COU
RT
ESY
COMPA
NY
price tag increase was to improve
quality and move manufacturing to
the U.S.) “The temptation is to give
the very best price possible,” says
Kuhl, “but then it becomes, ‘Well,
shit, we can’t stay in business doing
this. We have to make some money.’;”
•••
THE FUTURE LOOKS
AWFULLY FAMILIAR
One after another, many DTC startups
have come to a realization: If CAC
is the new rent, then why not pay
actual rent? SoHo in Manhattan
has become a physical manifestation of this. Within a one-mile
radius, you can walk into stores
belonging to a dozen DTC
brands—Away luggage, Allbirds
sneakers, M.Gemi shoes, Untuckit
shirts, Everlane fashion, Indochino
menswear, Outdoor Voices active-wear, Bonobos men’s clothing, and,
of course, Warby Parker.
Every one of these stores is
another alternative to the Face-
book and Google hamster wheel.
There’s a good reason that hanging
out a shingle was the original cus-tomer-acquisition strategy, after
all: It works.
Take, for example, Away’s New
York store, on a chic block near the
company’s o;ce. It’s one of four
Away stores in expensive locations
around the country—NYC, Los
Angeles, San Francisco, and Austin.
Accented with co;ee table books
about exotic, Millennial-friendly
destinations, an espresso bar, and a
few suitcases displayed like sculptures
on white pedestals, the store could
easily be mistaken for the lobby of a
minimalist boutique hotel.
When Away first launched, the
founders assumed that traditional retail
would never play a part in their future.
But, says Korey, the CEO, after they
tested a pop-up shop, “our hypothesis
turned out to be totally wrong. We had
person after person coming in and
being like, ‘Oh, I’ve been on your website, but who knows what seven pounds
really feels like? Oh, that is light. OK,
I’ll take the green set.’;” Away opened
a real store, tried pop-ups in other
cities, and discovered that every time it
opened a store in a new market, it lifted
web sales in that market. “It’s almost
like we’re opening a profitable billboard,” Korey says.
To one frequent DTC investor I
spoke with, though, any young DTC
company’s moving into retail early in
its lifecycle is a red flag that it might
be overspending on online marketing.
“Because if it’s working online, why
all the retail stores? Why not stay
online and scale over time? I could see
one or two stores as PR plays, but why
take on all the overhead, the cost of
the build-out?”
Warby Parker has famously opened
locations all over the country— 66 of
them so far—but there’s a key di;er-
ence. Whereas someone might buy a
new suitcase once every five years,
Warby has managed to turn eyeglasses
into fashion accessories that people
buy over and over, to refresh their look.
Not only are the stores a billboard for
the brand—to echo Korey—they also
help change shopping behavior and
frequency. Indeed, Warby brought in
more sales from its stores last year than
it did from its website.
PR maven Derris says DTC
companies are realizing they “are
not digital only—they’re digital first.”
That’s a major clarification: They can
use the internet to get around the
traditional barriers of entry, but once
they’ve arrived, it’s more like business
as usual.
DTC razor brand Harry’s is now
selling its product through Target, the
very middleman these brands claimed
to be cutting out. Wholesaling
means not only that Harry’s
gives up a large chunk of its
gross margin to a big-box
retailer, but also that it can’t
track those customers and
learn from their data.
“It’s just pure scale,” says
Wharton’s Bell. “There are
only so many people you can
reach online, but there’s a
massive segment of people
who are still shopping o;ine,
and you want to be able to
address that market. Target is
the way to do it.” In February,
Harry’s raised an additional
$112 million in venture capital
to pursue a sort of new-age
Procter & Gamble strategy. It
recently invested in DTC hair-
loss-prevention company Hims,
BaubleBar is going even further.
Early on, CEO Jain knew she and her
The Road Less Traveled
Bryan Lalezarian, Wharton class of 2012 and
CEO of MeUndies, cautions certain DTC founders
to resist taking VC funding: “It can put you on
an unsustainable track.”
Facebook and Google are simply the new middlemen. Instead of paying rent, many DTC companies pay the internet giants to be their storefront.
