A look at the approach taken by US direct-to-consumer brands launching in Europe

Direct-to-consumer (D2C) brands have proliferated in the United States in the past few years. Following in the footsteps of much-cited success case, Warby Parker, entrepreneurs have tackled categories from shaving to mattresses, sneakers to beauty.

Source: https://lumapartners.com/content/lumascapes/d2c-lumascape/

The theory is clear. Enabled by the platforms that have dominated the post-dot-com internet — Facebook, Google, Instagram, Pinterest, Kickstarter — startups are able to cut out middlemen and sell directly to consumers. Combine this with a laser-sharp focus on a single product or category and the result is better consumer understanding, better customer experience, and ultimately, products with a better price-quality ratio than those offered by the incumbent 800 pound consumer goods giants in the room.

Selected US D2C startups by founding date and approximate current valuation

Unlike the US, which has seen some beefy recent valuations and exits, home-grown European D2C startups have been relatively slow to emerge. A number of reasons could explain this difference – the handbrake to scale presented by the continent’s cultural and linguistic fragmentation; reluctance by VCs to invest in working capital-intensive business models – whatever the reasons, there is white space in Europe for disruptive, digitally-led D2C brands, and US startups have been making their way into it over the last two years.

Activity in Europe by major US D2C startups

The playbook for European expansion for these D2C brands is still being written, with many dipping a first toe in the water of a new country and continent this year. The UK is an obvious jumping-off point for US startups, sharing the same language and arguably the most cultural similarities, as well as being home to one of the wealthiest and most populous cities in Europe. Allbirds, Peloton, Away and Stance have all made use of a brick and mortar store to build their brands in London, all of them opening – or planning to open – sites in the square mile around Seven Dials in 2018. The area shares many similarities with SoHo in Manhattan (the site of many of their New York counterpart stores) as a high footfall, central shopping destination known for its independent boutiques.

Casper broke the mould by making its European debut instead in Germany, Austria and Switzerland, the so-called DACH markets, in 2016, just 3 years after founding. Competition may have been a factor: the UK already had a number of homegrown copycats, most noticeably Eve Sleep, and given the new format of the ‘mattress in a box’ product, the advantages of being a first mover may have outweighed the additional complexity of launching in a non-English speaking market. The company may also have been eyeing longer-term growth across the continent as a whole, and have decided that an HQ in Berlin, right in the middle of the continent would be advantageous, especially in light of the logistical requirements around ensuring speedy delivery (and returns of) mattresses. The as-then looming Brexit referendum in 2016 may have added an extra layer of uncertainty and potential complexity which the company chose to sidestep.

Looking ahead, it will be exciting to see where the likes of Allbirds, Away, Peloton and Glossier go next. Will it be to follow Casper’s example, and go after the economic powerhouse of Europe in DACH? For more fashion- and style-led brands, there may be strategic benefits to winning over the traditional arbiters of old world taste, and home to many of Europe’s leading current influencers, Milan and Paris. Another approach could be to prioritize the up-and-coming, but still-less-crowded hubs for brands such as Barcelona, Berlin or Stockholm. A consideration of oblique and less obvious approaches to growing in Europe, in addition to the traditional considerations of market entry strategy, may start to pay dividends, especially as London continues to become more competitive, crowded and expensive.