There is a lot of talk of digitally native virtual brands (DNVBs) and direct-to-consumer (DTC) brands competing with traditional retail, and there is a lot of speculation about the advantage gained by newer brands with less reliance on brick-and-mortar stores. However, there is little talk about the two business models merging. Take Harry’s, the razor company, for example. This DNVB went from having zero inventory and running massive pre-order and email campaigns, to buying up their sourcing (a German factory) for $100m after being in business for just ten months. Today, only five years later, 80% of its sales come from offline retail channels, mainly Target and J. Crew.
Contemporary (DNVBs and DTC) brands
If you are asking yourself what a Digital Native Vertical Brand (DNVB) or Direct To Consumer (DTC) brand is or if there is a difference between them, Nate Poulin provides a helpful distinction and an explanation as to why they exist. To paraphrase, DNVBs are typically both backward (design, manufacturing, supply chain) and forward (distribution, sales channels, customer care) vertically integrated. DTC companies tend toward the latter. To Poulin’s admission, though, the two are used interchangeably, and in comparison to traditional or heritage brands both are referred to as contemporary brands.
Some trends in the growth strategy of these contemporary brands have formed over the past 5–10 years, upon which the Business of Fashion and 2 PM provide some insights and commentary. For example, the LTV:CAC ratio is an incomplete way to analyze and project future viability; an abundance of capital toward marketing is required to support and condense a process (of growth) into a few years that took legacy brands upwards of a decade to accomplish and operational superiority and omnichannel sophistication have distinguished some of the industry’s biggest success stories, such as Harry’s. But, Web Smith in The DTC Playbook is a Trap, suggests there is no playbook — that “DNVB growth must be a malleable and agile operation” in order to stand out and survive.
Contemporary and traditional retail formats are merging
That malleability has enabled digitally native brands to move into brick-and-mortar retail to deepen engagement with the customer, effectively entering the realm of traditional brand business. Most new brands are proving scrappy in this space, particularly in the face of social distancing, with the aid of unique retail formats and advances in technology, such as micro-fulfillment, drop shipping, pre-order, “showrooming” and more.
But traditional brands are making similar moves to compete and develop the most innovative retail experience. Even if they are slow to incorporate these new forms of retail directly into their stores, they might, at a minimum, look to collaborations and acquisitions of DNVBs to acquire customers and/or more data points on the customer. They realize they must leverage their capital advantage to integrate digital innovation and the latest types of experiential commerce. Today’s shopper demands it.
The winners will be data-anchored
Today, the basic principle of brand building is to develop deep customer relationships, making the most of all possible retail channels. And these multi-channeled connections reach a shallow depth if they are not supported by a unified system of data. Poulin reminds us that, “all brands that interact both digitally and physically with harmonized data will be best positioned to maximize their relationships and thereby their customer base.” Any brand that does not adapt to this approach will have difficulty understanding the customer needs (across all of the touch points), will ultimately disenfranchise the customer, and be picked apart by a data-anchored brand offering a product or service more acutely meeting the customer needs.