In doing a lay of the land, we noticed a lot of the DTC brands have been hit hard. Warby Parker (WRBY) is trading at $13, down 77% from its peak. Allbirds (BIRD) is down over 80% from its IPO trading day. Our suspicion is the same trend applies to private companies like Away and Glossier too.
There’s a bull case and a bear case here.
The bull case would ask for patience. With a compelling identity that strikes a chord with consumers, you can still take off. CEOs in this camp would cite the Nike story: a borderline insane degree of challenges in the first ten years (detailed in Shoe Dog), but ultimately reaching a globally renowned, direct-to-consumer brand with staying power. They’d point to HOKA shoes being in the early innings of possibly becoming the next Nike. They’d also mention that the quasi-viral olive oil manufacturer Graza is proving you might just be able to build a DTC brand in any category. “Don’t let a little downcycle rattle you!”
The bear case is that ultimately without a differentiated product, DTC brands lose their sheen, and people see through the pretty branding.
“All startups seek to disrupt and disintermediate a smug status quo or originate and dominate an entirely new niche. But what makes a brand a bland is duality: claiming simultaneously to be unique in product, groundbreaking in purpose, and singular in delivery, while slavishly obeying an identikit formula of business model, look and feel, and tone of voice.” (Bloomberg)
These bears would say these upstart companies formulaically applied an indefensible motion: taking on a legacy industry just by going directly to the consumer and slapping a pastel brand on it. The underlying product could be easily replicated. The brand could be stylistically copied. And old players could lower prices to keep up with the more efficient DTC value chain.
“Brand is just a perception, and perception will match reality over time.” - Elon Musk
Happy Friday. Hope you have a great weekend.
Your Titan Team
As of writing this newsletter, Twitter is a 5.33% holding in the ARK Venture Fund.
Learn with titan
Become the smartest investor you've ever been through straightforward, easy-to-read investment articles.