Direct to consumer retail startups like Bandier and Rhone are retraining staff and doubling down on e-commerce as they face the worst financial crisis in a generation
- Direct-to-consumer startups that expanded to wholesale and physical retail in recent years have seen those businesses threatened by the coronavirus pandemic.
- These companies are trying to limit the damage by laying off and furloughing employees, retraining staff, and doubling down on e-commerce.
- Some are also running promotions and sales events and relying on their partnerships to tide over the crisis.
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Last year, 6-year-old direct-to-consumer clothing brand Rhone opened four stores in New York City, with plans to open a fifth in 2020. Those plans have now been put on hold, and its existing stores have been shuttered for more than three weeks amid the coronavirus pandemic.
"Retail is down to zero," Nate Checketts, Rhone's CEO, told Business Insider. "And if we're talking about retail stores being closed for three months versus six months or nine months, that will have a huge impact in terms of how things could look like for us."
Rhone is not alone. As many states mandate that non-essential stores close and customers tighten their wallets in the face of a health and economic crisis, direct-to-consumer startups that expanded into physical retail after facing growing competition and customer acquisition costs online, are struggling.
Some DTC startups are laying off and furloughing employees and doubling down on e-commerce
Some startups have already cut jobs. Coca-Cola backed Iris Nova laid off half its staff after its wholesale business was wiped out overnight. Third Love laid off a third of its staff, and Away has furloughed half its staff and laid off an additional 10% of its employees. But e-commerce has emerged as a glimmer of hope.
"Our DTC channel is the only thing keeping us and our portfolio brands afloat - consumers are relying on home deliveries now, more than ever," Iris Nova CEO Zak Normandin said. "We have seen an 200% increase in DTC sales over the last three weeks with zero marketing spend."
With stores closed, others like Bandier and Boy Smells are retraining their staff
Candlemaker Boy Smells went from a mostly wholesale business (75%) to a DTC business in the wake of the pandemic. It retrained its wholesale client services associates to manage a nearly 200% increase in online orders in recent weeks, helping with everything from processing shipping labels to customer service.
"We have had to flip the equation overnight," Boy Smells founder Matthew Herman said. "And the reason we're able to do that is because we know how to scale back and be completely bootstrapped if we really have to."
Skincare brand True Botanicals' in-house aesthetician is offering consultations with customers via FaceTime and video calls, while Bandier's studio instructors are live-streaming fitness classes on Instagram.
Furniture startup Burrow's store sales associates have shifted to being virtual design consultants to replicate the in-store experience via phone or text. These newly minted consultants are already driving sales, softening the blow from the store being closed, Burrow CEO Stephen Kuhl said.
Yet others are relying on sales, promotions, and partnerships
While e-commerce sales increased in the short-term, Bandier and Rhone said they were running sales and promotions to get rid of seasonal inventory, lest it become irrelevant by the time they reopened.
"People are definitely nervous, because sitting with the same product over another two or three months from now is not a good recipe," Bandier cofounder and CEO Neil Boyarsky said.
Some startups are also placing hopes on partnerships. Iris Nova is hoping to grow revenue through its wholesale business with Walmart, whose stores remain open, while Rhone is selling more men's clothing through a deal with Peloton, which is seeing a boost with online fitness companies thriving, Checketts said.
But e-commerce may not be a silver bullet
Still, online spending on direct-to-consumer products week over week fell 7% on average between March 2 and 22, according to Edison Trends data, and many expect it to only accelerate.
"E-commerce will also take a hit as more people lose their jobs," Burrow's Kuhl said. "Only companies that have a focus on really strong unit economics and [a path] to getting to profitability - not just top-line growth - will survive."
