What Harry’s And Brandless Mean For DTC Disruptors

On the latest episode of Today In Five:

Harry’s and Brandless both suffered major setbacks this week, revealing the limits and struggles direct-to-consumer disruptors are facing.

  • Gwyneth Paltrow’s goop brand launched a co-branded online apparel collection and podcast series installment with Banana Republic. The goop Edit for Banana Republic will launch in spring 2020 and feature five everyday essentials. The capsule launched exclusively on goop.com on February 11th and on Banana Republic’s e-commerce site on February 25th.
  • Former Nordstrom Rack executive, Paige Thomas, will now lead Saks Off 5th, effective immediately. Thomas was most recently the general merchandise manager of men’s and kids at Nordstrom’s full-price business but was general merchandise manager at its off-price Nordstrom Rack operation for more than five years. She oversaw growth in both e-commerce and physical retail while there, including the opening of more than 100 stores and the launch of the Rack website. In tapping Thomas, Saks Off 5th is regrouping under the direction of an executive who once helped lead a powerhouse in the segment. The CEO from Hudson’s Bay Company said, “With her deep merchandising background and instinct to quickly capitalize on digital opportunities, I believe Paige is the right leader to further evolve Saks Off 5th and unleash its potential as a true off-price retailer.”
  • As part of its push into podcasting, Spotify is reportedly paying close to $200 million for the Ringer, a growing online sports and pop-culture outlet. Spotify is expected to detail the costs in a regulatory filing soon. The streaming service has now spent more than $600 million to acquire four companies that can accelerate its podcasting business. The company is already the world’s largest paid music service and is challenging Apple as the dominant way people listen to podcasts.

Are Harry’s and Brandless a Warning to Other DTC Companies?

This week, two promising DTC companies suffered major setbacks. Grooming company, Harry’s, learned that Edgewell is dropping its bid to take it over after the FTC sued to block the deal on antitrust grounds. And online consumer goods company, Brandless, shuttered its operations. The brands’ stumbles have a lot in common, notably, an inability to scale on their own. And they reveal the limits of DTC retail.

The principal at venture capital firm Comcast Ventures told a National Retail Federation audience that, “the pendulum has swung,” regarding venture capitalist expectations, noting that it’s becoming easier to launch a direct-to-consumer company than to grow or sustain one. The fate of Brandless is a prime example of that swing.

The company launched in 2017 saying that each of its items would only be three dollars thanks to the company’s elimination of the middle man and that by going directly to the consumer, Brandless claimed it saved some 40%, which was passed along to its customers. The company received backing from SoftBank in 2018, allowing it to expand into new categories. Now, after a little over two years, the company is shutting down.

The two companies pose an interesting example of the changing retail landscape. The disruptor DTC brands have their limitations. The fate of Brandless seems clear, less so Harry’s. But most, if not all, DTC brands are likely grappling with the same realities of customer acquisition, the challenge of turning a profit, and a need to stand on their own.