Ad agencies are building brands around everything from yoga equipment and cookware to CBD-infused drinks to the crack direct-to-consumer market
- A number of ad agencies are trying to crack direct-to-consumer market by applying what they've learned working with DTC startups over the years to launch brands of their own.
- Agencies including Decoded, former agency Gin Lane, and The Engine is Red are launching everything from eco-friendly yoga equipment and cookware to cannabis-infused beverages and snackable ricotta cups.
- While launching their own DTC brands enables agencies to expand their revenues, not everyone is convinced that ad agencies can create viable and long-lasting consumer companies.
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Last week, Gin Lane, the creative and design agency behind direct-to-consumer upstarts including Harry's and Hims, shut shop.
The move wasn't driven by financial challenges or increasing competition and decreasing margins. Instead, it was driven by the agency's desire to carve a piece of the burgeoning DTC pie for itself by launching its own suite of DTC brands.
Gin Lane is hardly alone. A number of ad agencies are trying to crack the DTC arena by applying what they've learned working with startups over the years to launch brands of their own, from eco-friendly yoga equipment and intimate activewear to cannabis-infused beverages and snackable ricotta cups.
Specialist agencies around DTC brands are now launching DTC brands of their own
Ad agencies incubating brands in-house is nothing new, and even established shops like BBH, Huge and Droga5 have all dabbled in developing their own products alongside the services they provide their clients. And big brands, including P&G and Mars Petcare, have also attempted to build DTC brands of their own.
But DTC upstarts have given rise to a new type of agency that caters specifically to the needs of such brands. And with several years of experience under their belt, many of these specialist agencies including Axione, Decoded, Gin Lane, GYK Antler, and The Engine is Red, think that they are better poised than others to take their own DTC brands to market.
Decoded came out with yoga equipment brand 42 Birds last November and GYK Antler's founder Travis York runs DTC athletic footwear company York Athletics, while Gin Lane recently launched Pattern, a holding company of DTC brands, with cookware company Equal Parts as its flagship brand. Axione's athletic intimate wear brand in collaboration with The Coveteur cofounder Stephanie Mark is set to roll out later this year, while The Engine is Red has developed a CBD-infused sparkling water.
"Until now, agencies have never really been responsible for the outcome," Matt Rednor, founder and CEO at Decoded and cofounder at 42Birds, told Business Insider. "Launching 42Birds has allowed us to be more invested in our clients and combine the breadth of an ad agency with the depth of an in-house marketer. We have learned how to build a business, rather than just market one."
Launching its own DTC brand enabled the agency to move faster, said Chris Denny, founder and president of The Engine is Red, allowing it to test quickly, and iterate faster based on real-time customer feedback. It has also meant that agencies can expand their revenue streams to go beyond providing services and gain an understanding of not only digital media, e-commerce, and performance marketing, but also pricing, packaging, shipping, storage, and supply chain management, said Chris Sojka, cofounder and chief creative officer at Madwell.
"We didn't need to jump on the DTC bandwagon just because it's hot - direct-to-consumer is a channel mechanism, not a value proposition in itself," said David Eisanmen, cofounder and CEO at Madwell, which initially envisioned its ricotta snack cups Rif Raf as a DTC product, but decided to go straight to retailers upon realizing the limitations of a perishable DTC product. "Our biggest lesson was that it's about the value the product is ultimately providing."
But not everyone is on board with the idea that agencies should develop their own DTC brands
Agencies building their own DTC brands is still nascent, and the jury is still out on whether agencies can develop successful products. But some are seeing initial success.
Pattern, the DTC umbrella company launched by what was formerly Gin Lane, has raised $14 million in funding from investors including RRE Ventures, Primary Ventures, and Kleiner Perkins. And the CBD-infused sparkling water developed by The Engine is Red not only sold out its initial test inventory in 45 days, but was also ultimately sold to a PE firm before its official launch this April, according to Denny. (He declined to name the brand due to the terms of the deal).
Not everyone, however, is convinced that ad agencies can create viable and long-lasting direct-to-consumer companies. Mike Cassidy, the former CEO of ad tech company Undertone, who now runs his own DTC and e-commerce focused agency BVAccel said that his agency didn't see the need to develop its own products as it has vast experience spanning more than 150 DTC brands. Plus, running an agency is time-consuming.
"Being an agency is hard work: long hours, high demands and lots of complex external relationships to manage," he said. "Some of the agencies don't want to be agencies anymore and are looking for a way out. But we are doubling down with acquisitions and other investments, and our goal is to keep training our teams, and finding new ways to help DTC companies sell more and drive profitability."
The skillsets that agencies bring to the table are also different than those pertinent to building DTC brands, such as figuring out logistics, or making sure a subscription box gets shipped, said Mohan Ramaswamy, founding partner at digital product agency Work + Co.
"Where we've been able to succeed in supporting these companies is their experience - helping streamline customer acquisition to actual conversion or making sure that their digital fulfillment forms are easy and simple to use," he said.
Steve Parker, cofounder and CEO at agency Levelwing, as well as founder of seed-stage venture capital firm, Third Prime, agreed.
"Models whereby an agency is attempting to create a brand from scratch or ones in which they take equity for work are not smart, because agencies are service businesses and because most brands ultimately fail," he said. "From a VC perspective, we have a few DTC brands, and they take immense focus and dedication and funding."