By Shelby Walsh

Direct-to-consumer (DTC) brands have skyrocketed in popularity with millennial and Gen Z consumers, and are predicted to drive $16 billion in sales by 2020 globally. The top 15 DTC brands by funding have collectively raised $2.2 billion, according to Crunchbase.

The personal connection developed by going DTC is real and powerful. Brands have more opportunity to collect data on their consumers and create a dialogue to make their products more desirable. DTC models allow businesses to launch, test, get feedback and iterate with less risk and overhead cost. And, as the category continues to evolve, three trends are emerging that are defining the way these brands position themselves in the market.

High quality, low cost

Millennial shoppers are buying less, but they’re also buying better.

For many, it’s less about the brand itself, and more about shared experiences, connection and packaging design, according to the CMO at ecommerce company Brandless – an Amazon rival that competes on quality and cost. In the future, consumers will want less choice rather than more, and to have curated, quality offerings.

Price is also important to the younger gen.

One of the most successful and well-known examples of DTC companies is Warby Parker, which shook up the eyewear category by questioning why glasses should cost more than an iPhone. Warby Parker gained prominence by placing emphasis on cost without sacrificing quality, and many Canadian brands have since adopted a similar approach.

Vancouver-based Article, for instance, is a furniture brand whose tagline is “Spend Less. Live More.” The company offers low-cost, high-quality furniture and has raked in $200 million in revenue as of 2018. This achievement comes just five years after launching the business.

Then there’s Toronto-based jewellery brand Mejuri, which also targets style-conscious millennials with accessories that look expensive, but without the usual price tag that comes with fine jewellery. Without the overhead of retail spaces – it has just one in the Dundas West area of Toronto – the brand can pass the savings along to its customers, an approach that has resulted in a 5x revenue growth year-over-year.

Community-building brands

Other successful DTC brands have found a way to create tribes around a specific set of values or interests. Toronto-based Inkbox, for example, offers customers the look and feel of a real tattoo without the commitment.

Its tattoos last around 18 days and have been popular among the influencer community – which Inkbox has leveraged as a marketing strategy that has resulted in shout-outs by big media such as Forbes, MTV and VICE. Today, it has over one million followers on Instagram alone.

Under a “community” section of its website, visitors can discover talented artists – and have their work applied semi-permanently on their bodies – as well as find stories about the brand’s followers and collaborators.

This trend of community-building is something that comes naturally to digital-first brands, who empower influencers to engage with the brand. This could be trouble for traditional brands who fall behind the 8-ball with online marketing, as Instagram influencer marketing is set to grow from a $1.7 billion business this year to a whopping $2.3 billion by 2020, according influencer marketing agency MediaKix.

Positive Social Impact

Many DTC retail brands are strengthening their brand advocacy through social good, either environmentally or ethically. Clothing brand Frank And Oak checks all of these boxes.

Launched seven years ago, the brand now has 50% of its products made with minimal impact processes. It utilizes recycled and organic materials in production and focuses on environment-friendly methods, such as using eco-dyes and hydro-less denim. Its stores – of which there are now 24 – are built using recycled materials and look to create minimal waste as well.

The Montreal-based brand’s social impact extends to a commitment to inclusion. It partners with non-profits to help those in need and collaborate with organizations such as Montreal’s Petites-Mains, which helps integrate women in need back into the workforce.

All of this social good is just good for business as Frank And Oak has grown a community of avid fans which has allowed it to raise over $20 million, money which it can invest in technology that will drive the digital-native brand forward.

Shelby Walsh is president and head of research at Trend Hunter.