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The IAB Direct Brands Report Summary

Core Content

The IAB Direct Brands Report (2019) explores the transformation of the retail landscape in the 21st century, highlighting the rise of direct-to-consumer (DTC) brands and the decline of traditional retail. It emphasizes the impact of digital disruption, the role of e-commerce, and the strategies employed by successful DTC brands to capture market share from established incumbents.

Main Points

• Retail Disruption: The retail industry experienced significant disruption in 2018, with over 12,000 store closures, surpassing levels seen during the Great Recession. Analysts predict that by 2022, 1 in 4 U.S. malls could close.

• E-commerce Growth: E-commerce sales in the U.S. have grown steadily, with a 2.5x increase in market share over the past decade. In 2018, e-commerce represented about 9.4% of total retail sales, growing to 14.5% year-over-year.

• Digital Shift: The shift to digital shopping has been rapid, with the U.S. pet care industry seeing a 30% increase in online sales in the first half of 2018. Direct brands such as Rover and Wag! have seen substantial growth in this space.

• Direct Brands Outperforming Incumbents: In multiple categories, direct brands have outperformed traditional retailers. For example, in the mattress industry, direct brands like Casper and Purple have doubled market share, while Tempur Sealy saw a decline. In the personal care and beauty sector, direct brands like SiO Beauty and Kylie Cosmetics have seen exponential growth.

• Consumer Behavior: Consumers are increasingly engaging with brands through mobile devices, with mobile commerce accounting for 40% of all e-commerce. The average time spent on mobile devices has increased by 133% over three years, while time spent with live TV has decreased by 14%.

• CAC-to-LTV Model: The traditional purchase funnel is being replaced by a CAC-to-LTV model, where customer acquisition cost (CAC) is directly linked to lifetime value (LTV). This model emphasizes the importance of customer experience, speed, service, data, and storytelling in brand growth.

• Community Building: Community engagement plays a crucial role in increasing customer lifetime value. Glossier, for instance, has 70% of its online sales coming from peer referrals. Other brands like Fabletics and Matches Fashion also benefit from community-driven marketing and user-generated content.

• Strategic Acquisitions: Direct brands are acquiring new customers more efficiently through targeted digital channels. Bombas, an athletic sock brand, used podcasting and vanity URLs to drive customer acquisition, with up to 40% of new customers coming from this channel.

• Market Trends: The report outlines key trends driving the growth of DTC brands, including the rise of direct delivery, customization, and omni-channel retailing. These brands are leveraging data and digital platforms to create personalized experiences and drive customer loyalty.

Key Information

• Digital Retail Share: E-commerce has become a dominant force in retail, with a significant increase in market share across various categories.

• Direct Brands: Companies like Casper, Bombas, Glossier, and Kylie Cosmetics exemplify the success of DTC strategies, showing how direct brands can outperform traditional retailers by focusing on digital engagement and customer experience.

• Mobile Commerce: Mobile devices are central to the modern shopping experience, with 40% of e-commerce now occurring via mobile. This shift necessitates a mobile-first strategy for brand growth.

• CAC-to-LTV: This model is becoming the standard for measuring brand success, with a focus on acquiring customers through digital channels and maximizing their lifetime value through engagement and community building.

• Community Impact: Building a strong community is a key factor in increasing customer loyalty and driving sales. Social media, peer referrals, and user-generated content are essential tools in this strategy.

• Data Utilization: Direct brands use data to personalize the customer experience, optimize marketing efforts, and improve product offerings.

• Strategic Adaptation: Incumbents that fail to adapt to digital trends and consumer behavior are losing market share. This highlights the importance of innovation and agility in the retail sector.

Conclusion

The IAB Direct Brands Report underscores the importance of digital transformation in the retail industry. It provides insights into the strategies that successful direct brands use to capture market share, build customer communities, and leverage data for growth. The report serves as a guide for brands looking to navigate the evolving retail landscape and thrive in the digital age.