Why did many direct-to-consumer companies struggle after initial success? 22

I was into DTC and supportive, but now I have stopped buying altogether because the products have been ridiculously overpriced garbage. I bought jewelry that turned my skin green (Bryan Anthony), nail polish that destroyed my fingernails and did nothing it advertised (Static Nails), the Our Place pan where the nonstick coating wears off after a year, and more….

Consumer trust is gone and I’m done. I’m back to big companies that I know.

The problem is that these DTC’s focused too much on growth and not enough on profitability. Cut the advertising, offer quality that isn’t available in most retail stores and charge a price that allows you to have positive free cash flow at the beginning. A lot of these businesses were cash flow positive before their IPO/DPO but as soon as they went public their SG&A expenses skyrocketed. If you make a great product (especially these days) it will spread by word of mouth.

There's also the issue of market saturation. Many of these businesses started off with little competition. Then other startups tried to get a piece of the pie. Even the traditional brands have jumped into the space.

A lot of these companies started off with a Goal to get an IPO and scam investors. Their Business model was a broken one to begin with.
It is a suprise that some of them lasted so long before the stock crash and burn.
The biggest challenge company faces is how they can distinguish themselves with all the Generic variants of their products from Walmart and ?

It was the same as the tech bubble in the last 1990s. Just too many companies concerned about reach and market share, and no concern about ever being profitable. We just need to get customers, we will worry about profits later... and then when later comes, it turns out they can never actually be profitable... they were just great at burning through investor's money.

The actual problem with these brands is they operate on an outdated idea of how economics works.

Historically, it was the goal to push the most amount of profits possible. You were to assume that your pool of potential customers was infinite and there was no limit to the amount of income obtainable.

This business model does not work anymore. There is too much competition or too many monopolies to operate on such a model.

And when we’re talking about a company like Smile Direct Club or Casper, these are big ticket items; you’ll only buy stuff to straighten your teeth once, and you only buy a mattress every 10 years…

The comment section is missing a big component here-- a lot of these companies that emerged never had the intention of becoming profitable at all, but rather that they intend to use their inflated valuation to procure lots of cheap loans instead (that they could continue to renew but never intended to payoff).

because they never had viable business models to begin with, and only exist because of venture capital, with money that had to go somewhere

Allbirds feel like crap. I bought two pairs and regretted it after two weeks. I think a lot of these direct to consumer items are mediocre, and that's why they are struggling.

The problem with the company is the prices. Astronomical price for something that isn’t really worth it.
I rented peloton for 6 months and realized it was useless to me for the price point.

I also noticed a trend towards higher end prices to match the trendy marketing. Originally the best DTC brands offered a quality product & split the middleman markup. During the late teens we seemed to be focused on “gourmet-ing” standard products with catchy marketing & subscriptions to trick the customer into thinking they’re getting more because there’s no middle man. Even if the product was better than in traditional outlets, it wasn’t enough to warrant the cost & commitment.

It seems like a version of price anchoring success by association: DTC got a reputation for quality products at a good price, so others tagged onto the reputation but with other products. Kind of asking what else could be sold in the channel type instead of asking what the consumer needs & IF DTC could fit as a channel.

so, companies built on venture capital can't function on their own...

I wouldn’t call all of these DTC, I’d call these poor business models. I know several “DTC” brands and I gotta say there weren’t any depicted here. I wonder why.

Did they go belly-up or were they just overvalued on hype and special circumstances?

they weren't "struggling" until they expanded and tried to justify their valuations with associating themselves as a "tech" company

I don't really care how I get my product as long as it is the same price no matter where I am buying it. I am sure some platforms are taking a cut of the sales, so it makes sense for people with a large enough business to move to their own facilities. It isn't like online shopping is going to slow down significantly, so really the issue is that the businesses weren't operated profitably because that wasn't the goal, the goal for venture capital is to scale up a business as fast as possible, and then when the company is worth the most based on sales and already tapped out growth curve that is about to level off, they sell. Any company going under in this new inflation heavy environment with ever ballooning consumer facing pricing, is a business that was operated unsustainably. They can either move to a profitable business model, or they can file for bankruptcy in order to avoid paying back their loans that are now being written at 5+% instead of the free debt they were getting financed with before the rates were increased.

The problem with most of these direct to consumer companies was they sold counterfeit products or products of questionable quality. What you see is not what gets shipped to you. You often do not get what you actually paid for. Product fraud is a very serious problem with direct to consumer companies like product substitution.

News flash! D2C companies racing to the bottom to maximize margins and ignoring QC and distro was a bad idea.

Blitzscaling doesn’t work if you don’t have a solid business, long term plan with actual profitability points. Then Covid made some brands brave and believe they’re farther along in the process than they are/were. Mail order mattress… sure I’ll trust where I spend half my life on an algorithm choice for me. If I don’t like it, return it, where it goes into a land fill because you can’t resell or reuse a mattress unless its a person to person transaction

Most D2C items rely on impulse and marketing. Whenever people don't have extra money, you need people in the supply chain helping promote, like wholesalers and retailers. Everyone becomes invested. And consumers impulsively buy when doing their mandatory shopping. I read sharktank rip people apart for not wanting to go retail. See how it's working now.

This is the problem with having a lack of business fundamentals and focusing on fads. These companies got blinded by the DTC model and thought that was the end-all of things. It was "hip" and cool, esp in the eyes of VCs. Notice how all these "trendy" business fads come and go - DTC, design thinking, lean startup, etc. They all have one thing in common - a reckless abandon of management fundamentals and rigor.

The fact that Warby Parker continues to thrive is proof of this - they know DTC is just one of the channels to reach customers; and that they should strategically orchestrate a variety of channels - brick & mortar, distribution in other retailers, direct, digital, etc.