Digitally-Native Brands Struggle While Private Labels Thrive -12/20/19

From the Simplr studios in San Francisco, this is your daily briefing.  

Introduction

This is Today in Five, for today, Friday, December 20th, Here’s today’s headlines in digital disruption.

There’s a lot of buzz around digitally-native brands, but while direct-to-consumer brands struggle to reach profitability, private labels are thriving.

First, here’s what’s making headlines.  

Hibbett Sports Gets New CEO

Former CEO of City Gear will be stepping into the CEO role at Hibbett Sports. He’ll be replacing Jeff Rosenthal, who announced his plans for retirement earlier this year. According to the chairman at Hibbett Sports, they believe that their newly appointed CEO is uniquely qualified to help strengthen Hibbett’s leadership position in both the customer experience and the active footwear and apparel industry.

Secondhand Market Growing Rapidly

The secondhand market is growing rapidly thanks to players like The RealReal, ThredUp, and Poshmark and is showing no signs of slowing down. The growth comes at a time when younger consumers are increasingly concerned about sustainability. Fueled by millennials and Gen Z, the secondhand market is on track to more than double over the next five years, from $24 billion dollars to $51 billion dollars, according to ThredUp.  

Influencer Activity on Instagram Surged

Influencer marketing activity on Instagram surged this year as more brands partner with influencers to reach younger consumers. The number of posts with the #ad hashtag indicating an Instagram post is sponsored has risen 48 percent to more than 3 million this year. Millennials dominated influencer marketing, with more than half of influencer content created by people between the ages of 25 to 34, while only 34 percent of the app’s user base is in that age group.  

Digitally-Native Brands Struggle While Private Labels Thrive

There’s a lot of buzz around digitally-native brands and their disruption of traditional retail. But an in-depth look at Bonobos and Walmart’s strategy banking on digitally-native brands reveals some cracks. Bonobos was the most well-known brand that started online and sold direct-to-consumer. With Andy Dunn at the helm, the company built its reputation as the pioneer in the consumer space.  

But, like any trailblazing company, Bonobos made mistakes along the way. It built its own e-commerce and logistics infrastructure, at a significant cost, and raised an immense amount of money to do so, nearly $130 million dollars over six years. It sold to Walmart for $310 million dollars, just over its previous private round valuation and for about two times revenue.  

Walmart since snapped up Jet.com, Moosejaw, ModCloth, Bare Necessities, and more, in hopes to compete with Amazon through digitally-native brands. However, the strategy hasn’t paid off and it is currently phasing out Jet.com, sold ModCloth to an investment firm, and it’s reported that Bonobos still remains unprofitable. Walmart has since said it plans to incubate its own private label brands as they shift strategies.

The speed at which unprofitable digitally-native brands have grown starkly contrasts that of private labels, with companies like Target and Walmart scaling their private labels to billions of dollars in revenue in as little as one year. A built-in audience, a stringent focus on costs and margins, and a diverse marketing strategy makes this possible.  

Heading into 2020, private labels will continue to dominate more as rising acquisition costs show no signs of reversing.  

Closing

Want to stand out? Simplr can help deliver wow moments for your customers through unparalleled customer service support. Visit simplr.ai to learn more. That’s S-I-M-P-L-R.ai.  

Thanks for listening to this latest episode of Today In Five. We’ll see you tomorrow.