The direct-to-consumer (D2C) model rocketed to popularity around 2020 as brands sought to disrupt the traditional retail space and reach consumers at home during the COVID-19 pandemic. But that momentum has begun to fade, and now brands need to rethink the D2C model for long-term success.

What is D2C?

The D2C model removes the need for third-party manufacturers, wholesalers, retailers, and distributors found in traditional retailers in order to sell directly to customers, as defined by eMarketer. This gives brands complete oversight of the customer buying journey, plus it allows for more personalized customer service experiences, hyper-targeted digital advertising strategies, and access to data that informs product and marketing decisions. 

There are two types of D2C companies, as defined in eMarketer’s D2C Brands 2022 report: 

  • Digitally native vertical brands (DNVBs), like Warby Parker, Casper, Dollar Shave Club, or Allbirds. DNVBs started in 2010 or later and began by selling their products directly to consumers through ecommerce channels, often relying heavily on digital marketing. 
  • Established brands, like Nike, lululemon athletica, or Gap Inc. These are the incumbents—the mass-market brands being disrupted by DNVBs—that are now adopting D2C strategies to improve their business fortunes.

The D2C business model 

“D2C businesses are generally founded on a unique product that resolves unmet customer needs—needs that incumbents have failed to address,” according to eMarketer. “Modern branding, fresh packaging, and innovative design are then crucial to capture the attention of highly targeted digital audiences. While D2C brands often begin as online sellers, some will open retail stores.”  

Some D2C brands, like BarkBox or Birchbox, operate a subscription service, enabling customers to customize the types of products they want and automatically receive new ones at a regular interval. 

Consumers are also drawn to D2C products because of the perception of a higher-quality product at a lower cost, justified by a shorter path to purchase. D2C brands are able to pass along the savings to their customers by going straight to manufacturers for a cheaper product and by driving sales directly through owned and operated means, avoiding retailer markup,” per eMarketer. 

The D2C model also gives brands more control over the entire customer journey, which can improve the shopping experience and create loyalty among customers. 

Leading factors that would encourage shoppers worldwide to buy directly from brands
A chart showing the leading factors that would encourage shoppers worldwide to buy directly from brands, April 2023.

There are three critical elements of the D2C model, as defined by eMarketer’s D2C Brands 2022 and D2C Brands 2023 reports: 

  1. Ecommerce, which allows brands to offer their products directly to customers anywhere, at any time

Shopify is the dominant enablement platform among digitally native D2C brands. 

WooCommerce, BigCommerce, and Magento also play a key role in facilitating brands’ ability to sell online with out-of-the-box solutions for things like site hosting, product content, checkout, and fulfillment.

  1. A heavy focus on digital marketing strategies

The traditional model of the media value chain relied on gatekeepers for distribution—media channels like print and cable bundles to reach audiences, and physical stores for sales, per the D2C Brands 2022 report:

“But the new media value chain, pioneered by D2Cs, enables brands to bypass traditional gatekeepers, find customers, and drive sales through purely digital mechanisms. Even with modest marketing budgets, brands can target niche audiences of prospective customers with digital ads to drive ecommerce sales. These low barriers paved the way for digitally native D2C brands”.

  1. Social media 

Social media plays a large role in how consumers discover D2C products. But Apple’s AppTrackingTransparency hindered D2C brands’ ability to efficiently target ads and attribute sales on many digital media channels—especially social media. This has resulted in some shifts. 

  • Dollars are flowing from Facebook, which used to dominate D2C marketing, into other digital channels. Google, in particular, is benefiting from brands’ move away from Facebook.
  • TikTok is gaining share of D2C ad budgets. TikTok went from being a nonfactor in D2C ad spend to accounting for 3.6% of it in Q4 2022, per Rockerbox. 

In addition, the cost of ads on social media has risen over the past few years, presenting a challenge for D2C brands. 

  • Social media costs per thousand nearly doubled between Q1 2020 and Q4 2021, as the ecommerce boom, government stimulus, and rising competition for eyeballs fueled a surge in demand for these ads, per estimates from Skai. 
  • Without the ability to cost-effectively acquire new customers, D2C brands’ profitability dried up. 
  • In 2023, social ads got cheaper as ecommerce growth slowed, but D2Cs will continue to struggle to achieve growth and profitability.
US d2c consumer packages goods and beauty brands share of ad spending
A chart showing US D2C consumer packaged goods and beauty brands’ share of ad spend, Q1 2020 to Q4 2022.

The current state of D2C commerce

Established brands now dominate D2C ecommerce 

In 2024, US D2C ecommerce sales will grow 16.4% to reach $197.11 billion, per a March 2023 eMarketer forecast. That spend is not equally split between established brands (e.g., Nike) and DNVBs.

  • Though DNVBs often get more attention, established brands have enacted D2C ecommerce strategies that will bring in $159.76 billion in sales in 2024—4 times more than the expected sales from DNVBs ($37.35 billion).
  • Brand equity is more important than digital marketing prowess, per the D2C Brands 2023 report. “Brand equity is critical in profitable D2C growth—an advantage for established brands with decades of equity to build upon. Though digital natives initially scaled their brands using data-driven optimization and digital ad arbitrage, those advantages are now gone.”
US D2C ecommerce sales for established brands vs DNVB
A chart showing US D2C sales for established brands versus digitally native brands, 2019 to 2025.

Brands are rethinking the D2C model

As DNVBs struggle to compete with established players, many are having to turn to more traditional retail channels, like in-store or wholesale, to drive growth. 

  • For example, DNVB Solo Brands has partnered with brick-and-mortar retailers after customers asked for quicker, easier access to the brand’s products. 
  • “When we think about D2C, we think about it from a relationship standpoint,” said CEO John Merris during a 2023 CommerceNext event in New York City. “We want to own the relationships, but we also want to be available to our customers where they are and [where it’s] convenient [for] them.”

But even established brands like Nike, adidas, and L.L.Bean are reconfiguring their sales models in an attempt to find the right balance between D2C and wholesale relationships. 

US d2c ecommerce sales growth for established brands vs digitally native brands
 A chart showing US D2C ecommerce sales growth for established brands versus digitally native brands by percent change, 2023. (Subscribers only)

The future of D2C 

To ensure future success, D2C brands (both established and digital natives) should consider the following:

New digital ad opportunities 

Outside of search and social, D2Cs may want to explore up-and-coming digital ad channels like retail media and connected TV (CTV)

  • In 2024, eMarketer forecasts US omnichannel retail media ad spend will grow nearly 30% to reach $59.98 billion as advertisers use it to more accurately target in-market consumers. Sponsored product ads on retail media networks are a cost-effective option to target customers at the point of purchase while off-site ads can expand brand reach. 
  • CTV ad spend is also growing in the US, increasing by 22.4% to reach $30.10 billion this year, per eMarketer’s October 2023 forecast. While slightly pricier, CTV ads are a great way for brands to drive awareness. Plus, there’s been an expansion of ad-supported inventory on networks like Hulu, Peacock, and Disney+, giving brands the ability to reach a variety of different audiences. 

Third-party marketplaces

US retail marketplace ecommerce sales will reach $428.30 billion in 2024 and grow by double digits through 2027, per eMarketer’s March 2023 forecast. D2Cs looking to expand their reach beyond their existing channels may want to look into new or established marketplaces like Amazon, Walmart Marketplace, Target+, or Macy’s Marketplace. 

Building brand equity 

Brand equity is critical in profitable D2C growth—an advantage for established brands with decades of equity to build upon. DNVBs need to innovate, differentiate, and elevate their brands to capture consumers’ attention in a crowded and expansive marketplace.