There is tremendous downward pressure on company valuations - from top technology companies through to retail/DTC brands. The buoyant valuations of the past several years are turning the other direction, quickly.
Coming off the highs of 2021, public markets are down bigly in 2022. Investor appetite for the retail brands that were big winners during the pandemic is now very low. High-growth stories are no longer sufficient to excuse excessive burn rates and negative EBITDA.
As the public markets get slammed, there will be a major valuation reset for early stage DTC brands. There will be a ripple effect, making it near impossible for DTC brands to raise new financing, at increased valuations.
As a result, DTC brands will need to shift strategies quickly; (1)reducing burn rates, (2)improving profitability, (3)refactoring growth/marketshare timelines. Overall growth ambitions will have to be reset in favor of sustainability and profitability.
There was a period of time over the past decade where investors decided that it was rational to apply tech start-up metrics to DTC brands.
The hope was that tech savvy DTC operators could achieve results similar to SaaS businesses - with low CAC and an expanding customer base (LTV growth). While the costs of acquisition may have been comparable, there simply isn’t the same reoccurring revenue from DTC retailers. LTV metrics in consumer retail are generally weak (save for a small number of categories and exceptional brands).