The digital boom of 2020 worked in favor of digitally native vertical brands (DNVBs). The pandemic accelerated ecommerce growth, creating a bigger market from which direct-to-consumer brands could take claim, while concerns about relying on Amazon gave rise to ecommerce enablement platforms—such as Shopify and social media channels—that democratized the purchasing funnel. 

This perfect storm allowed DNVBs associated with the direct-to-consumer (D2C) trend to create durable, category-defining products—some of which grew into billion-dollar ventures capable of acquisition or IPO. 

Today, however, even some of the most successful DNVBs are encountering growing pains on their paths to maturity. DNVBs that have seen skyrocketing valuations and public stock offerings now face investor scrutiny and demands for greater profitability.

Here, we explain the DNVB market, delving into trends to better prepare businesses for a slowdown in ecommerce growth. 

What is a DNVB?

DNVBs are brands that began selling goods or services directly to consumers through ecommerce channels, often relying heavily on digital marketing. They control the customer journey from end to end, allowing for more control over manufacturing processes, autonomy over the final product, and oversight of customer service. 

The DNVB business model

Several of the DNVBs most often associated with the D2C trend have succeeded in creating durable, category-defining companies. Digitally native vertical brands (DNVBs) have used D2C strategies that cut out intermediaries and distribution partners to reach niche audiences of prospective customers. Highly measurable, targeted digital ads—largely in search and social—reach those who are most likely to purchase from the brand, driving sales on their owned and operated channels. DNVB’s use of influencers, for example, has proven particularly effective in building brand affinity and sales. These low barriers paved the way for the growth of DNVBs.

Another reason for the growth of DNVBs is how they set themselves apart from mass-market incumbents. DNVBs have internalized the value of remarkable customer experience (e.g., website user experience, easy checkout, aesthetically pleasing packaging, post-purchase communication, convenient returns) in a way that established brands typically have not.

Many DNVBs that started as early as 2010 now have brick-and-mortar stores but are still considered digitally native. Expansion into physical distribution means DNVBs don’t have to limit their growth potential, especially when 80% of retail purchases are made in-store. In fact, several of the top reasons that US consumers choose traditional brands over DNVBs come down to product availability, according to an October 2021 Diffusion study, which is why DNVBs are trying harder than ever to meet consumers where they are. 

Chart showing D2C sales
Established brands—and not DNVBs—will drive the vast majority of D2C ecommerce sales. 

Examples of DNVB brands

DNVBs skew heavily toward fashion and apparel. Looking more broadly, 67.7% of D2C brands are in the fashion and apparel category, with food and beverages a distant second at 8.1%, according to analysis from PipeCandy. 

  • Allbirds
  • BarkBox
  • Brooklinen
  • Bonobos
  • Carvana
  • Casper
  • Chewy
  • Dollar Shave Club 
  • Glossier
  • Indochino
  • JustFab
  • Magic Spoon
  • Mejuri
  • Outdoor Voices
  • Peloton
  • Reformation
  • Rothy’s
  • Smile Direct Club
  • Warby Parker 

DNVBs, as well as the greater D2C market, have seen ecommerce momentum stall. Global traffic growth at five of the top DNVBs moderated following the boom in 2020, according to data from SimilarWeb.

When it comes to the D2C market, established brands—the mass-market incumbents—will drive the vast majority of D2C ecommerce sales, continuing to exceed sales from DNVBs. Although DNVBs grab the headlines, established brands will account for 75.5% of US D2C ecommerce sales in 2022.

The fundamental challenge for DNVBs is to grow from their disruptor beginnings into mature, mainstream growth brands that can scale. This lack of scale is why nearly every DNVB is losing money and why so many struggle to deliver profits at the levels once expected of high-flying disruptor brands. Plus, without the built-in scale of mass retailers, DNVBs need to work harder to create awareness and drive traffic to their sites. 

Many of these findings are discussed in Insider Intelligence’s Great Realignment webinar, a presentation that covers the ways in which ecommerce, social media, fintech, and other industries are being transformed in this era of uncertainty. To learn more about DNVBs and D2C trends, view a recording of the webinar by signing up here.