Great ResignationClimate ChangeLeadershipInflationUkraine Invasion

DTC brands were already struggling. Supply chain issues will force them to adapt

June 24, 2022, 11:31 AM UTC
With supply chain issues, slow shipping, and worker shortages hitting direct-to-consumer brands, consumers want a return to basic customer service.
Getty Images

Pre-pandemic, it felt like a new direct-to-consumer (DTC) brand launched every day. These digitally native brands positioned themselves as hungry upstarts promising to disrupt the status quo of how big, bad legacy brands had been running things.

Almost a decade later (Warby Parker launched in 2010, Casper launched in 2014), the DTC industry is going through a reckoning as consumers and investors face post-pandemic realities.

For the past four years, Diffusion has monitored American consumers and their affinity for DTC brands, witnessing a climb in interest and subsequent fall in our annual DTC Consumer Purchase Intent Index. For the first time since the report’s inception, 2021 saw a marked dip in consumer interest in the DTC category. 69% of Americans said they expect to make at least one purchase from a DTC brand–down from 79% the year prior. And 60% of Americans said they had already made DTC purchases in 2021, down from 70% in 2020.

Is this backslide cause for concern? Long story short, yes. The DTC industry as a whole has now passed its peak. No longer the shiny new thing, customers are losing interest, especially as the pandemic brought to light fundamental issues that are out of the brands’ control, despite their assurances that they are better or different from their legacy counterparts.

At the mercy of supply chain issues, slow shipping, and worker shortages, many DTC brands didn’t deliver on the unique selling propositions that had made them interesting to begin with.

Our report found that consumers simply wanted a return to basic customer service: 40% said free shipping was a key motivator for purchases, another 51% said they wanted easy returns, and 32% wanted products in stock at a store nearby. This craving for the return to basics signaled the frustration felt by consumers with their favorite DTC brands during a long, global pandemic that hindered them from getting the very things they wanted while stuck at home.

This downward trend also created a huge opportunity for traditional retailers. When the DTC industry was at its peak, savvy legacy retailers quickly pivoted their own businesses to either position themselves as a DTC brand or invest heavily in their own e-commerce presence. This is hugely evident in the sneaker and sports category, with Nike, Under Armour, and Adidas as some of the brands re-directing their efforts to their own DTC channels. Under Armour even plans to exit more than 2,000 wholesale doors to do so. With retailers across the board switching to this DTC strategy, DTC brands no longer have that special, sparkly effect on shoppers that they once did. All those customers are looking for now is quality customer service and in-stock products–something they can get essentially anywhere online these days.

So, if major brands like PepsiCo are getting in on the DTC game, what’s still special about DTC? In 2022, the lines have completely blurred. The fascination with digitally native brands is all but gone from a consumer’s list of reasons why they’d shop DTC over a legacy brand. Numerous legacy retailers are now stocking DTC brands. Target, Walmart, and Nordstrom have made no secret of their plans to bring more DTC brands in-house.

On the flip side, a large amount of DTC brands are opening physical stores. With that, the allure of the modern, special DTC brand is gone. In fact, our report found that only 17% of Americans said they believed that association with a DTC brand gave them something special you can’t get with a traditional retail brand.

Does this mean the era of the DTC brand is dead? Only time can tell. Legacy brands have caught up and caught on to what consumers were loving about these barrier-breaking brands, so the best DTC brands who want to convince customers of their value again will continue to evolve, bringing a fun, fresh twist to the omnichannel experience that we haven’t seen from traditional brands.

While 2022 might be the end of the DTC boom, it’s the beginning of a new chapter in the industry’s evolution.

Kate Ryan is the managing director of Diffusion.

The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not reflect the opinions and beliefs of Fortune.

More must-read commentary published by Fortune:

Sign up for the Fortune Features email list so you don’t miss our biggest features, exclusive interviews, and investigations.