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  • For most new DTC brands, starting to work with wholesalers is a matter of “when”, not “if”.
  • Digital native brands quickly get retail partnerships.
  • Analysts say brands shouldn’t overlook retail partners, but choose the right ones.

Editor’s note: This story was originally published on April 13, 2022.

A decade ago, emerging digital native brands like Dollar Shave Club wouldn’t have dreamed of selling wholesale.

The innovative idea of ​​brands selling their products directly to consumers online and “cutting out the middleman” made financial sense. Without a retail partner that squeezes profit margins, brands could make more money and pass the savings on to consumers.

Now, this strategy is turned upside down.

For the majority of digital native brands, the question of when to start wholesale is not an “if” but a “when”. Most realize that retail partnerships are an inevitable part of the path to building a large, profitable business, especially as customer acquisition costs rise.

“Digital natives were first limited to their own websites. Then this evolved into selective storefronts still owned and operated by the brand, which has now evolved to allow others to sell products,” said Simeon Siegel, managing director of equity research at BMO Capital. Markets, says. “This is the era of de-DTC.”

Digital native brands embarking on retail partnerships is not a new phenomenon. Harry’s entered Target in 2016, paving the way for many early DTC brands like Native and Quip that would follow the razor’s start in big-box retailers. Dollar Shave Club only started wholesale at the end of 2020.

But a confluence of circumstances makes 2022 a banner year for direct-to-consumer brands rushing to wholesale expansion.

Two years into the COVID-19 pandemic, supply chain disruptions are still common and consumers are increasingly prioritize convenience. Sales are up at mass retailers like Target and Walmart. Meanwhile, DTC darlings like Warby Parker, Allbirds and Casper have gone public, exposing their lack of profitability. And in April 2021, Apple rolled out updates to its iOS 14 operating system that allowed users to turn off the data tracking DTC brands relied on to keep customer acquisition costs low.

In July, Glossier announced that its products will be available for sale in Sephora stores in the United States and Canada in early 2023. Sephora is the first official retail partnership of beauty brand DTC. The news came shortly after founder Emily Weiss stepped down as CEO and was replaced by Kyle Leahy, a retail veteran who served as the company’s chief commercial officer.

In April, SoftBank-backed sportswear brand Vuori launched e-commerce in seven countries, accompanied by several wholesale partnerships in local markets, including Selfridges and Barry’s Bootcamp. In March, the children’s clothing brand Primary launched shop-in-shop spaces in 100 Buy Buy Baby stores and on the brand’s website. The grooming brand for men Hawthorne launched a 14-product line in 1,200 Target stores.

DTC is also proving to be an exciting business model for established brands. In a memo written after Nike’s third-quarter earnings call in March, Siegel pointed out that while the brand’s DTC business attracted more customers, direct channel profits declined.

“We believe this outcome increasingly represents the norm, not the exception,” he wrote.

Running a direct-to-consumer e-commerce business “comes with its own set of expenses” that wholesalers don’t have to deal with, including shipping, fulfillment, technology and marketing , Siegel said in a January research note titled “DTC Isn’t All It’s Made Out To Be.”

“Companies are finally starting to recognize and realize that wholesale isn’t a bad channel,” Siegel said.

“You have to be omnipresent”

Primary planned to start retail by opening its own brick-and-mortar store in fall 2020, but the children’s clothing brand scrapped the idea when COVID-19 hit. Instead, Primary made its retail debut this year at Buy Buy Baby stores.

“To be honest, running a brick-and-mortar store at a time when we had less than 50 people was a really big effort,” said Christina Carbonell, co-founder of Primary, adding that the brand had plans to open the store one day. his. retail stores. “The opportunity to tap into a partner who already has the infrastructure in place has made scaling so much easier, given that they are already doing it.”

Primary’s shopping areas at Buy Buy Baby stores “got us really excited” about working with a wholesale partner, Carbonell said. Buy Buy Baby’s registry activity also serves as free advertising for Primary.


Primary is a DTC baby and toddler clothing brand


The first wave of DTC brands launched in retail stores, such as Harry’s and Native, positioned moves as customers were acquired. Now, digital-native brand founders say they are increasingly focusing on wholesale partnerships, which are critical to profitability.

“The new line of thinking is very different. You have to be ubiquitous. You have to be everywhere. You can’t think of it as a single channel,” said Brian Jeong, CEO and co-founder of Hawthorne.

Hawthorne co-developed an exclusive line of skin and hair products for Target after customer feedback indicated that despite its availability at Nordstrom and on Ssense, there was demand for the brand at convenient big-box retailers.

“We see the strategy as a multi-channel business moving forward,” Jeong said. “The Target customer can choose to buy eye cream from our website, or the DTC customer can go to the local Target at a glance and buy a face wash. We don’t care. not.”

“Proceed with caution”

Some DTC brands are able to avoid going into wholesale partnerships until much later growth phases.

Coterie, a premium diaper subscription startup, does not plan a major retail rollout until it gains significant brand awareness through its e-commerce business, Frank Yu said. its co-founder and CEO.

For now, the brand is relying on its first-party data to learn as much as possible about its customers, which Yu says would allow Coterie to make more informed decisions about when and where to start. to wholesale on a larger scale.

In February, Coterie began selling at 450 Whole Foods stores nationwide, but is “cautiously proceeding” with a larger rollout to big-box retailers, Yu said.

“For a subscription-based, mostly DTC-based online business, I think the trail is still very long,” Yu added.

Siegel agreed that digital-native brands should be selective in choosing retail partners, but said counting wholesale would be a mistake for most.

“Be careful who your partners are. Don’t sign up without doing your due diligence, but understand that there will always be good partners,” he said.

At that time, baby and toddler brand Lalo opened its first retail store in New York City in 2021 but plans to launch with a wholesale partner later this year.

“There are only so many ways to increase margins and continue to grow purely online and through our own channels,” said Michael Wieder, co-founder, president and CEO of Lalo. “It’s not that different from working with an influencer. They come with their own perspective and point of view, and it gives us the opportunity to align with their network.”

Still, some DTC brands continue to hold their own by and large. Bedding brand DTC Brooklinen is focused on expanding its own retail store fleet by tripling the number of locations this year and doubling in 2023. CEO and co-founder Rich Fulop said the goal is to operate 25 to 30 stores by 2024.

“By not getting into those wholesale relationships, we’re able to capture more margin, which is important to the business from a unit economics perspective and in terms of experience. customer,” Fulop said.

Fulop stressed that Brooklinen has no plans to enter the wholesale business for the foreseeable future, but he also understands that it could inevitably happen. “We’re not 100% closing the door on that,” he said. “But we want to avoid it for as long as possible.”