As 2020 kicks off a new decade, the DTC space continues to change, with industry experts predicting more acquisitions, an expanding home category, a new kind of sustainability messaging and more.
Mergers and acquisitions will continue
Expect more acquisitions to occur in the DTC space, particularly in consumer packaged goods, according to Emily Singer, a marketing manager at Alma, an office-sharing service for mental health professionals, and the founder of the ecommerce newsletter Chips and Dips.
Web Smith, founder of 2PM, another newsletter about ecommerce, said some M&A action will come from real estate companies buying up brands at a relatively low exit in the $100 million to $150 million range.
“Their malls would help scale these brands to potential billion-dollar companies,” Smith said.
And while this year wasn’t a great one for companies that went public (or tried to, in the case of WeWork), Osborne said IPOs will happen in 2020, with people using this year’s IPO challenges as a learning tool about what to do correctly.
However, JB Osborne, co-founder and CEO at branding agency Red Antler, said companies will most likely get acquired at a price that’s a great deal less than their valuation.
Changing seed and Series A rounds
Brands will see a more realistic valuation as part of an ongoing market correction, according to the experts.
As the DTC field has become ever more crowded, seed and Series A rounds of funding have ballooned. But, as Lerer Hippeau principal Andrea Hippeau explained, as investors realize the true value and potential of these companies, both early and late-stage brands will look elsewhere to raise their initial funds—or simply lose out.
“That’s going to make companies have to focus on existing user base, getting repeat purchases up, more organic growth, [and] getting smarter about building community and content as a way to grow with organic versus paid [media,]” Hippeau said.
Osborne added that investors are also looking for proof before funding a company, so once a brand shows its potential in the market, early rounds of funding tend to be bigger.
“With the increase caution [from] investors comes increased confidence when they are making bets,” Osborne said.
On the flip side, Smith said early large funding rounds can also mask other problems within the company, such as not having an “efficient marketing model” to acquire customers.
There’s still room for disruption in certain categories
Despite some categories—such as toilet paper—feeling saturated, Singer said there are still some emerging categories such as cookware, dinnerware, furniture and the home space that present potential opportunities in 2020.
Melissa Duren Conner, partner and managing director at Jennifer Bett Communications, a public relations agency that works with DTC brands such as Recess and Parachute, said sleep products continue to grow as well—beyond mattresses, with new companies popping up around sleep tech. She added that the personal care, wellness and CBD categories are seeing much more growth and earlier funding rounds, now that these categories have become more normalized with consumers.
BDS Analytics predicts CBD industry sales to grow from $624 million in 2018 to $12.6 billion in 2024, with even legacy retailers such as Lululemon releasing products around self-care and wellness.
“Every consumer is thinking about wellness, so everyone from venture capitalists to brand marketers is focused on this space,” Conner said.
Hippeau agreed, saying adjacent products in the health space, such as meditation and therapy apps, are also on the rise. And with Gen Z continuing to grow up (and with $1.3 trillion in purchasing power), new brands focused on targeting this group are emerging, such as underwear brand Parade.
As the wellness sector grows, so do products in the cannabis, sexual health and alcohol categories, said Smith. Considering these are more “taboo” subjects, it’s taken real consumer interest and social acceptance for venture capitalists to fund these brands.