2021 was a record year for direct-to-consumer (“DTC”) listings on the London stock market. However, it was also a bumpy year for many of these stock market debuts, with most companies, including big players like Deliveroo and THG, ending the year a substantial distance away from their listing price. At the end of December, 9 of the 13 stocks were at or below IPO Admission price.

Despite this, the ongoing shift to digital and continuing focus on connecting with consumers, means there are continued growth opportunities for DTC businesses in 2022, and we can expect share prices to recover for those who can convince investors of their ability to develop a strong growth strategy which can be continually evolved to keep pace with changing consumer interests.

Defining your growth trajectory

All DTC companies need to keep growing. Although most companies in the sector follow a similar growth trajectory from their inception, they need to quickly determine their next growth stage by deciding whether to define themselves as a brand or a retailer.

Brand owners need to be channel agnostic with their primary purpose to connect with customers when they are near to making purchasing decisions. For retailers, the priority is to build a marketplace (website) which attracts customers first and the products become secondary. Once this has been defined, companies should decide on the growth strategies they would like to pursue. In 2021, we saw the DTC companies in our research universe employ a number of successful growth strategies and expect to see these strategies continue and evolve in 2022 alongside new ones.

Subscription models

The subscription sub-sector has become the shining star of e-commerce. While demand for subscription models has normalised since the early stages of the pandemic as customers have been able to return to pubs, restaurants and shops, the longer-term outlook for subscription models still remains bright.

Consumer demand for subscriptions to regularly replenish not just essential items such as groceries and toiletries but also non-essential items such as make up, pet food, wine and fitness wear, looks set to continue into 2022.

Customers like these models not just for their convenience but also for the benefits in terms of savings and for helping them try new products they wouldn’t normally use. Virgin Wines, for example, offers consumers a curated case every three months, mixing new discoveries with customer favourites and also allows them to spread the cost of buying wine by saving a chosen amount each month in their WineBank account. Businesses that can use subscription packages to harness their consumer-championing values will prosper in 2022.

Omni-channel development

We expect to see more DTC companies adopting the omni-channel distribution approach this year which combines the DTC online channel with a retail channel. Many DTC brands face the problem of not having a clear customer journey. Shoppers don’t want to visit thousands of websites for products in the same way they don’t want to visit thousands of shops. We believe the omni-channel approach allows companies to offer consumers a more balanced portfolio and a more relevant product offering.

Many companies use this as part of their growth strategy and this is something we are going to see more of in 2022. musicMagpie is rolling out its new SMARTDrop kiosks in nearly 300 Asda stores this year after the successful trial of 15 kiosks demonstrated the benefits of using this channel for both businesses.

Innovation and New Product Development

While opening up new routes has proven successful for DTC companies for attracting new customers, retaining customers is equally important. A key part of the success behind DTC companies is the ability to anticipate what else their customers or potential customers might want to buy when they are close to a purchasing decision. A key and perhaps the most traditional strategy for this is new product development and innovation.

DTC businesses need to have the ability to design, develop and launch new products at a relatively quick pace but they also need to be able to anticipate changing consumer tastes. Made.com is developing a section for ‘artisan’ brands on its platform while Moonpig.com has also massively expanded into the gifting range.

Introducing new products also must go alongside removing old or poorly performing products to avoid high prices in terms of Stock Keeping Units (SKUs). Artisanal Spirts never repeats any of its stock once it has run out, believing that the ‘Fear of Missing Out’ will help drive purchases.

Social media

Lastly, and one that cannot be overlooked, is the use of social media. The vast reach of social media makes it a hugely effective marketing tool for businesses in allowing them to get close to a large proportion of their target audience by sharing carefully curated content and building a following through the right platform.

Understanding the demographics of the social media target audience is key to success. Businesses looking to raise their Gen Z following should focus on TikTok. GymShark is a good example of this, with 3.5m TikTok followers to date. Businesses focusing on an older demographic should be optimising posts and retargeting adverts of Facebook and for those targeting a wider audience of people under the age of 35, Instagram is the most important platform, with 65% of its audience in this age demographic.

Consumers are also becoming increasingly reliant on influencers to make purchasing decisions as they trust the people they admire more than the products they buy. 23% of consumers surveyed by RWTC Connect, said they purchased an item online because of an influencer’s review or testimonial. Particularly in the beauty and fashion industry, we have seen scores of influencers emerge who can make or break sales for brands and this looks set to be a trend for other industries.