Richie Siegel: Leveling Out and Narrowing In – Well Made E12

From his blog Loose Threads, Richie Siegel reports on the big changes and subtle shifts that happen in the thriving cross section of technology, retail, and fashion. In the past few years, with the boom of vertical commerce brands, that cross section has been all the rage in the startup world. Instead of starting new apps, tech-inclined, business-savvy, design lovers have started direct-to-consumer brands in an attempt break down monopolies, disrupt age old supply chains, and change how consumers shop. In this episode of Well Made, Stephan talks to Richie about some of the most profound shifts to e-commerce last year and some trends to look for in 2017.

Three generations of VCBs: Warby Parker, Glossier, and Function of Beauty

“Stuff is getting real, finally. Stuff is getting boring and it’s actually really great.”

Dubbed by Bonobos founder Andy Dunn, VCBs are brands that are born online and sell their products direct-to-consumer, rather than by way of the traditional retail model. In the past few years, VCBs have seen some shifts and Richie broke down the evolution into three phases:

v1 VCBs: Brands like Warby Parker and Dollar Shave Club put their stakes in the sand of slow-moving, behemoth industries. For example, Warby Parker went up against eyewear giant Luxottica. (An episode of 60 Minutes in 2012 on the Italian eyewear brand set off a waterfall of coverage on the virtual monopoly Luxottica has on eyeglasses.)

v2 VCBs: In the past few years, brands like Outdoor Voices and Glossier have narrowed in on more niche markets like fashionable athletic apparel and natural, skin-friendly cosmetics. These brands have essentially built communities around lifestyles that are accentuated by their products. Like v1 VCBs, customer acquisition seems to come first with strong branding and voice.

v3 VCBs: We haven't seen the next phase of VCBs yet, but Richie says that it could be personalization in the CPG (Consumer Packaged Goods) space. Brands like Function of Beauty and Care/Of are personalizing the direct-to-consumer model and this allows customers to take more ownership of their purchases.

Bonobos Guide shop. Photo via Racked

With customer acquisition being the major asset for VCBs, Richie says that marketing is becoming more of an economics game. On Loose Threads, he talks about the ultimate pitfalls of fast growth in the case of Nasty Gal. Another example of fast VCB growth was with Dollar Shave Club and their viral video that has over 23 million views since it debuted in 2012. From that point on, growth was incredible. Just last year, Dollar Shave Club was acquired by Unilever for $1 billion which was a huge milestone for VCBs.

This totally changed the game for ad spending, especially in the VCB space. While Dollar Shave cut through the noise with with a viral video, Casper did it with subway ads ads and billboards. When you're a marketing-driven company, there are no hard and fast rules to being heard, but spending too much in the wrong place can be a huge detriment.

“Defining a business by channel is becoming less interesting than defining an experience by the channel.”

For all that's changed in retail, brick-and-mortar stores haven't gone totally extinct. It seems that a lot of companies are finding new ways to use physical spaces. Pop-ups, pop-ins, try-ons and showrooms are filling vacant retail spaces. According to Richie, it's the new conventional wisdom. He says, “Defining a business by the channel is becoming less interesting than defining an experience by the channel.”

In this fast-moving VCB world, Richie said, “Stuff is getting real, finally. The noise is coming back to earth. Stuff is getting boring and it’s actually really great.”Hopefully we're going to see more and more brands sticking it out and starting up with the intention to make real change in all kinds of industries. Along the way, Richie will be writing, podcasting, and tweeting all about it.

Also mentioned on the show:

You can find this and all future episodes on iTunes, Google Play, and here on the Lumi blog. This episode was edited by Evan Goodchild.