One hit wonders

D2C business model is it sustainable?

Single-product brands selling direct to consumers (D2C) is not a new phenomenon in the home and furniture market. But is it a sustainable business model?

The popular D2C business model cuts out middleman costs (including retail mark-up) allowing brands to sell their products at a lower price than competitors. It also allows for better control over the product manufacturing through to the distribution process. Not opening physical retail shops also frees up capital for marketing. It is a model that had not been largely adopted by the home and furnishings market beyond mattresses (think Casper, Nectar, Eve etc.) as consumers typically like to see pieces in person prior to purchasing and often rely on in-store expertise to help make decisions. With large furniture, logistics also pose a challenge.

However, D2C home brands are continuing to enter the market: Burrow launched a couple of years ago with a single sofa, which can be customised across colours and sizes and delivered in small flat-packs, making the delivery process simple. On its website Burrow states that by delivering directly to customers it can remove all retail mark-ups and save over 70% of standard shipping costs. Buffy is an eco-friendly comforter brand, offering one comforter in three sizes and selling straight to consumers with a "try before you buy" offer. Clare, a D2C paint brand (seen above), which launched in July 2018 with $2 million in seed funding, offers a simplified product assortment with only 55 colours. Nicole Gibbons founded the company to make shopping for paint easier after her friend stated it took her two months and six trips to the paint store only to pick a colour she hated.

Launching to market with a single product allows a brand to focus on making that single product the best it can be; there is time and resource for product innovation and iterations, without distractions from designing and selling multiple products. Launching D2C also allows brands to capture customer information and preferences to help feed into the product innovation, and thus sell them for less than competitors whilst prioritising customer needs.

Selling a single product also benefits the consumer. "People spend hours clicking around those black holes seeking a product made for comfort in probably the least comfortable way" says the founder of Burrow. Limiting a consumer's choice helps simplify their decision process, and they're likely to purchase from that brand as they are considered the "expert".  Casper had sales of $100m in less than two years by limiting choice: it makes one great mattress.

However, is having a single D2C product sustainable? Options for growth are limited when selling a single product, especially in the home market where replacement cycles are long. Repeat purchases are likely to be minimal; customers often keep their mattress or sofa for up to 10 years. There is also limited opportunity to cross-sell, which other retailers benefit strongly from. Finally, selling D2C online cuts out the pool of consumers wanting to browse in store.

We interviewed the founder of Loaf, Charlie Marshall, for our white paper on the UK Home Market. Charlie started his company after finding a gap in the market for a good quality but inexpensive mattress. However, since starting out selling one mattress and 12 types of beds in 2008, Loaf has expanded into different product categories and has opened physical showrooms. Casper is still known for its mattress but has since started selling pillows and sheets and has opened physical locations to extend into new customer segments.

Entering the market with a single product direct-to-consumer has its benefits and can build a brand and consumer engagement if the basics are right, but retailers need to adapt their business model to maintain growth. We do not think the home market has capacity for many successful single-product businesses in the long-term. We are interested to see how many brands can become multi-channel and create opportunities for expansion, following Loaf's example.

Emily McConnell