After years of pushing into wholesale, millennial-friendly DTC beauty startups are seeing a surge in their own channels during the pandemic.
While cutting out the retailer middleman used to be a core tenet of DTC startup brands’ reason for being, many have become much less “direct” over the past several years as the pivot to wholesale had been trending prior to the coronavirus pandemic. But with delays in shipping impacting Sephora, Ulta and Amazon during the pandemic, the DTC-focused model has become attractive once again. DTC brands have seen the majority of their sales growth from their DTC channel during the pandemic, and Bluecore data shows digitally native brands across categories saw 53% overall sales growth in April. As the jump to retail partnerships requires small brands to seek out VC funding to scale up quickly, that funding is drying up: a recent report on investment activity in Q1 2020 by CB Insights found that beauty and personal care funding fell by over 50% quarter-over-quarter.
“We have completely re-forecasted our entire year,” said said Savannah Sachs, the CEO of skin-care brand Tula. While the brand distributes through Ulta, Amazon and QVC, it has seen its highest source of growth from its DTC site, with five-fold year-over-year sales growth in April and a similar trajectory in May.
“Covid-[19] has fundamentally and significantly accelerated the e-commerce revolution,” said Tula CEO Savannah Sachs. “As stores reopen, we expect that many new shopping habits formed during the pandemic will continue to influence consumer behavior indefinitely.”
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DTC beauty brands without wholesale distribution arms have been able to keep orders fulfilled and have avoided some of the headaches of those reliant on retailers. Glossier, which sees the vast majority of its sales through its owned e-commerce, does not distribute to outside retailers apart from a limited-time fragrance pop-up it did with Nordstrom in December 2019. Despite coronavirus, the brand does not have any plans to partner with a retailer in the future, according to a company spokesperson.
Glossier is not alone. Disruptors in the made-to-order space like Proven and Finding Ferdinand are reliant on their own channels. Then I Met You, a DTC skin-care startup launched by Charlotte Cho, has also chosen to focus on its own channels. The brand is sold only through its own DTC site and Cho’s multi-brand site SokoGlam, and Cho said sales have grown on both during the shutdown period.
“Then I Met You has been approached by many retailers, domestically and internationally, but we’ve been very laser focused and intentional about the partners we work with,” said Cho, who noted that over 10 retailers have approached her for both U.S. and global distribution.
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Prior to the pandemic, the main appeal to remain exclusively DTC was to control a brand’s messaging and the way the products were presented to the customer. Glossier’s priority has been to have full ownership of all points of the customer experience, including product, digital and offline, according to a company spokesperson.
Vegan skin-care brand BioClarity is another brand seeing most of its growth through its DTC channel during the pandemic. While the brand declined to provide exact figures, the majority of its sales are through its own site, while it also sells on Amazon and plans to launch in a major retailer in June.
Selling through DTC channels “allows brands to really get a lot closer to their customer and their target, and to better understand them and improve innovation,” said its CEO Tracy Julien. She also noted that the model allows BioClarity to “test different messaging and get insights about what’s working and what’s not.”
“I think that’s a huge benefit you don’t necessarily get when you go to the retailer because the retailer owns the customer,” she said.
Beauty has been a particularly strong DTC category overall during the pandemic. A recent SimilarWeb study of digitally native DTC brands across sectors found that brands in the personal care (which included beauty) and food and beverage categories saw the highest growth during Q1 2020. On the report’s ranking of the top 25 DTC brands by site traffic growth, BioClarity ranked seventh after food and beverage brands including Daily Harvest and hair-care brand Function of Beauty.
“BioClarity definitely has a very strong percentage of traffic coming through organic search,” said Jamie Drayton, SimilarWeb lead retail industry consultant, who noted that the pandemic is likely driving more interest overall in DTC brands. “If you’re growing in Q1, that’s versus the holiday season of last year. It’s a very surprising time to see high growth.” He also noted that digitally native DTC brands have been able to “be agile and respond to trends quicker. They’re able to really meet consumer needs faster than big brands.”
As a result, this makes these DTC beauty brands especially desirable to potential retail partners.
“There’s growing interest from different retailers to have these brand partnerships, because it improves their value proposition,” said Drayton.
Reliance on one channel is not without its drawbacks during the pandemic’s uncertainty. KKW Beauty and Kylie Beauty, for example, had to stop shipping orders from their own sites during the California shutdown, but were able to continue to make their products available through Ulta. Their fulfillment is now up and running again. ColourPop, Fourth Ray Beauty and Jeffree Star cosmetics had to stop shipping from their DTC sites, as well.
“The benefit of going to a retailer is that you have customers that are very loyal to that retailer,” said Julien on why the brand is expanding its distribution. “And if you’re not in that retailer, then you lose that potential customer. Customers want to shop how they want to shop.” Sephora and Ulta, for example, are able to keep customers through their robust loyalty programs that are less of a draw for individual brand sites.
“The lines between DTC and more traditional [retail] are blurring,” said Sophie Marchessou, a partner at McKinsey & Company. “The more traditional brands are accelerating their efforts and have really increased their penetration of online. On the one hand, you have the traditional players that have really invested in online, and that is now a pretty meaningful share of their sales, as well. And then the DTC brands have some store presence, so you sort of have a convergence of the two models.”
Tula is still invested in its Ulta partnership, and Sachs said that the brand is “seeing strong results from buy online, pick-up in-store [BOPIS]” at Ulta stores that have reopened. Overall, DTC brands that have been pursuing outside distribution are planning on continuing that path, even if it has been slowed.
“I know that the pandemic has been really good for DTC brands but I think as time goes on and we get outside of this pandemic, retail distribution is still going to be important to brands in order to grow,” said Julien.
