Product line diversification: How and why DTC brands are expanding from their core offerings
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The old DTC was simple, and it worked. Brands would launch a flagship product, promote it heavily via paid ads on social media, and sales would roll in. Early adopters of this strategy did well, and their customer bases grew quickly.
However, today’s DTC brands are no longer sticking to the playbook. It’s a crowded place to be in right now: DTC sales accounted for $17.75 billion of total eCommerce sales in 2020, which was up a staggering 24.3% from 2019. All in the middle of a pandemic.
But here’s the crazy part: DTC momentum is slowing. The percentage of digital customers rose around 5% in 2017, 2018, and 2019. But only 3% in 2020 and 2021. Faced with this reality, DTC brands are expanding their product lines into new verticals, hoping to avoid a sales bottleneck and appeal to new customers.
Retail and DTC are evolving rapidly due to the increasing costs associated with advertising and customer acquisition. As a result, brands are turning to omnichannel diversification, meaning they’re opening physical stores that blend seamlessly with their online stores. But they’re also introducing new products and expanding into new verticals.
The reason: Only selling through one channel limits a brand’s visibility and customer base. Having multiple touchpoints for shoppers to connect and buy from the brand online and off presents more moments for conversions and sales. Welcome to the era of DTC 3.0.
“Expansion can help brands respond to shifts in consumer behaviors, not just product preferences or trends. In 2016, Dyson released the Supersonic hairdryer after observing the uptick in hair coloring and studying the global hairdryer. Their solution put their core technology in the hands of a new market by solving their everyday pain points, making a product that was lighter, faster, and less damaging.”-Grace Clarke, marketing consultant
DTC brands expanding product lines
Along with omnichannel sales approaches, many DTC brands and marketplaces have expanded their product lines recently.
A few well-known examples:
- Footwear brand Soludos expanded into clothing
- Accessories brand Pura Vida expanded into clothing
- Swimwear brand Summersalt expanded into activewear and loungewear
- Razor brand Billie expanded into skincare
The list goes on and on. These aren’t rare examples of this type of expansion.
Take a look at Italist, for example. The DTC marketplace launched with a focus on clothing and accessories, curating luxury brands at a price point that’s 30% lower than that of the market. Now, they’ve expanded to include a home goods section with decor, linens, and accessories from brands that are tough to find outside of Italy. The intention of expanding in this way is to both diversify its offerings and help scale business growth.
It’s working, too: Italist launched online in 2014 and is seeing a 25% increase in customers year-over-year, plus a 60% repeat customer rate. Ana Andjelic, author of The Business Aspiration, sums this move up well:
“Fashion has been expanding into furniture and household goods for years. Experience economy propels brands to create the all-encompassing aesthetic universes to put forward regardless of the category. With a push towards the experiential, the same concept can exist as a meme, a bag, a sneaker, or a piece of furniture.”
Another brand that’s making this transition well is Rothys. They’re known as purveyors of sustainable women’s shoes, so what could be more natural of an expansion than moving into men’s footwear?
There’s no dilution of brand image with this move, either. Rothys is still selling sustainably made, eco-friendly shoes. They haven’t collaborated with McDonald’s or Texaco. They’ve stuck to their principles and expanded their customer base by 50%.
DTC intimates company CUUP raised $11 million in funding to date and dove into the swimwear industry this year with a new line of bikinis designed to suit customers of all shapes and sizes. Their new line offers various fits and silhouettes, and they’ve positioned them at a mid-tier price point ($68 to $98 per piece).
So what links these examples together?
These brands tore up the old DTC playbook and started diversifying. They expanded their offerings but remained relevant. They didn’t do anything that would compromise the brand image they’ve built up over the years. They didn’t move in an illogical direction in a madcap attempt to make money.
Instead, they made a linear move to push the brand ahead into the future.
Diversification is the new playbook
Diversification of product lines is on the rise for DTC brands, but most companies should focus on their core products until they’ve achieved a tipping point and demand is high. However, once they’ve hit that threshold, it’s go-time. Otherwise, customers might just see them as that one item brand.
If you ask Nate Poulin, CMO at Digitally Native here’s a basic look at how this should go:
- $0-$5M: Core Products $5M-$10M: Core + Extensions
- $10M-$25M: Core + Extensions + Category Expansion
- $25M - $100M: Core + Extensions + Category Exp + Price Tiers
- > $100M: + Services All stages: iterate and improve Core Product
“The adoption curve continues in favor of eCommerce brands that can generate and sustain demand when entering omnichannel retail. Pricing strategy, channel SKU assortment, and category expansion is key to success. $20-$50M is the revenue sweet spot for acquisition.”-Chris Cantino, Color Investments
Haircare and lash brand Vegamour is one DTC that made this work: they launched seven new products last year (and upped sales from $4.5 million to $35 million.) The brand could easily have been stuck as “that vegan lash brand.” But they released their new Gro+Advanced topical collection that includes serums and even hair gummies to tackle the root causes and signs of stress-related hair loss. Now they’re that vegan wellness brand.
Pitfalls of scaling
If the DTC model involves pivoting to prevent stalling, then what do brands need to watch out for when they make these changes? Things like:
- Product creep
- Rushing the process
- Pivoting too early
- Or not pivoting at all
Falling into these traps is easy. Everyone wants to be successful, everyone wants to make money, and it’s easy to make a mistake in the process. But doing so is just going to leave core customers feeling like they don’t know the brand anymore. They’re at risk of becoming alienated from the brand. And brand loyalty is not something you want to risk in post-COVID times. Data shows 60% of Gen Z shoppers have become less loyal to brands since the pandemic started and are more likely to abandon carts or leave a less than savory review.
Plus, things are changing quickly. We’re not sure yet if pandemic-related changes in shopping patterns will stick. Online retail sales were up 30% in 2020 and 31% in Q1 2021 alone...but is that going to last when most people are vaccinated?
Nike is another great example of a brand that pivoted (in their case, leaning into DTC). In 2009, DTC sales for Nike accounted for 2.18 billion dollars per year—a tiny percentage of their overall sales. However, they’ve been steadily focusing on online sales in recent years, and in 2020, DTC sales for Nike were worth $12.38 billion.
“Many VC-backed, stronger DTC brands seem compelled to become category owners within the first few years of launching. Ex: we started with dog food, now we are a companionship company. Nike was founded in 1964; they didn't prioritize product expansion until the 1980s.”-Web Smith, Founder of 2PM
Even with this Nike example, keep in mind that DTC brands have one advantage compared to large retailers: A close connection with customers from day one. There’s no middleman to cut out, so they’re in control of all the data, customer relationships, and more. That means all the brand decisions are often entirely data-based, which makes it easier for a DTC company to launch a strong primary product that people rave about then pivot and expand their offerings, based on data-informed projections.
“These brands have category-owning ambitions baked into their processes: The [direct-to-consumer] model is built on a direct connection to customer feedback and owning first-party customer data—not outsourcing it to retailers.”-Hilary Milnes, Digiday
Examples of smart product expansions
Native Co. is a DTC brand that understands this. They started back in 2015, and sold, in the CEO’s own words: “a pretty mediocre product”, which was a natural deodorant without aluminum. They did $100 million in two years.
It wasn’t until May of 2021 they expanded their core offerings and began selling sunscreen. They didn’t rush the process, they didn’t alienate their customers, and they didn’t dilute their brand image one bit.
Summersalt, founded in 2017, is a DTC known for inclusive swimsuits. Their products racked up thousands of raving reviews, and even so, they didn’t pivot to active and loungewear until October 2020.
Next, there’s Allbirds. The cozy, eco-friendly shoes are made from merino wool and eucalyptus leaves. For the first year of their business, they only had one shoe in one color. They stayed focused on getting the basics right before expanding their line. Today, they’re expanding their offerings differently than that we’ve seen so far.
A lot of brands move into similar verticals or open physical stores. Allbirds bucked the trend, however, and decided to partner with a rival shoe company instead. Now they’re releasing the Adidas x Allbirds Futurecraft.Footprint sneaker.
So what do all these examples have in common?
They have a loyal fanbase behind them, meaning whether they pivot to adjacent/complementary offerings or are collaborating with legacy brands, customers are with them every step of the way.
They also succeeded in pivoting by playing to their strengths. All rely heavily on the communities that they’ve built up around the product before they make the transition into new product lines. They worked on their core offerings and then made a well-planned shift into different categories, thus avoiding product creep.
DTC product line expansion: final thoughts
There’s still money on the table in the DTC space.
It just takes foresight to see the changes in the marketplace and the courage to adapt to those. And as Ana Andjelic reminds us, there’s nothing new under the sun, even if it sometimes feels like it.
“Fashion houses have started to buy hotels, open restaurants, hold art exhibitions, brand their regions of origin, and turn fashion shows into dance performances.”-Ana Andjelic, CMO Banana Republic
Brands have been expanding into new verticals for years, and that should give savvy DTC brands the confidence to move ahead. As fast-paced as things seem right now, businesses have been through it all before, and will again. Ecommerce and DTC brands should study these brands, learn from them, and remember that it should be loyal customers who dictate the failure of a brand’s attempt to adapt (and how.)