mornin' merry makers 🪦👟💄🚴

some of the smartest, most creative people i've ever come across worked at dtc darlins that are majorly struggling right now, especially now. to name a few allbirds, glossier, outdoor voices, peloton, parachute.

i was a customer of all them. so were most of my millennial coworkers at warby parker & classpass. we admired their branding, their oversized store designs, their cult-like community, their cheeky ads. lots of stuff that is genuinely hard to build & pull off at scale.

BUT

brand love ≠ business viability.
(for about a decade, we confused the two).

many people far smarter than i are breaking down what happened to these companies as a whole. but i’m, as to be expected, most interested in how retail played into & then ultimately against their business strategies.

i believe dtc retail is having its dot-com moment.

speculative capital, untethered valuations, and a growth-at-all-costs logic that papered over the fundamentals until it couldn't anymore. wework was our enron with their “community-adjusted ebitda”(aka webitda) and failed ipo in 2019.

we’re not in a full collapse, but definitely a correction.

today i want to highlight what went wrong with their retail store strategy so that you don’t make the same $$$ mistakes. i know exactly what apple & warby parker did to prevent their stores from going to the retail graveyard.

in 1999, capital flooded toward anything with a .com. valuations untethered from revenue. growth was the only metric. then the market corrected, hard, and only the businesses with real fundamentals came out the other side.

lots of people are making a similar argument about ai now…
but this is a newsletter about retail.

dtc brands, especially those with brick & mortar), have had a similar arc. between 2015 and 2022, digitally native brands with great aesthetics and fast online growth became irresistible to investors. to the point that several went public because the market was hot.

so yet again only the businesses with the real sustainable fundamentals will survive.

same dot-com plot.
similar dtc letters.
different aesthetic.

now let’s get specific on what went wrong here & how it could have been avoided.

turns out there were major cracks on all 4 legs of the profiTABLE, my framework for stress-testing any retail business across the four things that make or break a store's p&l: products, places, people, and processes.

one broken leg wobbles a table.

these brands broke all four…

once upon a not too long a time, everyone wanted the allbirds shoe.

once being the keyword.

hype products make terrible anchors for physical retail. e-commerce runs on acquisition. stores run on return visits. you need a product ecosystem deep enough to justify the trip, repeatedly, long after the cultural moment has passed.

the hype will inevitably pass & so will your foot traffic,
especially here for shoes 😏

compound that with pricing that prioritized being accessible over being profitable. this led to stores full of customers moving low-margin products.

this is not a successful store. it's an expensive warehouse.

just because shoe became a status symbol, you can’t assume everyone will buy again year after year. retail survives on growing comparable sales which means customer should ideally be buying even more from you in quantity or price.

soho in nyc. abbott kinney in la. newbury street in boston. georgetown in dc. magnificent mile in chicago. south congress in atx.

these are all brand statement stores, not business decisions.

dtc brands negotiated their retail leases with vc money, something to prove, and a habit of going big. oversized footprints in the most expensive markets, stunning buildouts designed to impress rather than perform.

don’t get me started on the many impractical design decisions…

i’ll admit that the stores looked incredible. but they also needed apple level traffic and transaction volume. something all these dtc brands aspired to but never could be.

because hype-driven, one-time-purchase brands never generate consistently.

a healthy fleet isn't supposed to be all winners, nor all flagships.

just like with investing, diversification is key. profitable stores fund the ambitious ones. that balance is the whole game. but if every location is a maximum bet, one slow season stresses the entire portfolio at once & could even lead to bankruptcy….

i've heard this one firsthand, from former coworkers & people who worked in the stores of these dtc darlins.

the talent was exceptional. these companies paid well, hired thoughtfully, and attracted people who genuinely believed.

that part they got right.

what they got wrong is twofold.

first the stores were overstaffed, running hours that the traffic couldn't justify. most new stores do not need to be open for more than 1 shift of 8 hours, but way too many were open for 12 hours or more.

staffing for the traffic they hoped for rather than what they saw.

second, the teams had no real authority to do anything about it. every decision flowed through corporate. managers couldn't adapt hours, build local relationships, or grow their own book of business. many of the frustrations got voiced when the pandemic and blm reckoning hit.

what makes this so costly is when you have fewer than 100 stores, especially fewer than 10, local empowerment is your single biggest advantage over every large chain.

you can build relationships in a way a big box brand never can.

these brands had the perfect scale to do it. instead they ran heavy on headcount and lean on authority. quite possible the worst retail labor combo,

paid media built these brands. it drove online volume beautifully, efficiently, and for a long time. when the stores opened, everyone assumed it would translate.

it doesn't.

well not nearly as much as the paid media brands make you think it does.

the truth is that store traffic is fueled by walk-by, word of mouth, & neighborhood presence. none of that is purchasable the way a meta ad is. and if you've never built that local engine, the store just sits there hoping the brand's reputation does the work, with no comp store reporting to tell you when it isn't.

then the next store doesn’t know how to do grassroots marketing.

hyper growth is the best hiding place for broken fundamentals. the dtc era had enough tailwind that the store problems stayed quiet. until they couldn't.

the lack of local growth playbooks was just one of the many sins.

i’m willing to bet most of the brands had little sales performance reporting & even less store accountability…

i’m writing y’all this because from any failure there are so many lessons to be learned because it truly breaks my retail loving heart to see so many beautiful stores go to the retail graveyard so soon.

yet again im not saying that retail is dead. but similar to how after the dot-com bust, people declared the internet dead & were wrong.

what died for both was the speculative layer. the real businesses, the ones with actual revenue & profit models have & always will survive.

the brands closing stores aren't proof that physical retail doesn't work.
they're proof it doesn't forgive.

you can raise the big bucks on narrative, grow on paid media, open beautiful stores in expensive markets and call it brand-building. for a while.

but eventually the lease comes due

and the only thing left is whether the unit economics work.

the brands that come out the other side will be the ones doing the unglamorous work right now:

just like the best internet companies emerged stronger from 2001, the best retail operators will emerge stronger from this. the correction is overdue. and for the brands that have been doing the work all along, it's an opening. if you need help or you're stress-testing your retail strategy right now, i’d love to talk shop with you.

book a free call with me below 👇

sending all the respect to all that was accomplished by the dtc darlins & excited to see how this next generation learns from their mistakes.

p.s. i’d love to hear what category you think will repeat this dot-com cycle next? ai? supplements? peptides? saunas?