An average person in the US has about 23.5 square feet of retail space to shop at. In China, it is 2.8 square feet.
In other words, China simply does not have enough retail space to sell and so they decided to export it all in the US. The rest is history and trade war. Ridiculous sounding takes are my superpower. But the truth is, 2017 and 2018 were all about lamenting how over-malled or over-retailed the US was. We had store closures coming in waves in these periods and the trend continued in 2019 as well.
How is this going to play out for DTC?
Are DTC brands likely to embrace brick and mortar, taking advantage of the falling rates? According to McKinsey, the asset value of real estate assets are likely to fall between 25 percent to 37 percent. Rentals are likely to be depressed for a long time to come. Is it advantage-DTC? Are we going to see favorable rent abatement and profit-sharing leasing clauses that would attract DTC brands to set up shops?
With all the sops, there still is likely to be a double whammy. On one hand, the footfalls are going to be lower, as eCommerce is growing rapidly and on the other hand, health & safety precautions are going to drive sales per square feet lower.
We looked at our data to see which way the wind is blowing. The shift from pure-play eCommerce to omnichannel (online + offline) is slowing down. The number of active online retailers under $25M in annualized web sales setting up physical stores is going to decline in 2020. We picked this revenue range to focus on emerging and mid-sized eCommerce companies. Most D2C brands will be in this cohort.
We made this forecast based on what we see in our data (we track about 1.5M eCommerce websites and are automatically classifying those that are brands). In the five months that we observed, the count of active omnichannel eCommerce companies is declining.
So, does this mean that we are setting the clock back by a couple of years for DTC? Are we going to see more and more brands staying "digitally native or digitally domiciled?" Are we going to have a 'digital lockdown' of sorts for brands and they may not set their foot out in the central business district? Is Soho, NYC going to be hippie town again?
It looks like.
But again, there is only so much one can sell in dense cities.
Retail in Middle America is less affected by the Covid-19 crisis, relatively speaking. Tractor Supply's stocks hit an all-time high. Under-retailed Middle America is a different world than over-malled Urban America. The lower the retail square feet per capita, the healthier the retailer is. Dollar General and Lowe's too are shining during the crisis.
For DTC brands, eCommerce is likely to be the engine for growth. There is going to a lot of short term shrinkage in retail. But it also presents a unique opportunity for brands to think beyond the obvious. From product assortment to supply-chain to pricing, brands have a unique window of opportunity to experiment and become house-hold names in markets they have never been to. The crisis is an opportunity for brands to think in a 5 to 10-year horizon.
Smarter DTC brands are likely to go national with retail but this time, it would mean that they are going to be truly out there in the heartland. What I am not clear about is whether their presence in the heartland would come in the form of real product placement on the aisles or 'direct mail' samples sent to ranches through API-first, automated direct mail platforms :P. I guess I know the answer already. Do you?
It's ironic that JCPenny, the original darling of Middle America has just filed bankruptcy. In spirit though, its time for DTC brands to look back at JCP's playbooks from the 70s to 90s. History rhymes.
PS: If you are building a DTC brand that is affordable and caters to the middle class or the lower economic segments, I'd love to hear from you. You're welcome to tell your story to our readers. Oh well, if you have any interesting perspectives as an operator, I'd love to provide a forum here for you! Just ask :).
PipeCandy is a market intelligence platform that tracks the global eCommerce & 'direct to consumer' landscape.
You are receiving this newsletter because you subscribed to newsletter or interacted with the PipeCandy website.