 15-20% price increase in one the brand’s core ingredients. Miniml, a UK cleaning products brand, has increased its margins by 30% by bringing manufacturing in-house, versus importing products from China, says Dominic McGregor, founding partner of Fearless Adventures and an investor in Miniml.

Not-so-direct-to-consumer

Most notably, brands have mostly ditched the laser focus on only selling products through their own channels, with omnichannel now being the plan from day one, or as close to it as possible. Indeed, today the term “direct-to-consumer” can often be an industry shorthand for describing the look and feel of modern, internet-era companies rather than an accurate description of a company's current business model.

Launched in 2019, baby and toddler brand Lalo now sells its products through Babylist, Bloomingdale, Pottery Barn, and Amazon, with the latter now accounting for 20% of its business. “We’re less worried about where [our customers] brought it, or that we own their data,” says co-founder Michael Wieder. “The best way to bring people back and make sure they remain loyal is delivering on the expectation that your marketing sets.”

Wieder says this combination of sales channels has strengthened the company’s cash flow, with larger payments for wholesale orders creating a balance with smaller, although more regular, direct-to-consumer sales.

Some brands have even decided that selling through their own websites doesn't make financial sense, with tahini seller Soom, hard kombuch company JuneShine and grocery brand Acid League (all brands that sell heavy-to-ship items) all shutting online shop in favour of physical stores.

Glasses brand Warby Parker, meanwhile, announced revenue growth of 13.3% year-on-year to $188.2 million in Q2 2024, with net losses also decreasing by 57.5% to $6.8 million. The brand says its current focus is on store openings (which acquire customers more quickly and cheaply than advertising online) and improving the customer experience so that when new people shop with the brand, they stick with it. Announcing the results, Warby Parker CEO Dave Gilboa said analysis of its most recent customer cohort shows that 50% of people shop with the brand again within two years.

Indeed, while customer acquisition costs were all brands could talk about in the early days of direct-to-consumer 1.0, today the North Star metric is lifetime value — or LTV — which predicts how much someone will spend with a brand during their time as a customer.

New brands, new rules

Brands that launched following the initial direct-to-consumer boom have been building their businesses with this in mind, with some drumming up interest with community events and content, membership models and waitlists products have even been launched. Others are spending more time on the ground forging relationships with individual suppliers, from boutique lifestyle retailers to the plethora of independent convenience and grocery stores.

Labneh dip brand Bezi, which launched this year, rolled its product out at a number of independent grocery stores before opening its online shop.

In the run-up to launching its first sports apparel line in 2022, Bandit Running says it signed up more than 1,000 people for its $125 founding membership, which offered discounts, free shipping, and other perks. Numbers have been grown exponentially since, co-founder Nick West says. “If you think of our brand as a flywheel, it’s the membership at the center with a mix of offline and online channels that are engaging with our customers and creating community,” says West, referring to things like the pop-up events it runs in cities where marathons are taking place. “One of the biggest differences between us and DTC 1.0 is that instead of putting new customer acquisition at the center of our model, we put loyalty and retention at the center."

“This is a better path for founders,” observes Hayward. “They are boots on the ground building a sustainable business, versus half their year being focused on a fundraise.”