DTC fashion and beauty brands are facing the impact of the pandemic much like everyone else. As physical sales decline and funding dries up, it’s a challenging environment.
In the latest edition of the Glossy+ Talks series, where industry leaders across the luxury, beauty, fashion and wellness industries discuss how they’re adapting to the impact of coronavirus, Matt Scanlan, CEO of 6-year-old clothing company Naadam, discusses how DTC fashion and beauty brands can achieve growth within the new reality.
Scanlan said that Nadaam was uniquely prepared for changes as the company was coming out of the fourth quarter — which is historically its best quarter — but also, its product line of lounge wear was also well positioned for the climate. Still, there were things that the company did to achieve more growth, including refocusing marketing and keeping an eye out for opportunities.
Here’s what we learned.
Consumer demand has evolved
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Fair value is the ultimate demand for customers and this is determined by three key things, which have all evolved during the pandemic: essentiality, a social identifier and a price differentiator. DTC brands have to be mindful of where to adapt their business if they’re hitting a period of lower consumer demand.
-Essentiality means whether your customer deems the product essential. Social identifiers indicate whether your brand’s core values appeal to consumers. Price differentiator means whether or not the price point makes sense for your consumer base.
-What was essential before to consumers is not necessarily classified as essential now. Naadam was lucky because its product line includes a lot of loungewear — a top category that consumers are purchasing right now while they’re staying at home. For luggage companies, that is likely not the case.
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-Having a tight control on cash flow is critical, Scanlan said. This goes for optimizing everything from marketing strategies to renegotiating terms around manufacturing and logistics to make sure that you’re not spending more than what you’re earning from your customers.
-Like other businesses, payroll and headcount is the one cost that has to come down, since the companies can’t make too many cuts in other fixed costs. Scanlan said Naadam spent time reprioritizing its hiring strategies as well. This time period will be a period where a lot of companies will realize that they can do more with less.
Shifting the approach to marketing
Spending to build brand awareness will be down since marketing is often one of the easiest areas for companies to cut down or cut out completely during a crisis, however, with this being a common business move, supply will be up and demand will be down, leading to chapter inventory.
-Do not cut out digital marketing spend because you cannot just turn the tap on and off. It takes both a lot of energy and money to get your digital ad spend back in motion after going cold.
-Scanlan said that any channels that have a projected return on ad spend (ROAS) of under two times are likely not the marketing channel that brand should be pursuing right now. Prioritize channels where you can make clearer projects about the return on ad spend.
-While the supply and demand ratio has not yet come into play in marketing, he said many marketing budgets have decreased by about 30% across the board and that he expects ad inventory will become cheaper as a result of fewer interested brands. This will be a short term side effect and it will lead to a lot of brands that you would not expect advertising on new channels. It will be a good chance to experiment with new advertising channels.
The future popup and retail model
Thinking about the physical presence of a brand might seem very premature right now, but Scanlan said that this is an area that will definitely come back for fashion and clothing companies.
-For better or for worse, Scanlan said that the real estate industry has been hit hard by the economic impacts of the pandemic so space will be cheaper than it was before. This will enable brands to lock in lower rates for both short and long term leases.
-Retail is usually so expensive that it is hard to make that channel profitable unless the product being sold in the store has a high price point and is in high demand. Going forward, however, he said that this might be a chance to make retail an easier channel to enter into for a lot of DTC brands.
-“In person shopping is a critical behavior to support healthy brand-customer interactions,” Scanlan said. For clothing in particular, the tactile experience of interacting with the product is too important to lose.
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One of the key things to ensuring your brand value is making sure that the product you’re putting out matches the market and has a value that your customers think is fair.
Naadam was in a uniquely lucky position when the pandemic hit, but also because its product aligned with how consumer demand switched under the circumstances.
The pandemic has changed how DTC brands should operate and how to approach going about growing their businesses. Fundraising won’t be as easy but marketing might become cheaper.
Reducing spend on non-essential areas of the business is going to be crucial, however, this is an opportunity to expand into new marketing channels that your brand might not have been able to get into before.
Retail will not recover this year, Scanlan said, but there will be a boost of sales in quarter four, which can offer some relief.
