Jordan Jewell, Analyst in Residence at VTEX08.07.23
Direct-to-consumer (DTC) brands have faced a steep hill toward profitability, highlighted in recent years by the struggles of online-native brands like Glossier, Warby Parker, and Allbirds to build profitable growth without marketplaces or wholesale retailing.
This can be seen across the beauty industry, where many DTC brands have experienced extreme ups and downs in recent years. The DTC model has been more of an experiment for brands in managing customer data and overall experience rather than something meant to drive revenue. For beauty brands looking to expand beyond DTC, marketplaces offer two main opportunities for growth:
When choosing the right approach to DTC, beauty brands need to keep in mind the simple ecommerce equation: Revenue = Traffic x Conversion x Average Order Value. To grow a brand, every decision needs to improve one or more of these metrics or the effort isn't worth the undertaking. At the end of the day, brands must choose the path—and technology—that is best suited to their needs and helps them connect with more customers and build a profitable, stable business.
About the Author
Jordan Jewell, analyst at VTEX, can offer an objective perspective on what beauty brands are doing (and what is or isn’t working) to attract customers and stabilize sales as consumers tighten their belts and become more selective with their discretionary spending.
This can be seen across the beauty industry, where many DTC brands have experienced extreme ups and downs in recent years. The DTC model has been more of an experiment for brands in managing customer data and overall experience rather than something meant to drive revenue. For beauty brands looking to expand beyond DTC, marketplaces offer two main opportunities for growth:
- Selling on external marketplaces: Selling on a high-traffic marketplace like Amazon is a great way to boost sales rapidly and reach new customers. The challenge is that brands do not own the relationship with the customer or the data gathered and must rely on the marketplace to provide it. External marketplaces also typically take a more significant cut of revenue, so brands must be very selective when deciding where to sell their products externally.
- Creating your own marketplace: This should be viewed as a significant long-term commitment to becoming a destination brand for beauty. Building a custom marketplace can be very profitable, but it needs organization-wide buy-in on the project. Brands must master things like customer experience, fulfillment, returns, supplier management, and marketplace payments to brands, and find the appropriate technology partner to support that.
When choosing the right approach to DTC, beauty brands need to keep in mind the simple ecommerce equation: Revenue = Traffic x Conversion x Average Order Value. To grow a brand, every decision needs to improve one or more of these metrics or the effort isn't worth the undertaking. At the end of the day, brands must choose the path—and technology—that is best suited to their needs and helps them connect with more customers and build a profitable, stable business.
About the Author
Jordan Jewell, analyst at VTEX, can offer an objective perspective on what beauty brands are doing (and what is or isn’t working) to attract customers and stabilize sales as consumers tighten their belts and become more selective with their discretionary spending.
