COVID-19 Impact: To Launch Or Not to Launch? For New Direct-to-Consumer Brands, That Is the Big Question

March 27, 2020 by Chavie Lieber, BOF - The Business of Fashion

Tai Adaya, a Brooklyn-based marketing professional, had been planning the launch of Habit, her new sunscreen brand, for almost two years. The launch date was set to March 19, the first day of spring, and the debut strategy included tapping dozens of hand-picked influencers to post to social media feeds with glossy sunscreen content just as hordes of college students would be headed off to spring break.

 

Then the coronavirus hit, and for many, spring break was cancelled.

 

With consumers more focused on hunting down pasta and toilet paper than sunscreen, Adaya decided to delay Habit’s launch. She’s still figuring out the next steps, but likely won’t come up with a new plan until consumers can talk about anything other than the pandemic. “It just would not be a great customer experience right now,” she said. “It doesn’t make sense to pretend like everything is the same because that’s not what people need.”

 

As the deadly pandemic sweeps across the globe, the retail mood is suddenly dismal. In the last two weeks, stores and restaurants across Europe and North America have closed, throwing millions of people out of work. Economists say a global recession is likely. Major events, from art fairs to musical festivals, have been cancelled or postponed.

 

The odds were already stacked against new fashion and beauty brands, even before the pandemic. The golden age of venture-backed direct-to-consumer labels using punchy social media ads to capture the urban Millennial’s wallet is over. The cost of customer acquisition has skyrocketed, with too many brands competing for the same limited pool of customers in popular categories like athleisure and beauty.

 

Now, retail is set to suffer tremendously because of the coronavirus, with analysts from Cowen predicting that the annual profits of some retailers could drop as much as 50 percent. Businesses big and small are feeling the effects. While Adidas is expecting first-quarter sales to drop by $1 billion in China due to coronavirus, more than half of the US’s small business owners likely won’t be able to operate longer than three months, per a recent Goldman Sachs survey.

 

Stores, until recently seen as a milestone for new brands, are now liabilities in the growing numbers of states and countries that have ordered non-essential retailers to close. In a potential sign of what’s to come, ThirdLove, the direct-to-consumer lingerie brand, permanently closed its New York pop-up last week. Digital-only brands face a more crowded market as their rivals pivot to e-commerce.

 

Even some of the world’s biggest brands

are wary of putting out new products in

this sort of environment: Dior and Nike

pulled their Air Jordan 1 collaboration days

before its much-hyped release.

 

In other words, it’s a troubling time to own

a business, and it’s an even scarier time to

launch one.

 

The Case for Delaying a Launch

Jordan Fox, founder of the branding group MMP Digital, advised startups against launching during the height of the coronavirus pandemic, especially DTC brands that rely on social media ads. “People are home, but they aren’t in purchase mode; they are in distraction mode,” Fox said. “And I think any new brand needs a potential customer’s full attention.”

 

Part of Habit’s launch strategy was outdoor ads around New York City - now a clear waste of money, given quarantine orders. Adaya, whose business is funded by the early-stage venture firm OVO Fund, was able to postpone the ads and keep her costs low. Minimizing the burn rate is essential because Adaya said new DTC brands likely won’t be able to raise more funding any time soon. The category had already seen hesitation from Silicon Valley, and Covid-19 is exacerbating concerns about putting money into unprofitable businesses.“I've had conversations with other investors and they are spooked,” she said. “People are waiting to see how things shake out.”

 

Paris-based husband-and-wife duo Yetunde and Michael Beutler were gearing up to launch their luxury direct-to-consumer beauty brand Essenci in late April but postponed due to the pandemic. They were developing reusable porcelain packaging, and some production was halted.

 

Michael Beutler, who is Kering’s sustainability operations director, also said he was concerned about the luxury beauty space. While beauty has historically been recession-proof --beauty sales rose after the terrorist attacks of Sept. 11, 2001 and the 2008 Financial Crisis-- the stakes are different for a new brand.  “It would be more challenging for us because women will be looking to their go-to skincare and likely won’t want to try something new,” he said.

 

Existing beauty brands could start seeing a decline, too. Online beauty sales were down 9 percent from March 11 to March 18, compared to the same week in 2019, according to data compiled for BoF by Earnest Research, a data analytics company that provides insights on consumer spending habits.

 

Yetunde added that going DTC was supposed to set Essenci apart since many niche French skin-care brands are sold in stores. Now, though, “everyone in the market is recalibrating, and so luxury skincare is going to become crowded online,” she said.

 

The Case for Launching

Henry Davis, the former president and chief operating officer of Glossier, and his business partner Ariel Wengroff have been working on the launch of their new consumer company, Arfa, for over a year. The duo launched Arfa’s first brand Hiki, a line of deodorant products, in mid-March and decided to proceed by giving away their products for free.

 

“We had the products sitting on the shelves, ready to go, and we thought to lead with kindness and empathy,” said Davis. Arfa is giving products away to hospital and medical facility workers, and is offering two free products to customers who share positive messages on social media. Davis said the plan is to give away free product until it runs out, and then reassess.

 

“Hopefully we'll get back to [normal life] and be getting product into the hands of people who pay for them, but in the meantime, this was all we felt like we could do short of sitting on our hands,” he said.  It’s a risky move. Arfa has reportedly raised more than $7 million from funds including Forerunner Ventures, Box Group and Index Ventures, but few brands can afford to be handing out freebies right now.

 

On the other hand, Perry Kramer, a managing partner at Retail Consulting Partners, noted it might be even more expensive to sit on existing inventory. “In the coming months, there’s going to be a lot of retailers struggling with excess inventory that will be offering markdowns,” Kramer said. “The people who get to the market early will be more successful.”

 

“You could launch without the capital L, without the splashy influencer play, and just sell quietly,” added Ben Lerer, a managing partner at early-stage venture capital fund Lerer Hippeau. “Take the customer feedback, keep the burn rate low. But you can’t just curl up in a ball.”

 

Leaning on Technology

Entrepreneurs like Dianna Cohen, who debuted her hair care brand Crown Affair some six weeks ago, are now facing a sobering reality. Businesses can plan for hiccups, not global health crises.

 

Cohen said Crown Affair's sales are growing. The company is also lucky because unlike other DTC brands, it doesn't have stores. But it will likely not be able to hire the way she had initially intended and she also might delay some upcoming product launches. But she’s also trying to get creative with customer engagement.

 

“Should we offer Facetime sessions to consult with customers about their hair? Will we test a hair hotline? All possibilities are on the table right now,” she said. “This has given us an opportunity as a business to be creative and have fun with it.”

 

Brands that want to stand out during the coronavirus should be leaning on tech like direct message sales and virtual reality. Some brands are already stepping it up. Burrow, a DTC home goods company, is offering virtual appointments for home design consultations while Annouksha, a UK-based fine jewelry company, has been training retail staff to use Hero, a livestream shopping app, so they can sell to customers even as retail locations close

 

“People are going to be more receptive to selling online than before and digital consulting will win sales,” said Kramer of Retail Consulting Partners. “You need to be having web conferences, video-chatting to keep up with clients. It’s the method of high-end retail sales associates, turned over to technology.”

 

Telsha Anderson, a former influencer and social media strategist, had been gearing up to open T.A., a luxury fashion boutique in New York City this month, but paused the store’s launch and pivoted to e-commerce after most of the city’s retail shut down. She’s starting to host product walk-throughs via Instagram Live instead. “People are getting their news online, their memes online and I think they’ll want to shop for luxury there too,” Anderson said.

 

Investing in Meaningful Social Media

For new brands to succeed during the coronavirus, Lerer said companies must determine where they fit within the world’s concerns of coronavirus. He said he’s particularly optimistic health, wellness and sexual startups can develop the right messaging. “If you are a company that genuinely can provide hope and service for people in times of need, you have to go for a play right now,” he said. “You may have to reassess your strategy but those businesses still need to launch.”

 

For startups that aren’t wellness-related, Fox of MMP Digital said new DTC brands could still be developing awareness by getting involved with charities and donations. “You have the opportunity now to offer comfort and distraction, and that can lead to brand loyalty,” he said.

 

Fox was quick to add that brands should steer clear of “showboating”, however.  “You/re walking on eggshells to some degree,” he admitted. “It should be a part of the DNA because customers expect philanthropy to be built in, but it shouldn’t come off as promotional.”

 

The Beutlers, who have self-funded Essenci, said they’re using the extra time with a delayed launch to reassess Essenci’s place in skincare. They’ve already decided to lower the products’ prices and will develop a stronger social media presence.

 

“Our launch strategy involved in-person, influencer events but now we’re focusing on digital without worrying about any of that,” Yetunde Beutler said. “We’ve invested so much in our formulations, packaging and design, and the silver lining to the coronavirus is we have more time to develop our voice. This is our time to take advantage of.”

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©2020 by Retail Consulting Partners.