The coronavirus pandemic has had a profound impact on the growth trajectories of direct-to-consumer (DTC) brands. Many online merchants, particularly those in ‘pandemic friendly’ categories like homeware, petcare and home fitness, have enjoyed record revenue in the last 12 months.
But as vaccines begin to take effect, and lockdowns steadily ease in 2022, how long will this boom last? And which non-pandemic related factors will influence buying behaviour this year?
To find out we partnered with leading eCommerce investor Clearbanc. Together we reveal the ten fastest growing DTC categories in 2022, the consumer trends driving them and our top growth tips to boost revenue in the next 12 months.
Those in cookware, furniture, DIY and gardening struck gold recently for obvious reasons. Global eCommerce web traffic for homeware spiked 318% in Q2 2021, as 2/3 of adults shopped online for their homes at least once a month during the year.
In the DTC world, brands like Great Jones, Lick, Bloom & Wild, Dormify and Made were among the big winners.
Throughout 2022, expect growth in this space to slow somewhat, but by no means will it collapse. Online shopping adoption has been sticky - 73% of Americans said they will continue using the new purchasing channels and brands they’ve discovered this year.
Not all growth in homeware is pandemic-driven either. Most brands now seeing success were founded around 2018, as part of a movement to break up the oligopolies that had long dominated the category.
During 2021, DTC homeware has also benefited from a slew of millennials now buying houses - a generation which had previously delayed such major life decisions in the aftermath of the 2008 financial crash.
Millennials accounted for half of all new homes bought last year, up from 38% in 2019, and many turned to sustainably focussed DTC homeware brands to fill them.
Rapidly bringing out new products to retain new customers won during the pandemic.
Niche & Sustainable Fashion
Whilst retail fashion suffered - DTC alternatives, particularly those selling niche and sustainable products, had a strong 2021. Globally, 4 of the top 10 fastest growing brands by web traffic last year were either apparel or footwear players - Cubcoats, Hari Mari, Draper James and For Days.
The emergence of Cubcoats in particular, is typical of the fragmentation which has taken place in DTC fashion. The brand operates within a very specific niche - selling hoodies for kids that fold into animal toys. Merchants that have been successful with similarly limited product sets include Rowing Blazers, Haute Hijab, Birddogs and Cuup.
Such brands should continue to benefit from the pandemic-driven shift to online shopping, but challenges still remain.
More than 70% of legacy fashion retailers will increase new media spend in 2021, and the imbalance in market share between eCom giants like Amazon and Asos and smaller merchants remains huge. These factors suggest direct brands will face even stronger competition online this year.
Beyond Covid, sustainability is a key consumer trend driving DTC growth - this is true across all categories but particularly within fashion. The industry is the world’s second largest contributor to pollution, and 52% of consumers want its retailers to follow more sustainable practices.
Whilst not all are willing to actually pay more for eco-friendly products, 31% of Gen Z and 26% of millennial consumers say they will.
This demand has facilitated a plethora of DTC fashion start ups differentiating on sustainability. Among the hottest names are material upcyclers Riley Studio, organic denim providers Nudie and eco-conscious activewear brand Tala.
Defend against increased competition online by building retention driving loyalty within your niche.
With supermarkets remaining open, DTC beverage hasn’t enjoyed the luxury of a struggling retail sector to aid growth. As a result, the impact of the pandemic in this category has been more ambiguous relative to sectors like homeware.
On the one hand, subscription-based brands offering delivery have boomed. Alcohol brand Wine List acquired new customers looking to treat themselves during lockdown. Grind, once a physical coffee retailer, rapidly pivoted to selling their products DTC through a subscription model.
In other areas though, it’s largely non-pandemic trends - like sustainability and healthy living - that are defining the winners and losers in beverage.
Within the sector, oat milk is the fastest growing mini-category - 2/3s of Gen Z and millennial consumers have tried the vegan alternative to dairy. Carbon neutral oat milk vendor Minor Figures are among those making waves by fulfilling consumer demand for plant-based, sustainable drinks.
Concern around single use materials is a particularly acute issue within beverage. Although consumers seem to have been more forgiving of plastic-heavy takeaways cups during lockdown, long-term it’s brands with eco-credentials who are best placed tap into environmental anxieties.
Consumer desire to lead healthier lives is also playing a big part - a trend reflected in the number of low or no ABV drinks on the market. Examples include 0.0% alcohol merchant Days Brewing and low alcohol gin player CleanGin.
Retention is key in this space - smart brands are using SMS to optimise subscription models in line with what consumers really want.
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DTC brands in the health tech space attracted big investment dollars in 2021, and will continue to do so this year.
Notable new players include smart ring merchant Oura, who recently raised $60m, and at-home blood test provider WerLabs, whose team grew 73% last year. Also making their mark are Whoop, Impress and Velieve.
Investor interest is largely not pandemic-driven, but triggered by a worldwide wellness industry now worth $4.5 trillion and growing at twice the rate of the global economy. In 2020, 77% of consumers said wellness is very or extremely important to them, yet 80% still want to improve their health.
Millenials and Gen Z, in particular, are demanding healthcare that prioritises personal wellness and preventative medicine over post-illness treatment and symptom management - and they want it at their own convenience, at a price point that won’t break the bank.
Tech-enabled DTC players are uniquely placed to deliver this personalized, on-demand healthcare experience - expect likely winners to emerge over the next 12 months.
Double down on your existing technology and invest in the robust data infrastructure needed to deliver a personalized customer experience.
Natural Pet Food
In the last year, six major pet-focused DTC brands were founded - many offering healthier, natural alternatives to retail pet food.
They include holistic dog food merchant Maev, canine supplement brand Finn, nutritional feline grub vendor Cat Person and more natural dog food from both Sundays, Jinx and Yumwoof. Previously existing brands such as Harringtons and Republic of Cats are also enjoying success.
Whilst other aspects of the pet industry - retail, daycare, boarding centres, grooming and walking services - have been decimated by lockdowns, DTC remains well positioned to fulfil consumer demand.
Online pet food orders rose 53% during 2020, with the DTC market now valued at $13.5bn - a 10% increase since 2019.
But Covid is only half the story here. Pet ownership, and in turn demand for petcare products, has long been on the increase - having grown 36% since 2009. Petcare is the only retail category which grew during the post-2008 recession, with over 68 million American, and 12 million British households now owning at least one animal.
This huge market, and the willingness of consumers to buy online, will continue to allow DTC brands to carve out very specific and profitable niches this year.
Don’t be afraid to go deep within your own niche - using your market knowledge and highly tuned customer sets to target specific buyers with pinpoint accuracy.
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Another DTC category benefitting from the temporary demise of it’s retail competitors is home fitness.
Online market leaders Peloton enjoyed a 66% sales surge in Q3 last year, and promising fitness tech brand Mirror was notably acquired by activewear retailer Lululemon. By contrast, some of the biggest names in the gym industry - Gold’s Gym and 24 Hour Fitness - filed for bankruptcy amid plummeting revenue.
The category can be expected to stabilise once society reopens, but home fitness is here to stay. Globally, 81% of millennials and 66% of all consumers say they prefer exercising at home since switching from gyms during lockdown.
The factors driving this shift - convenience, gym membership fees and crowded workout spaces - existed before the pandemic, but its onset has starkly emphasised the domestic alternative.
That’s not to say home fitness doesn’t have it’s challenges. The growth of the sector is inherently limited by the physical space inside consumer’s houses. Even those with room for a treadmill are unlikely to fit in a weights rack alongside - making repeat revenue difficult to capture.
It will also struggle to compete with the in-person communities physical gyms and fitness clubs naturally offer consumers. The DTC winners in this increasingly crowded category will come from those who can best recreate this communal experience digitally.
Build digital community by offering consumers the ability to text relevant experts like leading sports scientists, nutritionists and athletes.
Wellness beauty & skincare
Expect DTC brands offering naturally-made, wellness-enhancing beauty and skincare products to continue their success in 2022.
Last year, superfood skincare merchant Youth to the People topped the chart for the fastest growing DTC brand by web traffic globally. Probiotic skincare rival Tula wasn’t far behind - enjoying a 400% year on year sales increase during April 2020.
Other winners include Frank Body, Mented Cosmetics, Aesop, Versed and Huron - all of whom cater to highly specific audiences.
Although such brands have benefitted from anomalous commercial conditions this year, rapid growth across the beauty and skincare category isn’t going away. As many as 83% of buyers in this space plan to continue purchasing certain products online that they had previously bought in stores.
Pandemic aside, DTC skincare is finding success by tapping into key trends dominating the current consumer zeitgeist - personal wellness and sustainability. Brands typically emphasise wellbeing over aesthetics, and tout their green credentials.
Leading players have also built loyal customer communities around these wider issues - a play which will benefit retained revenue in 2022.
Use innovative channels like SMS to build community around defining consumer trends in this space.
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Food & groceries were one of the few retail sectors to have benefitted from Covid. Supermarkets enjoyed a 10% growth in sales last year, and remained a dominant competitor to challenger DTC food brands.
Many direct players seeing hypergrowth, are doing so at the expense of closed restaurants by delivering meal kits through letterboxes.
A standout example is Pasta Evangelists, who boosted sales 300% in 2020, before being acquired by Italian food giant Barilla. Recipe box rival Gousto had a similarly impressive year - delivering 4 million meals every month in the UK and raising $41m in funding.
The popularity of such brands is not solely grounded in the pandemic, but in their ability to fulfil consumer demand for healthier food - an impulse itself driven by wider societal concern for individual wellness.
Indeed, Pasta Evangelist’s successful exit and Gousto’s raise suggests meal kits will stick around when restaurants return, although growth will surely level out to some extent.
Linked to wellness trends, and also to sustainability, is the rise in demand for plant-based food. DTC food brands that can tap into these wider drivers are best positioned to win in 2022.
Offset the high and potentially unpopular environmental impact of meal deliveries by investing in sustainable means of operation.
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Craft & Hobbies
Another DTC category loving lockdown life is the craft and hobby space. In the US, 228% more jigsaw puzzles were sold last year, with similar growth seen in art supplies, board games and children’s toys.
Among the DTC brands seizing the moment are at-home pottery kit merchants Sculpd, and candle kit makers The London Refinery.
Whilst this unusual demand for craft supplies and at-home hobbies will surely slow in 2021, brands will be encouraged by pre-pandemic interest in the space.
In 2019, the market was forecast to grow 19% between 2020 and 2023 - suggesting even without the Covid windfall there was reason to be optimistic. This predicted growth was largely driven by consumer demand for more analogue pastimes as a cathartic escape from our all-encompassing digital world.
Sustainability too, is playing a part - particularly amongst millennial parents increasingly seeking non-plastic, high quality toys for their children.
Like many DTC categories, the expanding eCommerce offerings of legacy retailers poses a stiff challenge - UK arts supplies store Hobbycraft, for example, saw online sales boom 200% last year.
To sustain post-pandemic growth, embrace an omni channel approach through retail and bring your brand to a wider audience.
If you’ve seen Gordon Ramsey pop up in your Youtube ads flogging a cookery class, you’ll know all about the growth of eLearning.
Although not delivering DTC products in the strictest sense, online educational platforms share many of the digital native, customer-first characteristics of CPG brands - and their popularity will only grow in 2021.
The big mover here is Masterclass, which raised $100 million to develop its celeb-fronted educational courses. The platform seized its moment during lockdown, and went hard on advertising and paid social ads.
Other notable players include Skillshare, CreativeLive and KiwiCo. Such platforms have undoubtedly benefited from the pandemic, but consumer demand for democratised, accessible education existed prior.
In 2019, the eLearning market was worth $200bn, with 8% growth expected between 2020 and 2026. Top universities were also making their courses available online well before Covid struck.
The latent growth potential in this category is huge, capturing it is largely a question of doubling down on what’s already working.
Commercial effects of Covid to be felt even after restrictions end
The largest single influence on the DTC space in 2022 will continue to be the pandemic. Direct merchants unreliant on retail clearly benefited from lockdowns whilst physical competitors struggled. Although vaccination programs mean such commercial conditions are unlikely to be repeated, Covid has changed customer behaviour in ways which still plays to the strengths of the digitally-enabled DTC model.
Online competition will be fierce
DTC brands won’t have it all their own way, however. Covid has only accelerated the move towards eCommerce, so expect large legacy retailers to aggressively expand online offerings in 2022. Digital competition for smaller challenger brands will be frenzied as a result.
Sustainability is on the march
Towards the end of 2020, sustainable brands began to have their moment in the sun. As consumers invest more in eco-friendly products, merchants will be able to achieve greater economies of scale, driving down price points and attracting a wider audience.
Wellbeing concerns increasingly reflected in commerce
Consumers are increasingly conscious of their own individual wellbeing, and are making buying decisions based on what’s good for them. This is now being felt not only in categories obviously associated with health - such as food and fitness - but in areas like beauty and homeware too. Expect mental and physical wellbeing to become an even more important part of how brands position products in future.
Special thanks go to Clearbanc, Minor Figures, Lick and Jared Graf of Semisupervised, whose generous participation made this report possible.