This is the latest installment of the DTC Briefing, a weekly Modern Retail column about the biggest challenges and trends facing the volatile direct-to-consumer startup world.
For Abigail Cook Stone, CEO of direct-to-consumer candle brand Otherland, the first sign that people would be looking to buy holiday items earlier than ever this year came in April.
Customers started messaging Otherland’s Instagram account, asking the company if it still had any holiday-scented candles left. This prompted Otherland to host a “season swap” sale in the spring. “I think being in lockdown people really wanted coziness — and [holiday candles were] something that came to mind,” Cook Stone said.
Cook Stone said that Otherland plans to release its holiday candle collection two weeks earlier this year, as it prepares for people to start shopping for the holidays earlier than ever. “We’re expecting an even bigger holiday than perhaps before Covid,” Cook Stone said. “With all the uncertainty in people’s lives, they are looking for that emotional comfort.”
In conversations with five direct-to-consumer startup executives about their holiday marketing plans, the biggest concern cited was figuring out when was the right time to run holiday ads. Both to ensure that customers order far enough in advance so that they get their products by Christmas, and to ensure that the companies are spending their holiday marketing dollars most efficiently.
Startups are bracing for advertising costs on Facebook and Google to rise as it gets closer to bigger sales events like Black Friday and Cyber Monday. But the executives told Modern Retail that, for the most part, they weren’t that concerned about rising digital advertising costs. Either they’ve been able to further diversify their ad spend away from digital this year or customer acquisition costs are still lower than they are last year, they said. For example, Cook Stone said that for Otherland, it’s still 40% cheaper to acquire customers this year compared to last year. The DTC holiday marketing atmosphere is in wait and see mode.
Direct-to-consumer sock brand Bombas ran a week-long promotion in the middle of December last year, where the company offered two-day free shipping on orders over $75, and chief marketing officer Kate Huyett said that the company anticipates it will run a similar promotion this year. But, she’s anticipating the company may have to run the promotion earlier this year — depending upon what cut-off date carriers give in order for orders to be received by Christmas.
“Holiday in general is our biggest time of year — it’s about half of our revenue for the entire year,” Huyett said. She said that, in anticipation of more political ads and ads from brick-and-mortar retailers flooding television stations in the lead up to the holidays, Bombas is paying slightly more to run fixed TV spots (meaning Bombas’ ads are guaranteed to air). Beyond that, she does not plan to shift the company’s holiday advertising strategy drastically this year.
While Huyett is preparing for Facebook and Google advertising costs to rise this year, she said she’s not too concerned about it because of the fact that Bombas has a more diversified advertising budget now. Last year, Huyett told the Wall Street Journal that Facebook made up 30% to 35% of Bombas’ ad budget, down from 85% in 2017.
“If something isn’t working, we’re able to sort of more easily move money, versus probably five years ago, we were significantly less diversified, which made us less flexible,” Huyett said.
Other direct-to-consumer brands, have been able to diversify their advertising mix more this year, like Bombas, because of the huge sales increases they’ve seen.
“Prose is very different from what it was last year,” hair care company Prose’s vice president of growth marketing Guilhaum Ceccaldi told Modern Retail, referring to the fact that Prose’s revenue has tripled last year over the last year, while the number of products it carries has doubled. “We are much more equipped to go into this holiday season.” Last year, Ceccaldi said that Prose was running ads primarily on Google and Facebook, but this year has started testing out podcasts, TikTok, Snapchat and direct mail ads. This will also help alleviate budget stresses should Google and Facebook ad costs rise significantly, he said.
The other challenge Prose is grappling with, said Ceccaldi, is trying to figure out what type of ads to run for the holidays. It’s something that the company won’t finalize for a few weeks as it waits to see what the results of the election is this year, as well as if some states re-issue stay-at-home orders over the fall and winter.
“We are working on four different scenarios for the holiday season, depending on whether we want to emphasize Black Friday slash Giving Tuesday moments, depending on how we could adapt to social unrest movements,” said Ceccaldi.
For younger direct-to-consumer startups, many of them are still relying primarily on Facebook and Google ad spend, as that’s where the biggest pool of potential new customers to acquire still is. They’re also looking at lower-cost, lower-lift efforts to get the word out about their brand. Melanie Masarin, founder of non-alcoholic aperitif brand Ghia, which launched in June, said that she’s been reaching out to companies, encouraging them to think of Ghia as a gift for their employees, or to use them for virtual happy hours. The company is also putting together a book with recipes from different chefs to promote Ghia.
Masarin had initially planned to launch Ghia in April, by selling the product initially to restaurants, something that the company had to scrap due to stay at home orders. “It was all about this idea of in-person participation. It was not my dream to build an online company,” she said. So, while restaurants remain closed, she’s also turned to experimenting with paid ads on — where else — Facebook and Google.
“It’s definitely been hard to get the word out when people are not gathering as much,” she added. “So we’re really leaning on the gifting component of Ghia.”