eMarketer: Direct-to-consumer brands facing mounting challenges in 2020

Direct-to-consumer online sales are forecast to grow 24.3% to $17.75 billion in 2020. But headwinds in the coming months may take the wind out of their sails. 

That’s according to eMarketer, which warned that while it’s too early to predict the full impact of the coronavirus pandemic on D2C sales, brands in the sector will face mounting challenges going forward. (The eMarketer estimate excludes travel and events tickets and food/drink services.)

"Even though consumers are buying more products online due to the coronavirus, digitally native D2C brands should anticipate hardships in the coming months,” eMarketer senior forecasting analyst Oscar Orozco said. “Sales will continue to shift from nice-to-have products to must-have products, with D2C brands falling under the nonessential category. Disruptions in the supply chain are also likely. That will mean slower shipping times, normally a distinguishing factor for D2C products." 

From 2016 to 2019, D2C e-commerce grew at three to six times the rate of overall e-commerce sales. But with competition intensifying and the sector maturing, D2C’s growth in 2020 is less than two times that of total e-commerce (24.3% vs. 13.2%, respectively).

"As D2C brands captured the e-commerce zeitgeist through product innovation and modern brand experiences, they attracted large sums of capital to fuel their growth," eMarketer principal analyst Andrew Lipsman said. "Despite the sector's huge gains in the past few years, growth rates are now beginning to moderate as acquisition costs rise, funding gets tighter and profits become more of a focus."

D2C remains a modest percentage of the U.S. e-commerce market at 2.6% this year, underscoring the fact that most retailers struggle to capture significant market share. The top 10 U.S. e-commerce companies—led by Amazon at 38.7%—will represent about 60% of e-commerce sales in 2020, making it even more of a challenge for disruptors to carve out their slice of the market.

“It should also be noted that many of the D2C leaders like Warby Parker, Casper and Away are increasingly generating sales growth from brick-and-mortar locations rather than e-commerce channels,” Lipsman said.

D2C brands’ future e-commerce growth will come from a mix of new buyers entering the segment and increases in spending per buyer. This year, 87.3 million people ages 14 and older in the U.S. will make a purchase on a D2C platform, up 10.3% year over year. Meanwhile, spending will grow 12.7% to $203 per buyer.