The Anatomy of a Digitally Native, Vertically Integrated Brand

Brian Prezgay
Guest Contributor

Digitally native, vertically integrated brands are making a huge impact on both shoppers and the overall retail landscape, and with their rapid growth, they are revealing shared best practices, processes and efficiencies that others can learn from, test, adapt and deploy.

Whether you’re scrolling through your Instagram feed, reviewing a daily retail news summary or simply riding the train, it’s nearly impossible to ignore digitally native, vertically integrated brands (DNVBs). Brands like Casper, Hims, Glossier and Away are seemingly everywhere.

Digital native brands are making an impression on consumers and rapidly earning market share, capturing nearly two percent of the total $453 billion U.S. e-commerce market. Although that current market share might seem small, it’s important to note DNVBs are growing nearly three times as fast as the average e-commerce retailer.

Large brands and retailers have taken notice and wonder what these smaller, agile and responsive DNVBs know that other businesses do not. In the summer and fall of 2018, The Lead team compiled The Foremost 50 list, researching, interviewing and gaining an understanding of the leading apparel, accessories, footwear, beauty and home brands in this category.

After finishing The Foremost 50 list, The Lead wanted to better understand if there is a “playbook” for executing upon a DNVB strategy and value proposition. Are there shared best practices, processes and efficiencies that others can learn from, test, adapt and deploy? Below, I’ve unpacked the ‘Anatomy of a Digital Native’ so that you can decide for yourself.

And, if you look to take inspiration from these companies, keep in mind these businesses continue to figure it out as they go. Today’s DNVBs are usually not profitable. They are often shifting from tech valuations to brand valuations, testing new customer acquisition strategies and moving into physical retail, all rarely part of their original plans. So, while the navigational “playbook” might be accurate as of now, things are moving fast.

Born a breed apart

DNVBs are fundamentally different than just e-commerce companies. The e-commerce company is a channel, but the digital native is a direct-to-consumer brand. As the name would imply, DNVBs are born on the internet and vertically integrated, emerging into the market with no past baggage and posing a threat to the very core of the traditional fashion and retail model. And, unlike their predecessors, digitally native brands have the unique opportunity to design and create products with the consumer in mind, rather than trying to make products fit the consumer.

Not only are DNVBs immune to the baggage of traditional brands and retailers, most own their entire value chain from sourcing to manufacturing to the technology they are built upon. Because of their nimble supply chains, they keep the costs of final products lower than many of their wholesale competitors.

An obsession with data

DNVBs are obsessed with data, utilizing behavioral, demographic and psychographic data to power laser-focused digital advertising (as well as targeting competitors’ customer bases). And, they understand what messaging resonates most for different segments of their target demographics, ignoring the increasingly ineffective one-size-fits-all marketing mantra.

DNVBs are also maniacally focused on the customer experience and use data to make it as seamless as possible. Every interaction with the customer is captured, giving DNVBs a unique advantage allowing them to connect in authentic ways. This results in superior communication and experiences, and, in turn, brand loyalty, nearly impossible to replicate in a traditional retail setting.

Investment in end-to-end experiences

Customer acquisition cost – with perhaps inventory as the only exception – is the highest and most variable cost for most DNVBs. Therefore, investing in the end-to-end experience is critical to a DNVB’s success. Each touchpoint with a shopper is designed to delight, convince and convert.

DNVBs are also fixated on enhancing the customer service side of selling online. Extended phone hours, direct messaging on Instagram and Facebook, and quick response chatbots allow DNVBs to maintain positive relationships with their shoppers.

Corporate social responsibility and philanthropy

More than a handful of DNVBs have philanthropic missions that are a central part of their brand identities, and their target markets of millennial shoppers are keenly aware their consumptions choices can make a real difference. Whether it be giving a pair of socks to the homeless for each pair sold (Bombas) or sourcing cashmere directly from local herders in Mongolia (Nadaam), DNVBs that make supply chain philanthropy a key pillar of their strategies provide customers something to feel good about with each purchase made.

A priority in social engagement

DNVBs thrive on social media engagement, allowing them to connect to their core bases of young, urban millennials. In previous years, DNVBs required a great deal of outside funding to grow. But now, thanks to social channels like Instagram, Twitter, YouTube and Snapchat today these brands can grow fast and organically.

Moreover, beneficial social content isn’t generated by the brands alone. User generated content is perceived as authentic, builds trust and results in higher conversion rates. DNVBs leverage content to inspire and build a community audience before trying to monetize that audience, which is ultimately seen as a community to be nurtured rather than customers to be sold to.

Complementing digital with physical to spur growth

DNVBs originate online, but these brands are expanding offline and opening physical locations, forming partnerships to control the distribution versus being controlled by it. According to commercial real estate firm JLL, there are plans for 850 DNVB store openings in the pipeline over the next five years. Most of the digital brands opening stores sell apparel, including Adore Me (women’s intimates) which accounts for 300 of the openings cited. This suggests the category continues to benefit from in-person shopping and DNVBs seem eager to have a physical presence to engage shoppers and acquire new customers cost effectively.

What does it all mean?

Deriving meaning is for you to decide. Above, you have the common threads and examples of where DNVBs are investing and how they are executing. At The Lead, we look to identify category leaders less for their product and more for their innovation and speed. It is interesting to note that on average, most 20th century brands took almost a decade to open a few stores and reach $100 million in revenues. Those brands relied on cash flow and profitability to keep their businesses going and their livelihoods afloat – and were profitable almost immediately. Digitally native brands, however, take an average of only four years to achieve $100 million, but many have yet to be profitable even after being in business for an average of six to seven years.

The path to $100 million takes a number of routes. I invite you to join The Lead July 9-10 at The Lead Innovation Summit to go deep into a number of areas, including highly debated topics like ‘The Digital Native Brand of 2022.”

About the writer: Brian Prezgay is in the business of connecting, and as the founder of Pixels & Bricks and a partner in The Lead, he works with retailers, brands and technology companies helping them grow through strategic planning and innovative partnerships. Follow Brian on LinkedIn and on Twitter, @BrianPrezgay.

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