The road to profitable growth is not easy. The cost is high, and the resilient brand must be willing to pay the cost no matter what. We are awash with the sins of a bull run, but this does not keep us from attaining glory.
It's funny how the classic Christian fiction has a message for a DTC founder and the message is both prescient and ominous.
Every brand knows the phrase 'Default Alive' but enacting it is hard. Sell on Amazon; put that 'Buy with Prime' button; embrace retail; cut back on brand marketing – there is plenty of advice. Many brands have embraced these principles already. But there are many that have not and for them, there isn't a knight in shining armor.
As Benjamin Graham says, Mr.Market is manic-depressive. The market has been rewarding growth at all costs and he has changed his tune over the last month. It's too short a time for unprepared brands to react. It's bigger than them.
It's bigger than what even the large retailers can handle.
A case in point: In times of financial austerity, shoppers go to familiar places to shop. Walmart, Sam's Club, and Target are where the action is going to be. But they all have been stock-piling more than they had to. There is a whip-lash effect felt. A lot of unsold inventory coupled with weak consumer sentiment means that, eventually, the shoe will drop. Even the best retailers could not time their inventories well in an uncertain environment. They reacted to the data they had.
Retailers have huge inventory and that is dragging down profitability. Softening consumer demand will only exacerbate things for them. If a brand isn't already on the aisle, it is going to be hard for a retailer to prioritize a new brand over moving what they have on their inventory.
There is an exception though, to the lackluster appetite of retailers for new brands – the inventories that are piling up are based on the pandemic-curated buying behaviors and are not the ones that shoppers want now. Less loungewear and more officewear, please! This means that brands that can plug the blindspots of demand by the swift movement of inventory will be a retailer's favorite, but the agency is with the retailer.
Brands know that
But small and mid-sized brands have a size tax. They simply don't have the ability to fight all the fires during normal times. They have moved from survival mode to euphoria to supply shocks to attribution problems every quarter for the last two years. In the next two years, the market will reallocate resources to entities that can produce and sell efficiently.
We will learn the lesson once more – that several businesses are just products of the market they were in.
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