By
Ashwin Ramasamy, PipeCandy
If you’re
a follower of retail, you have definitely stumbled upon these terms in
your news feed — DTC, D2C, DNVB.
Andy
Dunn, the co-founder of men’s clothing retailer Bonobos, coined the term “DNVB”
which stands for Digitally Native Vertical Brands. We excuse him for the
lingering love for complex abbreviations that, we assume, comes from his
consulting and venture investing lives.
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This
abbreviation D2C refers to brands that don’t operate on the traditional value
chain model of ‘design-produce-market/distribute through channel’. Instead,
they tend to play end-to-end from product design, development, production,
marketing and customer experience, effectively taking middlemen like retailers and
distributors out of the picture.
Over the
course of time, we’ve seen operators and pundits alike use the terms D2C and
DNVB synonymously, and that got us wondering. Are they both really one and the
same? Is it not time to recognize the nuances?
The
research nerds at PipeCandy put our thinking hats on.
First
off, the basics.
D2C
refers to the process of selling directly to the consumer. A D2C brand can sell
directly through its own brick-and-mortar store, or an e-Commerce store, or a
pop-up store or via a marketplace (if the marketplace gives access to customer
data). In all such cases, they can name every one of their customers or at
least understand their actions directly, hence ‘direct-to-consumer’.
DNVBs are
brands that are digitally native, sell primarily through the Internet and own
their supply chain end to end.
So what’s
the difference? All DNVBs are D2C brands but not all D2C brands are DNVBs.
DNVBs are
a subset within D2C. As they grow, they may resort to a brick-and-mortar
strategy. On the other hand, there are incumbent brands — like Nike, Puma,
Adidas, etc. — that began selling through retailers and then ‘directly to the
consumer’ through their own brick-and-mortar stores, and opened their e-Commerce
stores much later. These brands are a separate category by themselves within
D2C.
D2C is
simply ‘Direct to Consumer’. You can go to the consumer through your web site
or your own store. The medium does not matter. The process of customer outreach
is what determines if something is a ‘D2C’ company. Based on our research and
analysis of proprietary data, we identified four segments in the D2C brands
space — D2C Originals, D2C Converts, Digital Natives and Digital Underdogs.
D2C
originals: Brands that started by selling through their own physical
stores directly to the customer and have branched out into other sales channels
— such as their own e-Commerce stores, through retailers or through
marketplaces. These are mostly big and mid-market companies that would have
revenue greater than $10M (mostly between $10M and $100M). There are some that
would have revenue greater than $100M.
Examples
include companies like Burberry, Abercrombie & Fitch, Victoria’s Secret,
etc. that have sold primarily through their own stores.
D2C
converts: These would include big companies with revenue greater than
$100M. These companies would have started as B2B2C companies and their primary
sales would not have happened through their own stores but rather through
big-box retailers and other retail chains. Over the course of time, they have
become (direct-to-) consumer-focused through their own brick-and-mortar stores
and online stores.
Examples
would include Nike, Adidas, PUMA, etc.
Digital
Natives: These are companies selling own-brand products, and are
digitally native (i.e. they implement sophisticated use of digital media to
find a market, create and sustain a brand image, connect and engage with
customers as well as sell to them). These could include influencer/
celebrity-driven brands, niche product/brands (sustainable, ethical, locally
made, etc.) and others. Often, they ‘outsource’ their product manufacturing
while retaining product design or probably, marketing. In some extreme cases,
they do just the marketing, leaving everything else to contract manufacturers.
Examples
include Kylie Cosmetics, Rebecca Minkoff, Beyond Yoga, Anna Sui, etc.
Digital
Underdogs: Digital Underdogs are those 100K+ e-Commerce web sites that
sell their own labels but haven’t yet broken out on Instagram or earned a name
for being digitally savvy. Most of them are bootstrapped companies with a
limited appetite for paid customer acquisition. These would include
long-tail companies with revenue less than $5M.
Some of
these companies may grow to become Digital Natives. There may be a few diamonds
in the rough but they aren’t in the limelight yet. Here is where you look for
the next digital native hit.
There are
also private label brands by retailers. We don’t include them in this
classification because such brands exist due to cost and convenience arbitrage
and in almost all cases, their brand story is neither developed nor invested
in.
So, ‘Aye!
Aye!’ to natives, underdogs, originals, and converts?
Ashwin Ramasamy is the co-founder of PipeCandy — a market intelligence firm that
tracks ‘Direct to consumer’ brands and e-Commerce companies. PipeCandy predicts
revenue, order volume, technology adoption, online to offline expansion and many
such interesting business metrics and triggers. The world’s leading hedge
funds, private equity firms, brands and marketers use PipeCandy’s insights to
discover opportunities to invest, acquire and partner with eCommerce companies
and brands. You can follow Ashwin on Twitter at @ashwinizer and PipeCandy at
@PipeCandy HQ.
