The Year Ahead: The DTC Reckoning Is Coming For Fashion
Mounting digital marketing costs and e-commerce readjustments have put the viability of pure direct-to-consumer business models into question. The State of Fashion 2023 reveals that most brands will need to diversify their channel mix beyond DTC to generate growth.
Unprecedented e-commerce growth rates are normalising. E-commerce sales are expected to grow at a CAGR of 10 percent in the US and 11 percent in Europe between 2022 and 2025, far slower than the 30 percent growth seen from 2019 to 2020, and more in line with the pre-pandemic rates of 15 percent and 14 percent from 2016 to 2019.
Profitability in the online DTC channel is suffering, as digital marketing costs grow alongside online return rates — costing brands between $21 and $46 per returned product on average.
Brands are doubling down on physical touchpoints, from monobrand stores to concessions at multi-brand retailers. In 2022, physical store openings in the US outpaced closures for the first time in over three years.
With the direct-to-consumer funding heyday now over, DTC brands need to turn a profit. Unlike their revenue-obsessed counterparts, DTC pioneers Marine Layer, Meundies and Trinny London offer a blueprint for achieving both top- and bottom-line growth.