In 2023, direct-to-consumer (DTC) brands became, well, less direct.
As consumers started to pull back this year, some of the biggest names to emerge from the DTC boom of the 2010s started leaning more on retail partners to drive sales, including well-known brands such Allbirds, Casper, and Madison Reed.
Now it looks like this industry-wide shift will continue into next year: Allbirds CEO Joey Zwillinger didn’t mince words in a Q3 earnings call when he said wholesale “remains a key channel for our future and one that provides us with the opportunity to profitably raise brand awareness.”
The second part of that statement is crucial: While wholesale is conventionally seen as lower margin than direct sales—because retail partners get a share of the profits—a bigger retail presence boosts brand awareness, which is allowing some DTC brands to cut back on digital ad spend.
“Frankly, you can trade some of the gross margin between direct and wholesale for some of that marketing that you otherwise would spend to drive awareness,” Zwillinger said.
Solo Brands CEO John Merris also said that being less direct isn’t such a bad thing.
He told Retail Brew earlier this year that there wasn’t a “zero-sum” relationship between DTC and wholesale, but instead a lot of “synergy.” The maker of outdoor grills and kayaks did see a sizable drop in DTC sales at the same time that wholesale surged, but Merris chalked this up to a temporary “near-term cannibalization.” In the long run, he sees wholesale helping Solo Brand grow its customer base and bring down advertising costs.
Sticking to the program: Some DTC brands, however, are bucking the trend entirely.
The buzzy Swiss running shoe brand On, for example, just turned in another blockbuster quarter with a 54.6% gain in its direct channel. It also noted that it was aiming for DTC to continue outpacing wholesale, and even said it would pull back on wholesale partnerships.
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“We are planning to add less additional wholesale doors in the future and to focus on our existing wholesale partners and our own DTC channels, e-comm and own retail,” co-CEO and CFO Martin Hoffmann said in a statement.
But for On, at least, the planned slowdown in new retail partnerships is a matter of relative focus, rather than a full-on retreat from wholesale. Looking at the nine-month period ending on September 30, its net sales for wholesale and DTC were neck and neck, each rising to just over 57%. Clinton Suh, head of e-commerce North America at On, told Retail Brew earlier this year that both “DTC and wholesale will remain critical to our business.”
Getting physical: It’s also notable that On is pulling back on wholesale at the same time that it’s expanding its own physical footprint—which is to say, focusing on DTC doesn’t have to mean relying exclusively on e-commerce. In addition to On, a number of DTC brands in 2023 ramped up their store expansion plans, such as Figs and Warby Parker.
As Lovesac founder and CEO Shawn Nelson emphasized to Retail Brew in September, DTC refers to a relationship rather than a channel, so a sale is “direct” as long as the brand maintains a direct relationship with the customer.
As the furniture company said in its Q3 earnings report, a 14.3% jump in net sales in the quarter was “primarily driven by growth within our Showroom and Internet channels.” Showrooms in particular saw a 18.9% uptick in sales, as the company added 41 new locations in the past year.