Unprofitable Direct-to-Consumer Brands May Fold

It will be a tough year for early-stage direct-to-consumer (D2C) brands that rely on investor financing.

This is as macroeconomic conditions worsen and venture capitalists become more conservative about their investments and prospects. Brands that generate short-term losses in the hope of building a profitable business in the future may find that they never get that far.

“[D2Cs] Victor Tam, co-founder and CEO of D2C travel and luggage brand Monos, predicted in an interview with PYMNTS that it should already be profitable. “Any standing company [being] What is profitable today will not do so next year. There will be less capital to give them to run that track.”

Consumers are already making changes in response to a recession that has not yet been officially announced. According to last month’s edition of the PYMNTS’ Consumer Inflation Sentiment study titled “Consumer Inflation Sentiment: The Long Consumer Spending Shadow of Inflation” from a survey of more than 2,400 U.S. consumers, 65% of Americans said they believe a recession is imminent, and 26% He said they believed he was already here.

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Indeed, venture capitalists adjust their strategies accordingly. Take the European market, for example. A PitchBook report showed that overall European deal value fell 36.1% in the third quarter compared to the same period last year.

The world’s largest publicly traded companies are seeing their stocks plummet amid this economic slowdown. Apple, Microsoft, Amazon, and many other companies experienced setbacks throughout the year.

Declining investor confidence emerges as consumers rein in their spending. Findings from the October issue of the Consumer Inflation Sentiment study, “Consumer Inflation Sensitivity: Consumers Are Beginning to Tighten Austerity,” in which PYMNTS surveyed more than 2,600 U.S. consumers in September, revealed that 66% had reduced non-essential retail purchases.

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Tam said he expects this period, when many startups will close over time, to benefit already profitable D2C brands and weaken competition despite ongoing consumer hesitations.

“I think that will balance out for financially healthy companies when you kind of mix in less competition with still some hesitation in consumer confidence,” Tam said.

He noted that beyond this drying up of venture capital, different D2C categories have experienced the aftermath of the pandemic in very different ways. For example, Monos, which focuses on travel products, has been following the winds of consumers returning to their lives away from home, while brand types that performed particularly well during the quarantine faced a few more challenging years.

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Tam said that while categories such as furniture, homewear and decor were up in 2020 and 2021, they saw eCommerce sales plummet as consumers felt “hangover from many household items” while travel and outdoor equipment were on. rise.

“In 2020, 2021, you have a lot of consumers just buying. [home goods] They were at home because they were online,” he said. “This year, it’s the other way around.”

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