A New Crop of Consumer Companies Is Being Born in America — and They Mean Something Very Different by "Brand"

When there is not much innovation left in consumer goods, how do these new companies — the ones aiming for your bathroom, kitchen, closet or living room — make money?

On August 30, the 43-year-old Leonardo DiCaprio was spotted in a new pair of shoes.

People don't normally care what Leonardo wears; he isn't remotely fashionable. But a few weeks earlier he had announced that he was the newest investor in the eco-friendly shoe brand on his feet. The celebrity money, amount undisclosed, drew a fresh round of attention: after the news broke on August 1, the wool sneaker brand Allbirds turned up in 211 press stories, among them mainstream American titles like People, the New York Post and Esquire.

In a little over three years, this San Francisco footwear startup has won a large following with the comfort of wool, a sustainability pitch and a $95 price tag (about 650 yuan). Allbirds fans are still concentrated in Silicon Valley and Hollywood, but they are spreading to the wider middle class in New York, California and other places.

The early internet produced almost no consumer-goods startups worth the name. What it offered were virtual services or a platform, and what people mostly saw were platform giants like Amazon and Taobao. Over the past few years, though, a batch of new consumer brands has come out of the internet in the American market. They don't depend on Amazon; every one of them has built its own online store and sells straight to the consumer.

That is very different from China's Taobao-bred brands. When shoppers' habits moved online, Chinese entrepreneurs embraced Taobao — while the Allbirds of the world keep their distance from Amazon.

Allbirds shoes are sold only on the company's own site, and the product line is simple: to date it has released just two shapes, the Runner and the Lounger. This March the brand announced it had passed one million pairs sold, and rolled out its biggest update since launch — Tree, a line made from eucalyptus pulp, again in only three shapes.

Leonardo's low-key, T-shirt public image suits Allbirds' anti-fashion character. Look at the shoe itself and its plain design is hard to place the way a Nike or an Adidas is; you won't find an obvious logo on an Allbirds shoe either.

In several stories, Allbirds has been tied to Silicon Valley's startup crowd, and some of the customers quoted say they have bought several pairs of the wool shoes over time — which means a steady base and real loyalty.

Andy Dunn, founder of the menswear e-commerce brand Bonobos, bought by Walmart in 2017, argues that plenty of companies like Allbirds and Bonobos have found a set of consumers the big firms overlooked, and that together they add up to an industry. He calls it the "digitally native vertical brand," or DNVB. The "encyclopedia of DNVBs" he compiled in 2016 lists 100 startups covering just about every corner of daily life you can think of. A 2018 report from the US Interactive Advertising Bureau, The Rise of the 21st Century Brand Economy, listed 250 companies and called them a "direct brand economy" worth watching.

The more common term is the DTC brand, for direct to consumer. And both Andy's encyclopedia and the IAB report make the same point: these are not simply e-commerce companies. E-commerce is just the channel they picked to get closer to the consumer.

The distance a DTC brand closes shows up at every step. By selling online and direct, these companies claim to have cut out the middleman, and so can offer better design, quality and service at a relatively lower price. By talking to consumers directly on the internet and on social media, they market themselves more cheaply, and in return collect customer data and preferences that let them put out products the market actually wants.

Two hundred and fifty is still a conservative number. Since 2012, more than 400 of these new consumer brands have raised roughly $3 billion in venture money between them.

Loose Threads, a site that studies the consumer economy, compared how long some of these stars took to reach $100 million in sales against the traditional companies in the same industries. Successful 20th-century brands such as Nike and Ralph Lauren needed 10 years on average to hit $100 million in revenue. The early digitally native brands, founded between 2008 and 2012, averaged seven years. Brands from the second wave, from 2012 to now — Allbirds among them — took only four. The fastest was Casper, the online mattress seller whose posters cover New York's taxis and subway cars: two years.

Casper is a New York mattress startup and one of the most admired names in this batch of DTC brands. It has raised $2.5 billion in total, and in January the company said cumulative sales had passed $600 million.

Casper shows several traits common — though not universal — among DTC brands:

• It picked a market with low barriers and little innovation.
• It runs a bare minimum of SKUs alongside a "you've been ripped off" brand story.
• It invented a new way to shop.

There are about 9,200 mattress stores in the United States, and buying a mattress in one is a miserable experience: too many materials and styles to choose from, opaque prices, salespeople with their scripts, and a baffling ergonomic mysticism. Once you've bought it, you also have to get it home yourself.

Market research showed that foam and latex were the two most trusted mattress materials, so Casper decided to sell a single mattress combining foam and latex, writing off the smaller group of customers who prefer innersprings or air. Then it announced that its mattress was neither too soft nor too firm but "just right." Harry's, which sells razors, and Allbirds, which calls itself "the world's most comfortable shoe," took the same route.

For a startup, a short product list both weaves the impression that "we have found the best product in this category" and keeps costs down. Every DTC brand makes and sells its own goods, and none of them can carry the inventory that a broad line would bring.

Casper's delivery is unusual too. It compresses the mattress, rolls it up, packs it into a sturdy box and ships it to the customer's door, with free returns promised. That is a way of building confidence in the brand; in practice, returning a mattress is a nuisance for almost anyone.

YouTube soon filled up with Casper unboxing videos, and the sight of a vacuum-packed mattress slowly unfurling became an advertisement that produced a feeling of comfort. In March 2015 Kylie Jenner of the Kardashian family posted a photo on Instagram of the Casper box she had received. The post drew 880,000 likes and doubled mattress sales.

Consumers, in fact, find it hard to say exactly how a Casper mattress beats anyone else's — which is why, once the Casper imitators multiplied, online mattress-review sites appeared as well. What really makes up the Casper brand is a completely different way of shopping. Nobody in the mattress market was offering that service.

For DTC brands, the most important difference is no longer a logo or a package design or anything else you can see. It is a distinctive brand experience.

Here is how a brand used to be built. The founder of Coca-Cola invented a sugar water nobody had tasted before. The new product attracted a group of customers, and then a partner drew a logo in handwritten script without charging a cent. Coca-Cola later became a licensing business, licensing the brand to partner bottlers that turned out countless labelled fizzy drinks and shipped them worldwide, and running the same commercial on every television set in the country. That is how a household name was born. The process repeated with each new product launch, until the brand had drifted far away from the consumer.

Now that consumer goods have little innovation left in them, the cost of making a similar product has fallen, new brands have become meaningless repetition, and the endless advertising and design that goes with them has lost value too. As it gets easier for entrepreneurs to build a supply chain and raise venture money, the brand-first mindset has become ordinary — but what these brands offer is clearly no longer a unique product.

Buying a mattress online is only the most basic change to the shopping experience, and it worked because the mattress market had stopped trying. For other categories, the inventors of DTC brands designed their own processes: startups selling frequently bought items like razor blades and contact lenses went with monthly subscriptions, while fashion brands did everything they could, through software and logistics, to solve the problem of not being able to try things on.

A distinctive shopping experience and a redesigned process are among the main reasons these DTC brands avoid Amazon.

Amazon dominates the American e-commerce market, and its platform is built to steer a user to a product at the price they want in the shortest possible time; every price on a search results page is picked out in a loud color. Taobao and Tmall, by comparison, pay more attention to displaying individual stores and brands. Alibaba is fundamentally in the advertising business, which is also why Tmall has spent the past two years fighting JD.com so noisily over fashion brands.

The American industry that supplies small businesses with website building, logistics and the rest is also relatively mature. Setting up a site is a natural first move for many entrepreneurs there; plenty of restaurants less than two years old are sure to have their own homepage, which is not yet a habit in the Chinese market (partly because Taobao is so convenient). Laura Behrens Wu, founder of Shippo, an American logistics company for small businesses, once tweeted: "Amazon is where commodity goods get sold: 70% of the search terms on Amazon are for generic categories. But Shippo's customers care about their brand, and won't sell on Amazon."

Mature small-business infrastructure in America has made all sorts of inventive shopping experiences possible. The company that has gone furthest is the eyewear brand Warby Parker. Its site and app offer every kind of virtual try-on tool, and a user can also ask the brand to mail five different pairs to their home and keep the one they want.

Warby Parker was founded in 2010 by four Wharton students. Today the company, which sells $95 glasses online, is valued at $1.75 billion and runs 65 physical stores. After its success, the four students' story became the new goal for young people at Wharton.

Wharton, founded in 1881, was the world's first business school. Today it looks more like an incubator for DTC brands, with marketing professor David Bell as their mentor. He told Inc. magazine: "If you go into your kitchen, your bedroom, your living room, everything there, from the toothbrush to the sheets, the towels, the curtains… all of it can become a Warby-style company."

Look closely at the backgrounds of the founders behind this American wave of DTC brands and you find that a large share of them move in one circle, of which Wharton is merely the densest node. Students there rack their brains looking for the next Warby Parker, and out come A.N.Other in perfume, Burrow in sofas, Bristle in toothbrushes.

Besides probably chasing the same consumers, these brands also share a set of equally young early-stage funds that "focus on the direct brand economy" — Brand Foundry, for instance, set up by Professor David Bell with the investor Andrew Mitchell.

Most venture capitalists, though, were not keen on this sort of consumer startup at first, complaining that the upside was too small and the returns too slow. It took Unilever's $1 billion purchase of the razor subscription company Dollar Shave Club in 2016, and Walmart's $310 million purchase of Bonobos in 2017, for more and more early-stage investors to warm to the category.

"This acquisition allows us to apply their expertise, technology and direct-to-consumer approach to our other businesses globally," Unilever CEO Paul Polman said when announcing the Dollar Shave Club deal.

When Tim Brown, the New Zealander who founded Allbirds, put his wool shoe project on Kickstarter in 2014, he did not yet have a proper brand name. After raising some money, he was advised to go to the United States to look for more. In the spring of 2016 he sat down with Ben Lerer, CEO of the early-stage fund Thrillist — a fund that says it concentrates on DTC (direct to consumer) brands and had backed Warby Parker and the clothing brand Everlane. Fifteen minutes later, Tim had his first angel investor.

The fastest fundraising of the past year belongs to Brandless, founded in July 2017, which sells more than 300 everyday necessities, most of them priced at $3. Where a supermarket dazzles you with organic pasta sauces and nontoxic dish soaps, Brandless carries one of each. Its packaging shows almost no "design": apart from the product name, the label lists only the ingredients, bullet-point style.

By July 2018 Brandless had raised another $240 million in a Series C led by SoftBank, taking the total raised in its first year to $290 million. Co-founder and CEO Tina Sharkey argues that the value DTC brands bring is that they tend to be cheaper, having done away with the "brand tax."

Among all the funds betting on DTC brands, one to watch is Forerunner Ventures, whose site numbers the companies in its portfolio, an attempt to look like the authority on the field. Founder Kirsten Green is the only investor to have taken an early stake in nearly every star DTC brand — Warby Parker, Bonobos, Dollar Shave Club, Glossier, Away — which has made her the standout in the business.

One of Green's most recent investments is Hims, founded in November 2017, which sells prescription drugs for male pattern baldness, erectile dysfunction and similar conditions. Keeps and Roman are doing much the same thing. All of them are betting on the opening up of telemedicine in America and on the patent expiry of finasteride, the active ingredient in the baldness drug Propecia, and all are trying to move some of men's more awkward shopping online.

As a rule, the founder of a DTC brand doesn't have to be an expert in the field, but does have to be an expert in marketing. Tim Brown, for example, was a soccer coach before Allbirds, so the investor Lerer pointed him to Red Antler, a brand design firm in New York.

Red Antler has worked with Casper since the company started, and Casper's CEO calls it "our sixth co-founder." That success built the independent agency's reputation, and more and more DTC brands have come knocking. The firm is said to have taken its name from the fact that "antlers grow faster than the bones of any other mammal."

Casper's and Allbirds' brand designs both use a modern, flat aesthetic with a playful element mixed in — the curve on Casper's letter C, Allbirds' handwritten type. Names tend to be two syllables. "Whatever you do, don't pick a name that describes too much, because you don't know whether your company will expand into new products," Emily Heyward, Red Antler's chief strategy officer, said in a talk.

The DTC startup boom has created demand for firms that design a brand from nothing, head to toe, and Red Antler is only one of them. There is also Derris, which made its name on Warby Parker, and Gin Lane, whose clients include Harry's and Hims. Unlike traditional ad agencies, they get involved while a client is still incubating, help position the brand, and design the whole set — mark, tagline, website, interactions. According to reports, some clients of Derris and Red Antler even pay for the work in company equity. Derris founder Jesse Derris went further and announced a new venture fund, Amity Supply, in 2017.

Once the brand design is done, much of a DTC brand's advertising and marketing is still handled in-house.

"What we can reach is more than just advertising," said Michael Dubin, founder and CEO of Dollar Shave Club, who starred in his own company's viral YouTube ad, in an interview with the marketing site Digiday. "If you're a creative agency, then advertising is the only way you have to solve a problem."

One-to-one email marketing, old-fashioned public relations, and the ad dashboards of Facebook and YouTube are all required skills.

As noted earlier, one big reason American DTC brands don't lean on Amazon is that Amazon's platform logic pays no attention to brand experience or display; there are only countless products drowning in search results. Chinese brands, meanwhile, all embrace Taobao. Partly this is because many so-called Taobao brands actually grow by launching hit after hit and buying traffic, so that the "brand" is often still just a name; and partly because China's internet has been artificially walled off by its giants — Weibo, the largest social platform, belongs to Alibaba — leaving Taobao as the channel you cannot avoid. Americans, by contrast, can get cheap or even free traffic from independent platforms like Facebook and Google, which is the foundation many early DTC brands were built on.

Dollar Shave Club's video "DollarShaveClub.com — Our Blades Are F***ing Great," posted on YouTube six years ago, has been watched 25.65 million times.

That viral ad cost only $4,500 and was shot in a day. It went up on YouTube at 6:30 a.m.; three hours later the brand's site crashed under the traffic, and by the end of the day the company had 12,000 orders. In fact, Michael Dubin had done a good deal of preparation to help it catch fire — telling the major tech outlets in advance when the video would go live, spending $10,000 promoting it on social media, arranging cross-promotion with bloggers who write for men, and so on.

Warby Parker, for its part, likes to encourage users to post photos of themselves in the frames and ask friends what they think; on YouTube you can find more than 50,000 results for "Warby Parker Try."

"Having our own marketing team has been the first thing behind our growth so far," said Jen Rubio, co-founder of the DTC luggage brand Away. A third of the company's staff work in marketing, running all the creative, media buying and customer service. "That kind of flexibility is very hard to outsource."

Away's two founders both worked at Warby Parker: Rubio ran the brand's social communications, and the other co-founder, Steph Korey, spent three years as Warby's head of supply chain. Once they decided to start the company, Korey began dealing directly with luggage suppliers in Asia while Rubio concentrated on the brand's Instagram account and worked heavily with travel influencers there.

Getting the first batch of customers is always the easy part. When these entrepreneurs, so determined to strip out the middleman, come up against the next stage of growth, Facebook stops being a handy tool and turns into the new middleman.

The New York Times recently published a story on how Facebook's ad algorithm decides the fate of startups, recording in detail the painful history of the DTC contact lens brand Hubble on Facebook.

Dan Rosen, Hubble's co-founder, grew thoroughly agitated after a stretch of days spent staring at the company's Facebook ad dashboard. He went for advice to a former Facebook employee who now runs his own social marketing firm, and was told there was only one answer: check the dashboard even more obsessively, every half hour — and "the first step is to meditate."

By May, Hubble had begun testing its first television commercial and the two founders' stress dropped sharply; not knowing the numbers turned out to be a blessing. A few months later they decided to hand Facebook ad buying to an outside firm.

According to a study by the marketing analytics company AdStage, in the first six months of 2017 alone the average cost of 1,000 ad impressions on Facebook rose 171%, and the average cost per click rose 136%.

This is a particularly serious problem for DTC brands. Because so many of these companies target roughly the same consumers — the middle class in cities like New York — the traffic they all need to buy gets bid up.

The high cost of acquiring traffic has become a new kind of rent, one that makes the rent on a physical store look cheap by comparison.

Walk around SoHo in Manhattan today and within a mile you'll find more than a dozen DTC stores: Away's luggage, Allbirds' sneakers, Everlane's womenswear, Outdoor Voices' activewear, Bonobos' menswear, Warby Parker's eyewear. But these shops usually encourage you to try things on in the store, order there and have the goods delivered from the website. Take Bonobos' GuideShops: since they hold no inventory, the average store is only 1,500 square feet, yet it turns over more than $1,000 per square foot.

When traffic gets expensive, the other option is to launch new products and widen the customer base. Because DTC brands hold first-hand data and feedback from existing customers, they can often put out products that meet a demand and respond quickly when it shifts. The brand that does this best is Glossier, founded by the beauty blogger Emily Weiss. In 2015, when it set out to develop a brand-new face wash — later one of its most popular products — Emily wrote a blog post asking users to describe their dream cleanser. All that feedback produced the Milky Jelly Cleanser.

Allbirds' new eucalyptus-pulp sneakers, prompted by the limits of merino wool supply, and Casper's two new mattresses were both meant to give old customers a reason to buy again, or to bring in new ones.

Whether it's opening stores or launching products, a DTC brand's expansion usually runs alongside a fresh round of funding; the profit from selling goods alone can rarely sustain that pace. Alongside the news of Leonardo's investment came Allbirds' newest eco-friendly product: summer flip-flops made from sugarcane pulp.

Kirsten Green has become more careful about DTC investments over the past two years. She told TechCrunch that Forerunner sees 175 to 200 DTC projects a month but invested in only nine in 2017. Many companies in the market, she said, should not be raising money at all, and founders should build their consumer businesses more conservatively.

As the imitators pile up, there is real doubt about whether this new kind of consumer brand can grow into a billion-dollar brand. And for the big corporations, buying one of them is essentially a cheap way to acquire a new customer base, new marketing ability and some e-commerce knowledge.

What venture investors think today has shifted subtly from a few years ago.

Teddy Citrin, an investor in the DTC contact lens brand Hubble, listed several reasons for picking Hubble in an article last year. Most of them fit the DTC formula: high purchase frequency suited to subscription, healthy margins on contact lenses, traditional incumbents that offer poor service and no innovation. But one was different, and he highlighted it: "Barriers to entry are high, because supply is hard to secure, manufacturing is complex, and the industry is regulated."

Graphics: Feng Xiuxia

Cover image from Brandless