The 2010s saw the emergence of thousands of direct-to-consumer (D2C) brands, to the point that we came to think of “D2C” as a way of running a business, a set of values and an aesthetic – far more than just a sales channel. It eventually grew beyond parody: we got tired of the millennial aesthetic; we yearned for life after “lifestyle”. But why did the boom happen in the first place? Was it just a bandwagon that people couldn’t rest jumping onto, or is there some structural explanation?
I think this D2C explosion was actually the result of a once-in-a-lifetime convergence of factors that effectively created subsidies for D2C brands for a period of time. Those factors were:
- Cheap capital
- Subsidised content distribution
- Consumer novelty
- Platform convenience
Cheap capital: Central bank interest rates were, from a historical perspective, anomalously low between 2008 and 2022. Low interest rates mean low discount rates – i.e. they make the future value of money similar to the present value of money. So spending money in the present (on customer acquisition, say) in order to make money in the future is rational; revenue you’re due to earn from a customer in 12 months’ time is of similar value to revenue to can earn from them now. This encourages paying for growth, and makes you worry more about growth rates than profitability.
Low interest rates mean that safe assets have low or even negative real returns. This creates an abundance of capital looking for higher, riskier returns, which in the 2010s led to VCs with oodles of cash looking for brands that were shooting for the moon. And so they funded speculative brands, and allowed them to fund their growth by subsidising customer acquisition, shipping, returns, and even product margins. Cheap capital meant not having to worry about whether the underlying business model made sense yet – and “yet” sometimes became “at all”.
Subsidised content distribution: Throughout this period, social media networks were bootstrapping their social graphs and trying to lock users in. Demand for content outstripped supply, and so the social networks allowed users – including brands – to reach people organically in exchange for producing content. They hadn’t begun to turn the screws on ad load, ad costs, or organic reach. Influencers, too, emerged during this period and took time to realise the power and value of their reach. It was generally quite cheap to reach people with both organic and paid content, and so easy to seemingly build a brand solely as a result of having polished content or “going viral”.
Consumer novelty: The initial promise of D2C brands – that they’d cut out the middle-man and save you money – was compelling at first, as expressed most memorably in that first Dollar Shave Club ad. It was refreshing to imagine that you were getting one over on greedy retailers, that you were savvy, that you were getting a good deal. To be the first D2C brand in a previously untapped category was to capitalise on this novelty for consumers.
Platform convenience: The internet and ecommerce had, of course, existed before the 2010s. But if you wanted to start a D2C business in the late 2000s, you had to do an awful lot of work. You had to set up a merchant bank account and a payment gateway to handle credit card payments; you had to self-host a complex ecommerce system and make sure everything was PCI DSS compliant; you had to do a lot of operational and logistics work to get your products into your customers’ hands. By the 2010s, thought, the landscape was totally different. Everything was turnkey, able to be set up in hours by a single person with a credit card: you could start a Shopify site in minutes, take payments with Stripe, store your products with one of countless third-party logistics businesses, and market to people through Klaviyo in a world in which people received fewer emails and in which there was no such thing as GDPR.
Things have changed. None of those subsidies exists any more. Capital is expensive, and no one is funding speculative growth; investors expect profit from day one. Social media reach is expensive, and the cost of acquiring a customer has never been higher. Consumers are bored of the standard D2C pitch, and have been burned by too many mediocre products with slick, Instagram-friendly branding. The platform advantage is now available to everyone; what lowered the barrier for you also lowered it for thousands of competitors, and created a race to the bottom on price and service. People’s inboxes and appetites are full.
These tailwinds becoming headwinds have exposed where there was a lack of “authentic demand” for what D2C brands were selling. In lots of cases, demand wasn’t authentic; it was being induced by cheap shipping, compelling content on greenfield social media platforms, and subsidised customer acquisition (including things like generous introductory offers).
The real test for authentic demand is the “not-not” test. After your customer becomes aware of your solution, can they imagine not using it? Did the fact that something was available D2C close a behavioural gap for customers to the extent that it became the new default behaviour, and it was impossible for them to go back?
There was certainly authentic demand in some categories. But there absolutely wasn’t in others. Think of something like Graze. Sure, it’s nice to have snacks delivered, but the supermarket is right there. Nothing about Graze renders it unimaginable to continue buying snacks from the supermarket, and so the slightest bit of friction will lead people to cancel their subscriptions. Unilever probably messed up with its acquisition of Graze, and bear some responsibility for its fall from grace, but their shutting down of the brand’s loss-making D2C channel in 2024 was probably inevitable. The demand for it, like for many D2C brands that launched in a similar period, was inauthentic and unsustainable.
Life has always been hard, of course, and things look easier in hindsight. But it seems uncontroversial to say that it was once somewhat straightforward to launch a new D2C brand, and that it’s much harder now. So what should you do if you’re trying to launch a D2C brand in 2026?
In the glory days, category selection was largely irrelevant; people tried D2C in everything from bikes to baby formula. In the new world, category selection is perhaps the most critical factor, the first choice that determines whether or not a D2C model is viable for new entrants. The question you must ask is: can this product achieve profitability at low volume, without subsidised shipping, without subsidised customer acquisition, and without requiring a customer to change a behaviour that’s currently working for them? Categories that work are some combination of a high ticket price, a high frequency of purchase, unavailability in current retail channels, or a high level of personalisation that retail can’t compete with. Ideally, of course, you’d have all of those things.
As well as the increased importance of category selection, the order of execution is likely to be different in the new world. The D2C tailwinds used to mean that you could launch a brand online, build sales and an audience, then take that to a retailer; “D2C-first” was a common and sensible approach. In the current environment, the opposite order often makes more sense. Retailers are looking for challenger brands to invigorate stale categories (in food and drink, just look at programmes like Sainsbury’s Future Brands, Tesco’s Accelerator, and the Co-op’s Apiary scheme). Barriers to entry for retail are perhaps lower than ever.
Media requires more of a strategy in the new world, too. The current media environment has the opposite dynamic to that of the late 2000s; supply of content outstrips demand. Distinctiveness matters more than ever; grabbing attention is more difficult than ever. Developing content that cuts through and that is shareable is key. But it’s likely that you’ll only be able to afford to continue to create – and to pay to promote – this level of content if your underlying business model throws off a significant amount of free cashflow. Again, category selection and unit economics matter most.
The best advice, then, might be not to start “a D2C brand” at all. Instead focus on starting a strong brand, in the right category, with a great product and strong unit economics, that uses D2C as one sales channel among many.