For DTC brands, the year of profitability will have to wait

April 10, 2020

By Anna Hensel

This is the newest installment of a weekly new briefing about the big changes and challenges facing direct-to-consumer startups. Join Digiday+ to get access to this and all articles, research and more.

A month ago, I was talking to the founder of a one-year-old direct-to-consumer startup who was out trying to raise some money. The founder told me it was a pretty bad time to be fundraising. The coronavirus outbreak was just starting in the U.S, and some investors were already starting to get hesitant about deploying capital. Additionally, many of the investors the founder was meeting with were looking for companies that could display a surefire path to profitability, but without sacrificing high growth rates.

In the month since then, things have only gotten tighter. Months ago, steps that were being billed as smart and necessary in order for an e-commerce company to become profitable, like expanding wholesale partnerships and opening their retail stores, have now turned into logistical nightmares as most stores remain closed.

The context here is important. By and large, DTC brands have failed to make huge exits (with the exception of Dollar Shave Club). Wall Street, meanwhile, has reacted coolly to the IPO of Casper earlier this year. Now, DTC startups are talking less about becoming a unicorn company, and more about becoming profitable. And this was meant to be the year it happened. After a couple years of breakneck growth-at-all-costs, this was going to be the year that profitability became the word du jour, especially as many brands fizzled out and a clear reckoning began to take hold.

Take beverage company Iris Nova. CEO Zak Normandin told me that his number one goal this year was to become profitable. And they were on track to do that, in the early summer, in part by expanding wholesale and retail partnerships in places like coffee shops and hotels.

Now, of course all of those retail channels are shut off. Normandin said that Iris Nova is still on track to be profitable this year, albeit by August now. In a few ways, they are better off than most other companies. For one, DTC sales have been up about 100% year-over-year. Last year, Iris Nova shut off Facebook and Instagram advertising entirely in order to acquire customers more organically, so the company didn’t have a huge marketing budget to begin with. And, Iris Nova is still on track for its biggest wholesale launch yet, when it makes its products available for purchase in select Walmart stores later this month.

But Iris Nova hasn’t emerged from the crisis completely unscathed. The company did have to lay off half of its staff once it became clear that most of its wholesale distributors would remain closed for several months.

“The reason why we are focused on profitability is because we really want to have financial control over the business in a way that being dependent upon venture capital doesn’t allow you to have,” Normandin said. “And I think when you have a profitable company you can …read more

Source:: Digiday

      

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