According to e-commerce market research by PipeCandy, there are approximately 110,000 to 120,000 direct-to-consumer businesses in the United States, which generate approximately 13% of total online sales. And retail analysts expect that number to rise as online sales continue to rise.
In a âState of the Industry Report,â PipeCandy dives deep into the d-to-c e-commerce space with the data and trends driving its growth. Here, Ashwin Ramasamy, co-founder of PipeCandy, shares his knowledge of the d-to-c market and its evolution.
WWD: How has the d-to-c market evolved in recent years? And what drives growth?
Ashwin Ramasamy: The past decade has seen the rise, evolution and continued growth of d-to-c commerce.
Digital native brands, such as Bonobos, Warby Parker and Casper, have contributed to the growth of direct-to-consumer selling as a business strategy. They used social media, websites, and apps to manage consumer engagement and overall customer experience while controlling product, marketing, and customer acquisition costs by cutting out the middleman. D-to-C as a strategy has since been iterated, evolved, innovated, and has come to mean both a business model and a channel strategy.
D-to-C is no longer limited to digital-first or digital-native brands. Over the past five years, between 2016 and 2021, at least 15 d-to-c companies have gone public, and not all of them have remained fully digital by the time they go public. All continue to have significant online direct sales channels, but many have eschewed the digital-only label, opening physical stores. Some of them also sold on Amazon or Etsy or partner sites while some became truly omnichannel by distributing partly through wholesale.
The meaning of d-to-c has expanded. It no longer just means brands that sell through their own direct online channel. Today, smaller brands sell on Amazon and also have their own Shopify presence. Big retail brands like Nike, Pepsi or Apple all have their own d-to-c presence online.
This rise of d-to-c was driven by four important developments.
The first development was the growth of the Shopify ecosystem which allowed small, emerging brands to set up e-commerce sites painlessly. The e-commerce site serves as both a “brand” (a destination that conveys the brand’s story, mission, style and values) and a “store” (which showcases products, enables online shopping transactions, purchase and service capabilities). Technology, logistics, payments, and even banking â you name one tough problem a brand needs to solve â the Shopify platform solves it for them today.
The second was Facebook and its social media ecosystem that gave smaller brands a platform to scale digital marketing and consumer engagement without having to go through agencies, publishers and other intermediaries. Facebook subsequently turned the screw on its paid distribution reach, which increased buyer acquisition costs for brands, but its impact on initial d-to-c business growth cannot be denied.
Third is the often overlooked shipping and fulfillment ecosystem. The maturity of fulfillment products such as free shipping, same-day delivery, and free returns offered by 3PLs and last-mile shippers have shaped how d-to-c brands operate.
The fourth, more recent development coincides with the liberal liquidity of credit in the market. On the one hand, brands have access to venture capital and off-balance sheet financing to finance the growth of their business. On the other hand, online consumer finance, such as the buy now, pay later movement, has accelerated consumer adoption of brands.
WWD: What other trends are you seeing with d-to-c?
AR: Here are some of the other trends we’re seeing in the d-to-c space:
â¢ Growth in shipping speed: In 2019, we found that around 26% of SMBs offered next day delivery. PipeCandy data shows that number has now risen to 41%.
According to data from PipeCandy, at least 25% of all d-to-c businesses offer next-day and two-day delivery, and that number rises to 30% for mid-sized brands.
â¢ Google Ad spend: PipeCandy data indicates that over 60% of d-to-c businesses have not spent on Google Ads in the past 12 months. Of the businesses that spend on Google Ads, more than 80% spend less than $5,000 per month, and 76% receive fewer than 500,000 visitors per month.
Businesses with d-to-c channels dominate Google Ads, spending six to eight times the budgets of mid-size brands and far more than those of long-tail e-commerce businesses. Among these, companies with physical stores have Google Ads budgets 1.8 times higher than large digital native brands.
â¢ Presence on social networks of the d-to-c brand: approximately 75% of the brands in our sample of 10,797 d-to-c companies have an account on at least three or more platforms, while at least 44% have four or more accounts. .
WWD: What are some of the main categories? And how many d-to-c sites are there in the US?
AR: More than 75% of d-to-c brands in the United States today fall into one of three categories: fashion and apparel; home and garden, and food and drink. Fashion & Apparel includes Women’s Fashion, Men’s Fashion, Jewelry & Watches, Headwear, Shoes, Eyewear, Bags & Wallets, and other subcategories.
We believe there are approximately 110,000 to 120,000 d-to-c businesses in the United States, which represents about 13% of all e-commerce businesses in the United States.
WWD: In the United States, where are the d-to-c brands based? And do they also have a physical presence?
AR: About 55% of the total US D-to-C market is concentrated in just five states. California has the highest number of d-to-c companies at 26%, followed by New York at 15% and Florida with around 6% of d-to-c companies headquartered in California. ‘State. The states of West Virginia, North Dakota, Alaska and the Virgin Islands are each home to less than 0.10% of d-to-c brands.
Businesses in product categories such as “Bookstores”, “Hobbies & Interests”, and “Adults” have a stronger physical presence than brands in product categories such as “Gifts & Novelties” , “Health and Fitness” and “Office Supplies and Stationery”. who don’t invest much in maintaining a solid physical presence.
WWD: So these are small businesses with an online presence. Does it have anything to do with the âbig quitâ and people quitting their jobs and starting their own businesses?
AR: The big resignation is the result of the location’s flexibility and liquidity influenced by the pandemic. If there is an increase in the number of people offering brands, it will be temporary.
In fact, with rising shipping costs, a disrupted supply chain, and increasingly inaccurate digital targeting, the odds are stacked against smaller brands.