Issue No. 197: Urbanization Outfitters.

A last word: seven thoughts on DNVB’s

We discuss the macroeconomics of eCommerce quite a bit. At least once a week, we will discuss digitally-native vertical brands (DNVB’s) ranging from consumer packaged goods startups to athletic apparel and high fashion upstarts.

Here’s a great definition of what constitutes a DNVB by Andy Dunn, CEO of Bonobos.

In a recent discussion with Hendrik Laubscher on the longterm viability of vertical brands, he made some interesting points on influences that will determine brand durability.

  1. How do DNVB’s succeed in an economy that places premiums on horizontal eCommerce (Walmart, Amazon, Target)? They enter new spaces and establish consumer loyalty. The consumer relationship can be just as important as the product itself.
  2. There is no middle of the eCommerce market in any vertical. Either you’re great or you’re gone. Amazon destroys “middle” by using their financial muscle to drive said business into the ground.
  3. So how are the DNVB’s doing as a whole? A lot of the supposed winners are cash hungry, burning platforms of doom. I am not going to name anyone but ask yourself one question — why are certain brands constantly in publications such as Recode, TechCrunch, or Fortune? Fashion public relations is often a cost-center disguised as a profit-center.
  4. Consumer Packaged Goods startups (Harry’s, Walker and Co., Dollar Shave Club) have a lot of upside as publicly-traded incumbents are in need of millennials for continued growth. There is a premium on CPG-specific DNVB’s for this reason.
  5. For DNVB’s to survive they must be both vertical and specific. What do they possess? (1) A limited selection of products with marketing and operations optimized for longterm margin growth and (2) an authentic story. TracksmithTuft and Needle, and M.Gemi have stayed true to their roots, are cash efficient, and are run by driven entrepreneurs. They have solved customer retention woes by using tech, clever brand-differentiation, and the sourcing of excellent products.
  6. The sudden growth of the vitamin and supplement category has long term growth prospects. As health becomes a global driver of decisions these MLCs are able to access educated customers with a new breed of products that are cost effective and have repeat purchase implications.
  7. For DNVB’s to be sustainable — LTV, retention costs, and unit economics need to be the priority on day one. The brands that succeed have to operate like they’ve raised little to no money at all.

See more of the issue here.

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