Direct-to-consumer startups have played a major role in transforming consumer habits and preferences in the world of e-commerce. Many direct-to-consumer (DTC) startups have achieved success by relying on a single-channel business model of driving sales only through e-commerce, while others employ a mixed methodology of e-commerce and traditional retail.
7 Startups that Are Crushing the Direct-to-Consumer Model
We’re going to review seven startups that have conquered the DTC business model while competing with some of the biggest retail corporations in the world.
The real question here is; how did these DTC startups become so wildly successful while relying on a business model that rejects most of the tenets traditional retailers embrace?
Let’s take a look, starting with Warby Parker.
1. Warby Parker
Considered by many to be the grandfather of successful DTC startups—albeit a young one—Warby Parker is as good as it gets when it comes to discussing startup success stories.
When Neil Blumenthal, Dave Gilboa, Andy Hunt, and Jeff Raider founded Warby Parker in 2010, Luxottica controlled an estimated 60-80% share of the U.S. eyewear market. Despite such competition, the founders wanted to create an eyewear brand that was both fashionable and attainable for someone who didn’t want to spend $400 to $600 on a single pair of glasses.
Their solution was to cut out the middlemen—retailers—so they could significantly reduce the customer’s cost of eyewear by charging $95 for a pair of glasses.
It’s been eight years and the company is now worth $1.75 billion.
Here are just a few of the ways they were able to reach that astronomical valuation in such a short amount of time:
- Created a strong digital engagement strategy that started with an inventory sell-out which resulted in a 20,000-strong waitlist
- Placed customer experience first to build an audience of brand advocates
- Adopted user-generated content early on by encouraging customers to share photos of themselves wearing Warby Parker eyewear
Warby Parker was a pioneer of sorts in the direct-to-consumer industry. They took the DTC business model where no one had taken it before and have been generously rewarded.
Away almost seemed destined for success based on the fact that co-founders Steph Korey and Jen Rubio first met when they were working at Warby Parker.
After struggling to find affordable and durable luggage, Korey and Rubio decided to create a luggage line that fulfilled both those needs, while relating to millennials and bypassing the retail space.
In its first year of operating, Away sold 50,000 hard-shell carry-on suitcases, each priced at $225.
If that’s not impressive enough, check out the long list of accomplishments Away as achieved since opening in 2015:
- Opened brick-and-mortar stores in New York, Austin, San Francisco, and Los Angeles with 6 more coming in 2018
- Started a travel-focused podcast and Here, a print magazine
- Moved headquarters to a 56,000 square foot space in New York’s SoHo
- Expanded marketing to European markets
- Plans to hire 240 new employees
- Received $50 million in funding to continue growth
Impressive hardly describes Away’s direct-to-consumer runaway success.
When Harry’s was last valued in 2015 at $750 million it had just closed a $75.6 million Series C funding round. Compare that with the latest funding round which raised $112 million and you can guess how much higher their valuation has climbed.
What makes Harry’s so successful is their effortlessly cool branding and commitment to creating a high-quality product without expensive frills.
Here are just a few of the ways Harry’s has climbed the direct-to-consumer ladder so quickly:
- In 2015 the company purchased a 93-year-old German razor factory to keep costs low and product quality high
- Branding uses textures, colors, imagery, and design to create a mood that resonates with the target market
- Razor blades cost just $2 or less, despite running a team with hundreds of designers, craftsmen, and chemists
- Partnership with Target led to sales that were five times higher than initial forecasts
Oh, and did we mention that co-founder Jeff Raider is the same Jeff Raider who helped co-found Warby Parker?
Everlane was founded in 2012 by Michael Preysman after he came to the realization that people wanted to buy basic, affordable fashion from a brand which embraced radical transparency and ethical labor.
Not only does Everlane’s direct-to-consumer business model discuss every detail of product pricing—down to the markup on each piece of clothing—it also shares stories about their sustainable suppliers and warehouses.
There are three distinct ways Everlane continues to be a force in the direct-to-consumer market:
- Their radical transparency policy has helped build goodwill and a massive audience of brand advocates
- They say that keeping prices reasonable is important and then follow through by lowering product prices when they cut supply chain costs
- They use scarcity to rack up large waiting lists that translate into revenue
Everlane is a true millennial brand that has turned direct-to-consumer e-commerce shopping into a more than $250 million valuation.
Casper was first launched in April 2014 by five co-founders who recognized that traditional mattress retailers had it all wrong. They charged way too much money, had too many different options, and did nothing to create a rewarding customer experience.
Their solution? In the words of co-founder Luke Sherwin, they created a mattress that could “fit into a box the size of a dorm refrigerator.”
Casper’s direct-to-consumer business model was an immediate hit and has become somewhat of a social media sensation, thanks to strategic influencer marketing campaigns. In fact, one influencer post from Kylie Jenner is credited with singlehandedly doubling the company’s sales.
In 2017, Casper’s sales were approximately $275 million. That’s an incredible number to reach only three short years after launching.
6. Stitch Fix
How does a fashion business go from school-project idea to a brand valued at $2 billion in just six years? Ask Katrina Lake, founder and CEO of Stitch Fix.
While enrolled at Harvard Business School, Lake came up with the idea for Stitch Fix as part of a class project. She wanted to improve the in-home shopping experience for women who didn’t have the option to shop around for a range of fashionable clothing.
From that idea, she created Stitch Fix, an online business that provides affordable, personal styling services to people by putting together a carefully curated box of fashion pieces that are sent directly to customer’s homes.
What Stitch Fix does so well:
- They provide a luxury-esque service without adding high margins that get charged to the customer
- They treat customer data as their true differentiator which has led to high customer satisfaction
- There’s an element of mystery because customers don’t know what products they’ll receive until their box arrives
In a recent earnings report, the company reported sales were up 29% and clients were up 30% year-over-year.
7. Interior Define
Interior Define is one of the most successful direct-to-consumer startups mentioned in this blog post. They’re also one of the few businesses that has redefined the relationship between traditional retail and DTC.
Launched in 2014, Interior Define initially sold customizable sofas to customers at middle-market prices. Now, the company has expanded their range of product categories to include dining sets, bed frames and more.
While specializing in customized furniture which ships to homes across the country, Interior Define also has retail locations in New York, Chicago, San Francisco, Los Angeles, and Austin.
To say that their business model is working would be a massive understatement. The DTC startup is on track to triple its 2018 sales for the third year in a row.
Here are just two ways it continues to outperform the market:
- Its showrooms focus on the customer experience over stocking inventory
- It has mastered product customization on a large scale without a decline in quality
Interior Define has proven that brands can succeed in retail when they combine the user experience with a strong e-commerce strategy.
Mastering Direct-to-Consumer Selling
One of the most challenging aspects of direct-to-consumer selling is providing a great customer experience that doesn’t depend on in-person interaction. However, these seven DTC startups have not only conquered the customer experience, in many cases they have actually improved it.
Becoming a successful DTC startup is not easy. The competition is fierce and reaching profitability can be challenging. But, if you can master selling directly to consumers with a product or service that delivers a great user experience, the possibilities are almost endless.