DTC Menswear Brief: Steady Brand vs. Cool Brand

The DTC business model has revolutionized the way brands connect with their consumers, putting the power of choice and influence directly into the hands of the latter. As we dissect the world of DTC menswear, two brand archetypes stand out, each offering a unique lesson in exit strategy based on their attributes. For every well-known brand like Sporty & Rich with adoring fans and national awareness, there is a True Classic with fans of its own. One has $30 million in annual revenue (according to Glossy’s coverage of S&R) and the other recently reached $240 million in annual revenue with $25 million in expected EBITDA (according to Business of Fashion). It’s more than likely that you heard of the $30 million revenue company – Sporty & Rich was written about in the New York Times, Gentleman’s Quarterly, Vogue, Fashionista, Hypebeast, and Refinery29 in just the last month. True Classic has had no such luck, receiving zero consumer fashion press over the last 30-60 days.

One brand is Cool Hand Luke and the other is Steady Freddy. But these are just classifications; there are countless examples of this inefficiency in the market. Here, with brand names anonymized, is an in-depth comparison of a Steady Freddy vs. a Cool Brand Luke:

Brand No. 1: The “Steady Freddy” Mature Regional Powerhouse

With 13 years under its belt, Steady Freddy boasts an estimated annual revenue of $60 million, reportedly EBITDA profitable, with an ample omnichannel strategy. The company commands regional brand awareness, driven by owned storefronts and proximity to its original CEO. It’s carved out a niche in the market with its commodity product. While the brand created the category (think Chubbies for short shorts), it is now one of several brands in direct competition for its customer. Despite its robust performance and established history, it’s pushing it precariously past an exit window.

The strength of Freddy lies in its potential EBITDA profitability and regional recognition becoming a draw to a potential private equity suitor who is prepared to properly expand the company beyond its current market limitations and brand development capabilities. You can almost see a young analyst suggesting to a junior partner:

Hey, this brand could go national. No one really knows them. Also, how do you say the name again?

This brand, while not a household name in most of the country, has established itself as a reliable entity within its sphere of influence. This reliability and proven track record could make it an attractive acquisition for larger corporations seeking to tap into a dedicated customer base or diversify their portfolio with an established regional brand. The brand’s revenue outpaces its brand equity. This can be viewed positively by many observers.

But the constraints faced by the brand, including the product’s increasingly commoditized nature and shifting preferences in raw material usage, may limit its exit optionality. Private equity firms might be reluctant to acquire a brand with a slower, methodical growth trajectory and is beyond the typical exit window for private equity-backed retailers.

Brand No. 2: The Nationally Known “Cool Brand Luke” Media Darling

On the flip side, Luke, with its estimated $12 million revenue, speaks the language of the new-age consumer. Almost entirely DTC, it enjoys national brand awareness, even though it operates on a much smaller revenue scale. In the last 30 days, Gentleman’s Quarterly, Fashionista, InStyle, WWD, Highsnobiety, and Esquire have written about the company. Known for its creativity, it stands as a beacon for design innovation in menswear, even if this means its bottom line has not yet found its way to profitability.

A brand with such strong national awareness and a reputation for creativity could be an attractive proposition for strategic buyers looking to rejuvenate their product lines or tap into a younger, more diverse demographic. Its direct consumer link could also offer invaluable insights into market trends, giving potential acquirers an edge.

However, its inability to scale towards enterprise level of revenue is a red flag. Without a proven model to generate consistent growth, potential acquirers might question its long-term viability. The inability to raise additional capital further accentuates this concern, indicating potential market skepticism about its future growth.

Finding the Middle Ground: Exit Optionality Explored

So, how would exit optionality manifest for these two distinct brands? It does so by achieving a blend of their unique attributes.

For Steady Freddy, its regional stronghold and profitability offer stability. An exit strategy for this brand might lean towards acquisition by larger entities looking to tap into a mature market or diversify into proven commodity sectors. Cool Brand Luke, in contrast, could pitch its exit strategy based on brand equity rather than current revenue run rate. Its national brand recognition and design prowess are its tickets. A strategic merger, where another brand seeks to harness its creative energy and national footprint, could be the optimal route.

Both brands, though, face the limitation of trying to succeed in an unforgiving market for DTC-born retailers. This presents a conundrum and, frankly, even with the best attributes of each, success is not guaranteed. According to Pitchbook, the recently acquired DTC intimates brand Parade earned a valuation of $203 million in September 2022 after raising the last of its total in venture funding ($56 million). In the subsequent year, the brand had to reset its valuation while the overall market experienced a funding slowdown for this category of brands. Profitable or not, Cami Tellez’s tenure as CEO of the retailer stands out. Upon the news of the acquisition, this was one of several quotes by Tellez:

In three and a half short years, this awe-inspiring team generated over $125 million in revenue, acquired 750,000 passionate customers, and captured over 1 percent of a highly competitive market.

The pursuit of brand’s achieving Steady and Cool is difficult. And in the case of the two menswear brands above, the dueling stories provide a glimpse into the difficulties of managing growth. While both have passionate followers, the perception of brand cachet varies. For one, it might be the reliability and longer-than-usual history; for the other, it’s the cutting-edge creativity,a nationwide presence, and a reliability on earned media.

In the final analysis, exit optionality for DTC menswear brands isn’t just about the numbers on a balance sheet. It’s about the narrative each brand weaves, the niche it carves out in the marketplace, and the potential it promises for the future. Somewhere in the middle of these factors, the exit story for each brand will be written. The ones that succeed in finding a home typically do one thing better than the rest: they account for their blind spots. From a consumer perspective, perceived value and price elasticity rely on this practice.

The cool brands work on becoming steady and the steady brands strive for the cool factor.

作者：Web Smith 

Member Brief: Amazon’s Private Label Retreat

In 2018’s “The End of Conglomeration,” I explained my perspective on Amazon’s antitrust scrutiny:

垄断一词并不适合亚马逊正在实现的目标。垄断的定义是独家拥有或控制某种商品或服务的供应或交易。目前还没有公司成为供应方或交易方的说法。

The push and pull between the industries of eCommerce technologies, brands, marketplaces, and regulators continue to present surprising changes. Amazon recently announced a significant reduction in its private label brands, citing economic concerns. However, to the discerning observer, the lines are clear: it’s not just about economics. There’s strong speculation that potential antitrust enforcement might be the real driving force behind this decision. For the CPG industry and direct-to-consumer fashion, this shift offers a window of unprecedented opportunity. This excerpt from a now-two year old article in Markup expressed a farcity that was only bound to ruffle regulators’ feathers. From Amazon Puts its Brands First:

Gomez, founder of Atlanta-based consumer goods startup 4Q Brands, said he obsessively refined his photos and description, amassed reviews from happy customers, and paid Amazon $40,000 a month on advertising to boost sales, one of the elements Amazon tells sellers will increase search ranking.

Then Amazon introduced a competitor from house brand Amazon Basics and another from a brand that sells exclusively on Amazon, DR Mills.

Amazon’s expansion into the private-label business was nothing short of meteoric. From its humble beginnings with electronics to a vast range covering clothing, furniture, and daily essentials, the eCommerce behemoth had a formidable 243,000 products across 45 in-house brands as of 2020. But recent reports, as covered in detail by sources like WSJ, New York Magazine, and Insider Intelligence, hint at a retreat.

One could make the case that most of Amazon’s house brands, which the company began cutting a few years ago, remain valuable mainly as concessions to offer to regulators. (Although the FTC, at least, seems plenty aware of the real sources of Amazon’s power circa 2023.)

While disappointing sales for many of its private label items were cited as a reason, deeper insights suggest regulatory pressures and potential antitrust enforcement as the more compelling rationale. Allegations of Amazon using third-party seller data to its advantage and preferencing its products in search results have not just been a thorn in the giant’s side, but potentially a sword hanging over its head.

The same 2021 report in The Markup revealed that Amazon places products from its own house brands ahead of those from competitors, even those with higher customer ratings and more sales based on the volume of user reviews. And even as early as 2020, there were reports of these tactical decisions by Amazon to prioritize private label growth over the meritocracy of the traditional third-party marketplace. A report by The Verve cited this quote by a former employee who reportedly accessed data to “launch and benefit” Amazon products.

We knew we shouldn’t. But at the same time, we are making Amazon branded products, and we want them to sell.

A series of investigations, from Reuters’ deep dive into Amazon’s India business to The Markup’s findings on product prioritization, have stoked the antitrust flames.

The documents reveal how Amazon’s private-brands team in India secretly exploited internal data from Amazon.in to copy products sold by other companies, and then offered them on its platform. The employees also stoked sales of Amazon private-brand products by rigging Amazon’s search results so that the company’s products would appear, as one 2016 strategy report for India put it, “in the first 2 or three … search results” when customers were shopping on Amazon.in.

Amazon’s consistent dominance in multiple verticals made it a target for regulatory scrutiny. However, the bigger story here isn’t just Amazon’s retreat. It’s about the vacuum it potentially creates and the brands ready to seize this moment. As mentioned above, there is no term for a corporation becoming the supply or the trade.

Above, the private label growth is in blue. Four categories (three of which are FMCG): alcohol, snacks, home care, and personal care outpace brand volume, and revenue growth outpaces the total velocity of innovation for those categories. A few notes from the above:

  • private label alcoholic beverages grew 28.7% while the entire category velocity of innovation decreased by 4.3%
  • private label confectionery and snacks grew 50.8% while the entire category’s velocity of innovation decreased 20.1%
  • the innovation velocity of the personal care category outpaced the entire segment in an over 3:1 ratio

The non-alcoholic beverages still show the value of brand equity in this category. The velocity of innovation outpaces that of private-label brands in this respect. And the same can be said of pet care, where it seems consumers are loyal to well-developed brands. I believe that this pattern is similar in a number of categories that have not been listed above.

The DTC and CPG Surge: An Era of Opportunity

The DTC model has grown steadily, particularly in the fashion and FMCG segments. These brands prioritize unique product offerings, authentic brand narratives, and an agile supply chain, often resulting in higher customer loyalty and retention. With Amazon’s potential pivot, many of these brands now have an opportunity to increase their visibility and market share on the platform.

For traditional CPG brands, the landscape appears equally promising. Without the looming shadow of Amazon’s private labels, CPG companies can harness the platform’s reach without the fear of direct competition from the host. The removal or reduction of in-house competition can lead to better shelf space, favorable search result placements, and possibly even improved terms of partnership. The Intelligencer article stated:

On Amazon, brands just don’t mean that much. This is evidently a lesson Amazon had to learn for itself, which is sort of funny, but not that big of a deal.

This was an overgeneralization even before Amazon’s private-label reductions, and now it’s quite the opposite. Brands, and the trust that they communicate to the consumer, will matter more than ever. In fact, the ripple effects of Amazon’s decisions might transcend the platform. DTC and CPG brands can leverage this moment not only to consolidate their positions on Amazon but to explore improved exit optionality. Of course, this assumes that the Amazon retreat convinces potential acquirers that Amazon – the largest force in eCommerce – is one less competitor to worry about.

With opportunity also comes challenges. Brands need to be ready to scale operations, maintain consistent product quality, and ensure the top-tier customer experiences that Amazon’s private label brands are each known for. The regulatory environment, while appearing to check giants like Amazon, will also be keeping a close watch on market dynamics. Brands will need to navigate this space with both ambition and caution.

A Reshaped eCommerce Ecosystem

Amazon’s shift away from many of its private labels is more than a shift in business. It’s a testament to the evolving digital commerce landscape, molded by regulatory pressures, market dynamics, and brand ambitions. For DTC, FMCG, and CPG brands, the message is clear: the stage is set, the audience is waiting, and the spotlight could be theirs for the taking.

But as they step into this light, these brands must ensure that they remain true to the values that set them apart in the first place: transparency, authenticity, and quality. The future of eCommerce looks promising, and with Amazon’s strategic retraction from the private label space, it’s paved with possibilities. Now, it’s up to the brands to turn these possibilities into realities. After all, in the world of commerce, adaptability isn’t just an advantage; it’s a necessity. As the landscape changes, those who rise to the occasion and meet challenges head-on will be the ones who define the next chapter of digital retail. And maybe, we will see more and healthier exits as a result.

作者：Web Smith 

备忘录人工智能--互联网的罗伯特-摩西

Ralph Waldo Emerson once wrote in his treatise on individualism, “An institution is the lengthened shadow of one man.” In “Self-Reliance”, Emerson explains that we must believe in our own institution and reject the opinions of others in order to transcend the bounds of the physical world. Emerson, a man born at the precipice of the 19th century, wrote this in 1841. The transcendentalist’s words are never more relevant 180 years later. His words transcended the bounds of the physical world.

By now, it’s likely you’re either pessimistic about artificial intelligence’s impact and cautious just the same. Or you’re entirely eager and will disregard any of the potentially negative effects that come along with AI-generated innovation. If Emerson were to write about today’s technological innovation, he may see the internet as an institution that is the lengthened shadow of AI. He may add that the tool, itself, is one of self-reliance.

***

As I drove down the the 101 highway from San Francisco to its airport, the landscape was adorned with billboards, each fervently advertising the integration of AI in their products. From tech giants to local startups, everyone was riding the AI wave, promising smarter solutions and transformative experiences. At that moment, a historical analogy struck me, drawing parallels between the urban development of the mid-20th century and today’s digital transformation. Fresh off of reading Robert Caro’s The Power Broker for the first time, it dawned on me that we’ve seen this in the physical world. And, if so, we are to hold two opinions at once: awe and terror.

Robert Moses, the mastermind behind New York’s sprawling urban infrastructure, could be seen as an analogous figure to the evolving influence of AI on the internet. While Moses reshaped cities, AI is reshaping the digital frontier.

Pick your favorite quasi-dictator in whatever field you’re familiar with — Steve Jobs in computing, David Fincher in Hollywood — and in his ferocity, drive, the scope of his vision and a parallel disregard for anything else but blind adherence to it, Robert Moses might put them all to shame. (re:form)

Robert Moses, remembered by many as a genius urban planner, revolutionized New York’s infrastructure. He created beaches, parks, bridges, and highways. Yet, amid the monumental structures, the intricacies of human life, especially those of marginalized communities, often got lost. Much like AI today, Moses was a force of massive potential, capable of improving lives. However, with potential unchecked, it often grew blind to the nuanced requirements of individualism and diversity.

Years ago, one could have contended that Zuckerberg is the Robert Moses of the internet, given how Facebook reshaped our digital social landscape. Similarly, Elon Musk, with his ventures spanning electric cars, space exploration, neural interfaces, and paving over Twitter might be hailed as another Moses of the internet. Yet, neither Zuckerberg nor Musk could hold a candle to the transformative power AI promises. The tech magnates, despite their vast influence, are human. Neither are capable of the Emersonian transcendence. AI, on the other hand, is a self-evolving entity, capable of rewriting the fabric of the internet, society, and culture with an omnipresence that Moses had over urban development.

Much like Moses’s infrastructural feats, AI-driven platforms favor efficiency, speed, and broad appeal. Platforms like art curation websites, influenced by AI algorithms, are increasingly pushing mainstream aesthetics, sidelining unique and diverse art forms. The internet, once a haven for niche cultures and perspectives, risks becoming a homogenized space, echoing the uniform highways and bridges Moses built.

The glaring parallel between Moses’s bridges in New York and AI-driven content recommendation systems is their underlying biases. Moses’s low-hanging bridges on the Southern State Parkway intentionally excluded buses, the primary transportation for the city’s marginalized communities. AI, when fed biased or homogeneous data, amplifies existing prejudices, limiting exposure to diversity and perpetuating stereotypes. Just as Moses’s bridges dictated who could access the amenities of Long Island, AI algorithms dictate the content we consume, often entrapping us in digital echo chambers.

Another salient overlap lies in the promises both Moses and AI made to the public. Moses’s developments promised better connectivity, recreation, and urban growth. AI promises smarter solutions, personalization, and efficiency. However, both often overlooked the human element. While Moses’s highways might have disregarded the cultural hubs they bulldozed over, AI’s algorithms might overlook the value of serendipity, diverse exposure, and organic creativity in their quest for precision.

The vast expanse of AI’s influence, unlike any individual’s, offers both challenges and opportunities. The bridges, parks, and roads Moses built are physical and not easily changed, but AI is dynamic. With the right approach – encompassing diverse training data, regulations, user education, and ethical design principles – we can steer AI away from mere efficiency towards holistic betterment. But this is only idealistic; it’s like meeting Moses while a Yale undergraduate. His peers and observers already knew his power; he successfully outwitted Walter Camp (the father of American football) who was then an administrator and coach at Yale.

Many large, sophisticated technological systems are in fact highly compatible with centralized hierarchical managerial control.

Langdon Winner (1980)

While Moses’s architectural might reshaped urban landscapes, often sidelining the human element in its wake, AI has the potential to rewrite the very essence of our digital contributions. As we stand on the cusp of an AI-driven era, it’s imperative to remember and learn from history. Just as urban spaces thrive with diversity, individuality, and inclusivity, so should the digital realms we inhabit. The lessons from Moses’ era must guide our journey with AI, ensuring we construct digital bridges that connect, not exclude us. And that we save parts of what currently exists rather than paving over it entirely.

In reading The Power Broker for the first time, the following provides context around the downsides of development. Read the history of America lost by the urge to innovate upon what already exists. Like Zuckerberg paved over parts of the web and Musk works to pave over Twitter, artificial intelligence will pave over what we now see as the internet. Take this necessarily long excerpt from The Power Broker:

It was in those streets — at Fraunces Tavern at Pearl and Broad — that their leader, having just refused a crown, took farewell of his weeping officers, weeping himself as he did so and then walking silently to the barge waiting at Whitehall Ferry. And it was to those streets that George Washington returned six years later — in a barge rowed by thirteen ships’ captains clad in white uniforms — to step ashore at Murray’s Wharf at the foot of Wall Street as women threw flowers at him (he “read his history in a nation’s eyes,” wrote one) and be sworn in on the balcony of Federal Hall at the corner of Wall and Broad. And it was through those streets —the streets of the first capital of the new Republic — that there walked the three men — Hamilton, Jay and Madison — who together were “Publius,” author of the eighty-five great essays urging ratification of the controversial new Constitution. […]

Lafayette was only one of a hundred heroes for whom the old fort and Battery Park were the setting for the spectacles honoring them in triumph or in death. Troops were drawn up in the park by the thousands to greet Dewey after he defeated the Spaniards at Manila (the astrakhan busbies of cavalry hussars shook in the sea breeze), Pershing after he defeated the Germans in France, and TR after he returned from safari (conspicuous among the regiments out in full dress to greet the ex-President were a handful of men in khaki and campaign hats: the Rough Riders). Most of New York’s great triumphal processions began there; it was at the Battery that Wiley Post came ashore, and Admiral Byrd, and Gertrude Ederle, and Amelia Earhart, and Coste and Bellonte—and, of course, Lindbergh, slim, bareheaded Lindbergh—to be greeted by Grover Whalen and to ride in an open car between mounted policemen “the short, glorious mile” up a Broadway whose canyons were swirling with confetti. The fort’s cannon boomed at solemn one-minute intervals as the body of young Captain James Lawrence, who had earned immortality by crying “Don’t give up the ship!” as he lay dying on the deck of the Chesapeake, was carried ashore and as Washington’s riderless horse—and Hamilton’s and those of a score of other heroes of the Revolution—were led out from it up Broadway. In New York in which the old was ruthlessly demolished to make way for the new, the fort was pricelessly rich in ghosts of the city’s great past.

Moses’s urban designs were hailed as masterpieces of modernity, yet they echoed a philosophy that missed the nuances of individual lives, especially the marginalized. In the same vein, as we race towards integrating AI into every facet of our digital existence, we must pause and introspect. The billboards that flash AI’s prowess, the algorithms that curate our content, and the smart systems that predict our needs should be designed with humanity at their core.

As we have seen with Moses’s infrastructural legacies, physical or digital constructs built without comprehensive foresight can last for generations, often with unintended consequences. The underpasses of Moses’s design, which once excluded the marginalized from the beaches of Long Island, serve as a stark reminder that our creations, no matter how grand, can become monuments of discrimination.

In today’s digital age, AI’s unchecked dominance could similarly turn the internet, once a beacon of democratization, into a tool of inadvertent oppression. But unlike the concrete structures of the past, the malleability of AI gives us an advantage. With conscious efforts, we can ensure that AI’s evolution is anchored in ethics, inclusivity, and a deep understanding of the diverse tapestry of human experience.

The challenge ahead is formidable but not insurmountable. As stewards of this digital renaissance, our responsibility transcends beyond technological innovation. We must ensure that, unlike Moses’s urban landscapes, our digital spaces are crafted with an unyielding commitment to humanity, ensuring that every individual, irrespective of their background, can traverse these spaces with dignity, freedom, and a sense of belonging. Only then can we truly harness the transformative power of AI, building not just smarter systems but a more inclusive and harmonious digital world.

AI technology, alone, can’t be sole power broker. With more inputs and a greater understanding of long-term impact, we can insure that the internet’s greatest technology doesn’t become the lengthened shadow of a few men.

作者：Web Smith | 编辑：Hilary Milnes，美术：Alex Remy 和 Christina Williams