April 9, 2019 by Ashwin Ramasamy

If you’re a follower of retail, you have definitely stumbled upon these terms in your news feed — DTC, D2C, DNVB.

Andy Dunn, the co-founder of men’s clothing retailer Bonobos, coined the term “DNVB” which stands for Digitally Native Vertical Brands. We excuse him for the lingering love for complex abbreviations that, we assume, comes from his consulting and venture investing lives.

This abbreviation D2C refers to brands that don’t operate on the traditional value chain model of ‘design-produce-market/distribute through channel’. Instead, they tend to play end-to-end from product design, development, production, marketing, and customer experience, effectively taking middlemen like retailers and distributors out of the picture.

Over the course of time, we’ve seen operators and pundits alike use the terms D2C and DNVB synonymously, and that got us wondering. Are they both really one and the same? Is it not time to recognize the nuances?

The research nerds at PipeCandy put our thinking hats on.

First off, the basics.

D2C refers to the process of selling directly to the consumer. A D2C brand can sell directly through its own brick-and-mortar store, or an e-Commerce store, or a pop-up store or via a marketplace (if the marketplace gives access to customer data). In all such cases, they can name every one of their customers or at least understand their actions directly, hence ‘direct-to-consumer’.

DNVBs are brands that are digitally native, sell primarily through the Internet and own their supply chain end to end.

So what’s the difference? All DNVBs are D2C brands but not all D2C brands are DNVBs.

DNVBs are a subset within D2C. As they grow, they may resort to a brick-and-mortar strategy. On the other hand, there are incumbent brands — like Nike, Puma, Adidas, etc. — that began selling through retailers and then ‘directly to the consumer’ through their own brick-and-mortar stores, and opened their e-Commerce stores much later. These brands are a separate category by themselves within D2C.

D2C is simply ‘Direct to Consumer’. You can go to the consumer through your web site or your own store. The medium does not matter. The process of customer outreach is what determines if something is a ‘D2C’ company. Based on our research and analysis of proprietary data, we identified four segments in the D2C brands space — D2C Originals, D2C Converts, Digital Natives and Digital Underdogs.

D2C originals: Brands that started by selling through their own physical stores directly to the customer and have branched out into other sales channels — such as their own e-Commerce stores, through retailers or through marketplaces. These are mostly big and mid-market companies that would have revenue greater than $10M (mostly between $10M and $100M). There are some that would have revenue greater than $100M.

Examples include companies like Burberry, Abercrombie & Fitch, Victoria’s Secret, etc. that have sold primarily through their own stores.

D2C converts: These would include big companies with revenue greater than $100M. These companies would have started as B2B2C companies and their primary sales would not have happened through their own stores but rather through big-box retailers and other retail chains. Over the course of time, they have become (direct-to-) consumer-focused through their own brick-and-mortar stores and online stores.

Examples would include Nike, Adidas, PUMA, etc.

Digital Natives: These are companies selling own-brand products, and are digitally native (i.e. they implement sophisticated use of digital media to find a market, create and sustain a brand image, connect and engage with customers as well as sell to them). These could include influencer/ celebrity-driven brands, niche product/brands (sustainable, ethical, locally made, etc.) and others. Often, they ‘outsource’ their product manufacturing while retaining product design or probably, marketing. In some extreme cases, they do just the marketing, leaving everything else to contract manufacturers.

Examples include Kylie Cosmetics, Rebecca Minkoff, Beyond Yoga, Anna Sui, etc.

Digital Underdogs: Digital Underdogs are those 100K+ e-Commerce web sites that sell their own labels but haven’t yet broken out on Instagram or earned a name for being digitally savvy. Most of them are bootstrapped companies with a limited appetite for paid customer acquisition.  These would include long-tail companies with revenue less than $5M.

Some of these companies may grow to become Digital Natives. There may be a few diamonds in the rough but they aren’t in the limelight yet. Here is where you look for the next digital native hit.

There are also private label brands by retailers. We don’t include them in this classification because such brands exist due to cost and convenience arbitrage and in almost all cases, their brand story is neither developed nor invested in.

So, ‘Aye! Aye!’ to natives, underdogs, originals, and converts?

Ashwin Ramasamy

Co-founder @ PipeCandy

Slips poor jokes & gets away with a poker face. Carries a no BS attitude at getting things done. First to arrive at the office, Ashwin’s energy does not ebb through the day. Ashwin is one of the co-founders and he sets the tone for marketing, sales, design & culture.