Balancing Act: The Rise of D2C Brands and the Offline-Online Conundrum

D2C, as we all know, is an acronym for 'Direct to Customers', a sector which has received significant investor interest off late. We have seen a plethora of startups mushrooming in a number of categories in the industry, be it grocery, beauty, consumables, food, fashion, furnishings, healthcare and so on. There are angel investors who are smitten by the glamour the D2C brands hold due to their eye-ball-catching visibility and brand recall and there are VCs that specialise in D2C. We thought it fit to present some sectoral developments.

The term "D2C" has come to receive more promotional attention than the actual products it represents. Fueled by targeted advertisements, numerous D2C brands appear larger than their true scale. At present, D2C brands, and even the prominent ones derive most of their sales from online marketplaces rather than their proprietary platforms. This is primarily due to the Customer Acquisition Cost (CAC), which is significantly lower when selling through marketplaces than their own websites or apps. The main factors contributing to this phenomenon may be pinned down as follows:

1. Consumers tend to avoid downloading multiple apps and exploring various brands. We as consumers tend to avoid clutter and give app space to only those players whom we need frequently and recurrently.
2. The high capital expenditure (capex) involved in establishing and maintaining apps and websites.
3. A lack of satisfactory services leads to reduced trust among the masses in individual apps or websites. Generating orders is the easy part, the procedural efficiency and consistency required for back-end operations, and managing customer expectations is where the heavy lifting comes into play.
4. In the contemporary landscape, even successful online brands find themselves compelled to establish physical stores and offline distribution networks. Notable examples include Souled Store, Bliss Club, and more recently, Snitch and Mokobara.

In conclusion, the growth of D2C brands today hinges on their ability to strike a harmonious balance between offline and online channels; online marketplace sales and owned platform sales. Additionally, an investor must satisfy herself with the unit economics of a D2C startup before taking a call and seeing that the business is inherently viable and sustainable.