The story of Casper shows there is no DTC ‘revolution’

The story of Casper shows there is no DTC ‘revolution’

For all their trendiness and disruptive rhetoric, most direct-to-consumer brands do nothing new, and ultimately rely on traditional marketing and retail channels to scale and grow.

Of all the many annoyances of the marketing decade that has just passed, no other trend generated more bullshit and overstatement than the concept of direct-to-consumer (DTC) brands.

Barely a month went by without one bright-eyed team of white-shirted millennials or another springing forth with a hot new startup that had a strange, slightly misspelled name, newsworthy origin and hot new design. Crucially, all of them  had a “different model for marketing” too.

Leesa, Lola, Winc, Ayr, Nanit, BarkBox… the names and the categories they aimed to disrupt changed but the DTC model each ascribed to was strikingly similar. Gradually, as the army of casually dressed founders multiplied and their stories piled on top of each other, a model for DTC marketing became apparent.

The model for DTC marketing

First, you had to circumvent the traditional indirect channels and forge a direct distribution model that allowed you to keep all the profits, and enabled optimum proximity and data access with the target consumers. Wholesale distributors and physical retail were dead.

Second, you had to avoid traditional media channels and utilise only digital media because it enables precise targeting and new modes of interaction with the target market. Use influencer marketing, TikTok and whatever newfangled approach comes next.

The medium was not the message, it was the signal. Irrespective of its reach or effectiveness, it had to communicate the newness of the company behind the campaign. Vague allusions of digital ennui were needed to ensure the DTC business seemed radical and contemporary, and not simply another late entrant in a traditional category.

Third, you had to use these new digital channels to communicate a different kind of message. Use storytelling – yeah, storytelling – to move beyond product benefits and onto emotional tales about the company, its founders and core purpose.

A DTC shoe company was not about the comfort and style of its shoes, it was about how Josh – the handsome founder – dreamed of be-shoeing all who walked with bare feet.

Fourth, you had to be more than just selling stuff. Marketing, sales, products – these were 20th Century concepts. Old hats. DTC brands invented new, vaguer and more impressive concepts like “conversational commerce” and “lifestyle disruption” that meant nothing but sounded like something new and vital.

Fifth, you had to have data. As much data as possible. All the time. Every orifice of the DTC organisation had to be a receptacle for consumer insight and information. Whether the data in question was useful, or even used, was moot. Data was the new oil, or something, and every DTC company was drilling for it everywhere. Employees were drowning in the stuff.

Finally, you had to have an old, lazy category to disrupt and ultimately destroy. These ancient, lumbering companies had to be the enemy for a number of reasons. Firstly, they provided the perfect contrast with the new youthful, nimble DTC entrant. But, more importantly, they enabled DTC companies to appear to be more than the sum of their actually very stodgy parts.

It’s very hard to get excited about another mattress / razor / luggage supplier. The world has enough of them already. But if that supplier is radically different from all that has come before it, at least in theory, then suddenly this was something different and exciting. Not just dog food, but a radically new way to extend the life of your pet that contradicts everything the traditional pet food providers – those ancient old fuckers – had been telling you in the past.

The bullshit of DTC disruption

Add all these elements together and you had a recipe for profit, growth and huge corporate valuation. The less sexy reality was that while many of the new DTC brands were interesting and were challenging new businesses, most of their touted disruption and success was bullshit.

And they were singularly failing to achieve another ancient, old-fashioned hang-up from the 20th Century: profit. But because the notion of DTC fed the marketing world’s appetite for the pornography of change and its obsession with youth, our discipline lost its shit over brands that were not half as successful or as radical as we were told.

The much-touted DTC model worked fine at startup phase. The problems came at the next stage as it dawned on these companies that many of the “traditional” practices of incumbent businesses were not stupid butactually essential to scale up and make money.

DTC brands gradually shifted from their direct distribution models and started selling through a host of traditional retail channels. Their exclusively vertical distribution systems quickly became omni-channel – just like everyone else’s.

DTC brands like Harry’s, Barkbox, Quip and Native all have two things in common. Each initially pushed hard against the idea of indirect retailing and promoted their own direct channels instead. And all of them are now for sale in the US in Target nationwide.

Most of the mature DTC brands also soon realised that limiting media spend to digital only was a foolish move. With scale and the need to build brand equity, most of these brands moved much of their budgets to outdoor, radio and – yes – TV.

I met a couple of brilliant young DTC millennials last year who waxed so lyrically about the power of radio I was visibly taken aback. When I queried why a couple of smart but sockless wonders would throw perfectly good Instagram money away on radio they explained that their extensive data had shown them that their purchase funnel was increasingly sparse up top. Their digital expertise was still converting brilliantly down the bottom, but they needed more new consumers and traffic to their online site in order to keep growing. And radio was doing the top-of-funnel business.

warby parkerWhile DTC brands have continued with their social missions, many have also become aware of the ancillary role that this purpose plays in their commercial success. DTC giant Warby Parker has always had a strong social mission through its partnership with Vision Spring, for example. But the brand’s founders became aware that this was not the main driving force behind the company’s commercial success.

“Consumers put fashion and design first: ‘How do these glasses look on my face?’,” explained co-founder Neil Blumenthal back in 2014 “Second: How much do they cost? Third: Are they good quality and is the service good? And lastly, if at all, what do these glasses mean in the broader context of the world?”

Warby Parker has continued to support Vision Spring but now does so for the genuine driver of doing good for the sake of doing good rather than some handy, hair brained theory that millennials only buy from companies they believe in.

Finally, as the DTC brands grew they were either acquired by the traditional players they set out to disrupt, or became ever more like them in order to make a profit and continue to grow. It was all about being different and disruptive until it came time to sell the company and then the usual suspects came quickly to the fore.

DTC brands become brands

It was the late, great American politician Mario Cuomo who once observed that politicians campaign in poetry but govern in prose. It was a similar story for all these over-rated, over-stated DTC disruptors. They built brands with new age bullshit and tall tales of new thinking, but in order to actually operate and make money things got remarkably traditional, remarkably quickly.

All that bullshit on conference stages was great at generating a big multiple, unicorn status and investor interest. It just didn’t actually work that well in building a business, so very quietly most surviving DTC brands became, well, brands.

The poster star for all the nonsense that surrounded DTC is Casper. The new age, DTC mattress company was launched in 2014 by a suitably youthful, ambitious crew of entrepreneurs. Big headlines, continued rounds of funding and the fact that the company appeared to be prospering in one of the most moribund categories around made Casper famous.

That fame can be useful because it fuels both customer and investor interest. But, at some point, every hot DTC startup must face its Waterloo – the dreaded S-1 filing required to go public. The company announced last week plans to float on the New York Stock Exchange under the ticker ‘CSPR’.

It’s a dangerous time for DTC brands because, as we learned from the car crash that was WeWork, no matter how beautiful the poetry, an S-1 submission is ultimately written in plain, monochrome prose. Numbers, charts and buckets of cold, harsh reality are finally poured over a DTC bullshit machine that has been running, unencumbered by reality or fact, down in the corporate basement for years.

The much proclaimed DTC focus on digital is nonsense. Like every other big brand, you need long and short. Mass and targeted. Digital and traditional. Bottom of funnel and top.

And, of course, what we discovered is that much of the DTC myth that Casper has successfully built up over the last five years is exactly that. The famed direct distribution model of selling mattresses via the internet is still in place, but was long ago supplemented by indirect, retail distribution.

The company has 60 physical stores in the US and plans at least 100 more in the near future. It increasingly wholesales its mattresses through 18 big box retailers in America and this indirect channel plays “an increasingly important role for Casper”, according to the S-1 filing.

“We believe our multi-channel expansion creates synergies and that these channels, to date, have proven to be complementary, not cannibalistic,” the company notes. No shit. Perhaps the D in DTC really stands for diversified not direct.

The famous focus on organic, digital media is long gone too. The company spends nearly a third of its revenues every year on marketing. These days only half of that money on search, social and digital video. The other half goes on – you guessed it – direct mail, TV, outdoor and print.

The much proclaimed DTC focus on digital is nonsense. Like every other big brand, you need long and short. Mass and targeted. Digital and traditional. Bottom of funnel and top of funnel.

And the creative running on that more traditional media mix has also changed. The brand’s latest TV campaign showcases a variety of cute animals to promote the mattress’ soft bed benefits. It’s a lovely, if anonymous, bit of advertising. But it could have been made in 1920, never mind 2020. So much for disruption and going beyond the traditional communication models. The only storytelling is the DTC bullshit about new ways of promoting products to millennials.

And the one final galling fact for a company that hopes to be valued well in excess of £1bn is the consistent absence of any profit at any point in its history. The company recorded net losses of $73.4m in 2017, $92.1m in 2018 and $67.4m for the first nine months of 2019. Revenues are up this year, but so are costs.

Speculators and those addled with the world of DTC bullshit will argue that Casper, like Uber and WeWork before it, is a long-term play. But I remain steadfastly old fashioned in my approach to gross margin and profitability. If a company is not profitable there is something wrong with it. The end.

All the constant bullshit about DTC marketing fails two important tests. First, it really is not a new model for marketing. Just a very old one, dressed up in a temporary, spangly garment that won’t last the week. And second, despite bold claims and disruptive manifestos, most of these DTC champions continue to fail the single most important test of marketing and business. Not cool ads. Not storytelling. Not conference speeches. Not even satisfied customers.

Making money.

Mind you, if you are a founder or early investor in Casper you are set for exactly that. Despite the company not proving profitable, all the DTC bullshit and big talk will make some people a giant pile of cash in a few months’ time. Provided, that is, no-one gets the WeWork fever and realises that the fancy carriage is just a pumpkin.

And maybe that is the point and the ultimate triumph of the DTC ‘revolution’. The marketing message was never aimed at mattress buyers but incumbent firms worried about a new century and traditional investment companies fascinated with the shiny new baubles dangled in front of them and dressed up as the next Google.

I need to lie down.