rse around DTC is a rollercoaster, ranging from ‘DTC is dead!’ to ‘Look at this amazing DTC brand! Everyone should do this.’ The truth, as is often the case, likely falls somewhere in the middle. We recently published a peer-reviewed academic study in which we systematically reviewed the history of DTC and its impact and value in an evolving retail landscape. Analyzing over 80 different rigorous peer-reviewed studies on DTC, we discovered a few common insights that prove the DTC model isn’t dead, it’s just evolving and, in fact, it could still be a great way for smaller brands to build customer engagement. But first, let’s take a look at the history of DTC and why it became so popular. The history and growth of DTC In the 2010s, early digital-native vertical brands (DNVB) such as Warby Parker and Glossier gained a lot of attention for their use of technology to reach consumers online. Building their businesses around technology-driven retail services, and focusing heavily on social and user-generated content, these growing brands aimed to disrupt traditional retail models. Instead of the standard 30-40 percent trade margin that traditional retailers were factoring in as a cost of selling products, DNVBs went straight to consumers, often through social media, short viral videos, and simple go-to market products, such as Dollar Shave Club’s subscription razors and Allbirds’ sustainable sneakers. But while these brands are often credited with popularizing the DTC trend, the term itself has been around quite a bit longer. In fact, DTC arose in the 1990s after the commercialization of the internet, when the FDA allowed US pharmaceutical companies to advertise prescription drugs and other legalized pharmaceutical products directly to consumers. What set the DNVBs of the 2010s apart from their predecessors was the amount and velocity of external investment they received. The brand Bonobos received multiple rounds of funding totalling $127.6 million, for example, while Casper, the bedding and furniture company, raised $339.7 million before going public in 2020. (It was taken private in 2022 by Durational Capital Management after struggling to turn a profit.) Some rode the wave of their success into major acquisitions, like Dollar Shave Club’s $1 billion sale to Unilever and Bonobos’ eventual sale to Walmart. (The retail giant has since sold Bonobos to WHP Global and Express for $75 million, after paying $310 million for the apparel brand in 2017.) Yet, like a lot of popular trends, DTC brands have struggled to sustain this level of growth and success. Increased competition has driven up production costs, and the rising cost of living has put pressureon bottom lines. Similar to service disruptors like Uber, many DNVBs competed on premium services and features, using their investment backing to cover the costs associated with this customer-first approach. But many brands struggled to turn their early promise into a profitable and sustainable model, as can be seen in Casper’s de-listing from the New York Stock Exchange and the closure of a consumer goods company that failed to turn a profit with its low-margin operation. The Covid-19 pandemic created further challenges for DTC start-ups, as major retailers turned to online channels and modified their own business models to adapt, reducing some of the advantages that digital-native brands had previously enjoyed. This evolution has raised serious questions around whether DTC is a sustainable long-term strategy, or even still relevant for start-ups. Is DTC dead? The cases for and against The arguments on both sides of this debate point to the inherent strengths and weaknesses of the DTC model. One of the key benefits of DTC is that brands interact directly with shoppers across the customer journey, providing a chance to control those engagements and generating highly valuable real-time customer data. Bypassing intermediaries means brands control the trade margins through sales, marketing and inventory management. This can be highly beneficial for smaller or upcoming brands that may struggle to secure contracts with major retailers, or may only be able to do so at a disadvantaged position. DTC allows these brands to control their narrative and process without bowing to the demands of larger partners. Engaging with customers directly online is particularly appealing for new brands. The global online consumer base is predicted to increase by a further 1 billion internet users over the next several years, meaning DNVB brands of all sizes have an opportunity to engage a wide audience, without needing to rent a physical space in a major retail location. Yet, not working with larger partners, and not having an established distribution network, means that brands need to drive traffic to their own channels and convert sales themselves. With the growing abundance of content and brands competing for space online, it can be hard for small players without an established brand to break through the noise. This is particularly challenging for DNVBs that don’t have the opportunity to engage consumers in physical environments. There’s also a risk that bypassing third parties to sell directly to customers could alienate retailers and distributors, making those partnerships harder in the future. Owning the narrative and controlling the entire process can be beneficial for brands, but it also means they’re on their own in building their base. A related issue is how small brands drive experiences and build trust with consumers, particularly in a pureplay online setting. Conversion rates online are historically low, while cart abandonment rates remain high. At the same time, consumers now expect engaging experiences with brands, which can be easier to implement in a physical environment than in a DTC online setting. A case in point is Warby Parker, the poster child for the online DTC disruptor model, which now operates dozens of physical stores and plans to expand into many hundreds of locations. Even Amazon, which controls or influences the majority of online sales, has branched out into physical environments, from showrooms, to grocery stores and even to beauty salons. This gets to the crux of this debate: Is the DTC model truly dead? Or has it just evolved? Based on our academic review, and recent examples, we argue it’s the latter. Have many pure DTC online brands failed? Yes. But does that mean the entire model is dead? Probably not. Does the DTC model generate challenges? Absolutely. But could it still be a beneficial way for some smaller brands to launch into a market? Also yes. Where DTC once was primarily focused on online start-ups disrupting the market, the model has evolved over time to become an established retail marketing and sales option. DTC is dead, long live DTC So, if DTC is not fully dead, just evolving, what is it evolving into and where could this evolution lead? While this may not be a sexy or trendy answer, the future of DTC seems to point towards integrated experiences across channels. In other words, omnichannel retailing (another term that has been declared dead, prematurely). If we peel away the consultant speak, trend reports and how-to guides, the essence of omnichannel is meeting customers where they are by offering a range of channels, touchpoints and experiences that work seamlessly together. With that in mind, the role for a business model that allows consumers to engage directly with a brand should be relatively clear. Yet, as a brand scales and grows, that may not be the only type of experience or channel the customer wants. Take Nike as an example. The sportswear giant has made DTC a key part of its growth strategy over the past few years, increasing investment and successfully expanding its own retail operations to control the brand experience. Nike’s direct sales have grown considerably, yet the brand continues to work with intermediaries as part of a broader omnichannel retail strategy. A similar journey has played out in reverse at DNVB Glossier. After avoiding third-party retailers for nearly 10 years, the beauty brand finally launched in Sephora in January, in an effort to increase its reach and opportunities for growth. Even small premium DTC brandslike wine producers have set up urban tasting rooms to assist omnichannel conversion rates within an overarching DTC strategy. The future of DTC, particularly for smaller and premium providers, seems to lie in leveraging technology to unlock omnichannel experiences across channels. For example, in-store kiosks can be a convenient way to cut wait times for customer service, or provide access to a broader range of products through endless-aisle solutions. Virtual and augmented reality solutions can enhance the customer experience to a level that small brands may not be able to achieve without a large distribution network. Even the humble QR code (which had a resurgence tracking consumer check-ins during Covid-19 lockdowns) can be used to enhance distribution and engagement. Of course, there are a variety of marketing technologies behind those scenes that are helping brands scale quickly through data, personalization and experimentation as well. The DTC retail model is not dead. Instead, it has evolved to incorporate additional channels, technologies and even partnerships with retailers to overcome its inherent weakness when it comes to market penetration. Used well, technology-enabled retail services can harness the benefits of DTC, and focusing on the customer experience may help strengthen trust in lesser-known DTC brands. At the same time, challenges around building relationships with consumers, particularly around product experiences, remain. This is where our future research is pointed, but for now the key message is not to write off DTC just yet. There are still elements of the model that can be beneficial, either in isolation or as part of an omnichannel suite. So while we aren’t likely to see another Warby Parker, don’t be surprised if more DTC brands emerge and continue to find success in new ways. This story first appeared in the September 2023 issue of Inside Retail US magazine.