Digital Natives vs. Traditional Wholesalers: Different Challenges, Same Hard Math

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Digital Natives vs. Traditional Wholesalers: Different Challenges, Same Hard Math

In a previous life, I was Head of Ecommerce for a 100+ year old performance running brand in Seattle. During the nine years of my tenure, I saw firsthand the challenges of building a fast-growing D2C ecommerce business within a “traditional” wholesale-focused brand. While my team lived and breathed things like conversion rates, ROAS goals, and service metrics like contacts per order… most of the company was focused on growing the wholesale side of business.

Many times I would say to myself…“If we were starting a new brand from scratch, we would never do it this way...”

“If we were starting a new brand from scratch, we would never do it this way...”

And you wouldn’t. The explosion of digitally native vertical brands (DNVBs) across every category -- including some really exciting new brands like Allbirds and Rothy’s in shoes --  shows what an opportunity there is to build things differently today. When you start with a D2C model instead of bolting it on later, you have much more flexibility and control over fundamentals like how to design and release product, pricing strategy, messaging to end users, and which marketing and distribution outlets to pursue.

That said, there are still huge challenges to profitably grow any brand, whether or not you start digital-first. The fundamentals of unit, order, and customer level economics still apply, regardless of where you begin.

“The fundamentals of unit, order, and customer level economics still apply, regardless of where you begin.”

Mid-way through my tenure at the running company, I interviewed for a position at a fast-growing D2C subscription beauty business. I loved my day job (and preferred shoes to makeup), but the chance to work on one of the early “digital-first” brands was incredibly appealing. They had just landed a large Series B round of financing from one of the premier firms in the Valley and were looking to scale fast.

The beauty brand CEO noted the hard work it had taken for me to build a meaningful D2C business with “two arms tied behind my back” in the wholesale-focused environment. One of the more astute interviewers I’ve come across, she then asked: “Imagine you’re here with plenty of resources and organizational support, but we haven’t had 100 years to build a well-known brand - we have to go create it.”

I didn’t get the job that day. The truth was I didn’t have a great plan for how to profitably scale customer acquisition efforts in the context of their business, and this was going to be a huge challenge for them. Unless you’re a celebrity with a built-in following, customer acquisition at sustainable economics is likely to be a lot easier for an existing well-known, multichannel brand with a high-gross margin product vs. starting entirely from scratch.

Six years later, where have things landed?

The digital native subscription beauty brand is out of business. While true pioneers in the category, the underlying financials and a bumpy record on the customer service side didn’t work out in the end. Many of today’s newer digital native brands will undoubtedly prove to be enduring, profitable businesses. But doing so will require unlocking the puzzle of how to deliver a great customer experience on the operations side, and find enough new customers -- all at sustainable economics.

“Building an enduring, profitable business requires unlocking the puzzle of how to deliver a great customer experience on the operations side, and find enough new customers -- all at sustainable economics.”

The 100+ year old performance running brand hit all-time high sales in 2018. The D2C ecommerce business continues to be an important and fast-growing part of their business mix, but for now is still a minority of overall pairs sold. While traditional so-called “legacy brands” face a number of challenges to building their D2C businesses, don’t count them out when predicting tomorrow’s potential winners, on and offline. Along with years of accumulated brand equity to build from, most of the strong “legacy” brands are doubling down on D2C and learning fast.

“While traditional so-called “legacy brands” face a number of challenges to building their D2C businesses, don’t count them out when predicting tomorrow’s potential winners, on and offline. “

As for me: I recently joined SoundCommerce, where my goal is to help more companies profitably grow their D2C businesses - regardless of whether they got their start as digital natives or traditional wholesalers.

Meredith Han

Contact us at SoundCommerce to modernize your operations, improve customer experiences, and profitably grow your brand.

 
Meredith Han