The DTC Booty Call
Inflation bad. Sales good. Build factories. That’s the TLDR from CPG giant Church and Dwight’s most recent guidance. The parent company of Arm and Hammer and Trojan condoms is set to raise prices on 80% of its products in the months to come, citing inflation as the chief cause. The price tag for YoY inflation? $155M versus 2021.
Sorry to Francis McDormand’s labored Lady Macbeth performance: not even baking soda can take that damned stain out.
But while prices are going up, there are bullish signals from C&D that consumer demand is on the rise. They are investing in factories, increasing supplier relationships, and continuing with M&A. They recently wrapped the acquisition of Therabreath, which is nearing a $100M run rate. They also increased their dividend by 4%. And, while a measly 4% won’t outpace inflation at its current rate, it’s enough to instill confidence in public markets that C&D have their act together.
Meanwhile, the IPO and SPAC market cools, and the exit potential for DTC native brands starts to narrow. CPG giants like P&G, Mondelez, Nestle, Unilever, and even Church and Dwight will hunt for inorganic growth. The quiet builders in DTC are the most likely targets. Not the ones that early stage investors pile on praise for on Twitter, but the ones with solid underlying fundamentals. To get the attention of potential acquirers, we expect a lot of late-night DTC booty calls.
CPGs are the original rollup machines. By providing combined finance, legal, marketing, distribution, and supply chain they can shed the inefficiency of the DTC model while acquiring a slew of customers in the process. Fewer bodies, more efficiency = profits.
Early DTC brands on a runaway train as the liquidity crunch worsens will face the inevitability of having to raise a down-round. Or exit swiftly; turning a late night DTC booty call into a long-term committed relationship.
— Phillip
Let’s get Phygital. Tech accessory brand, CASETiFY has launched “NFT Your Case.” Users can display their verified NFTs as custom phone cases. And to think we thought the interchangeable Nokia 5180 hardshell faceplates were cool back in ‘99. Some solace for NFT hodlers: you can’t right-click a phone case.
European C.A.R.L.Y.’s. Santander, a Spanish bank, is launching a BNPL app throughout Europe called Zinia, for all the shoppers there who can’t afford real life yet. Their tech has already been operating in Germany, gaining 2 million users over the past year. The UK and US are still determining the best ways to regulate this new way to incur mini-debts.
Editor’s note: from our January 19th edition of The Senses: “two out of every five households that have used BNPL have defaulted on the loan, missing one or more payments. Perhaps it’s time for more established banks and regulators to provide options and oversight on the market to avoid a consumer credit crisis.” Timely. As usual, Europe is leading the charge in consumer protection.
Sweatpants are OVER. At least when it comes to what we wear. Denim is back on the menu, and the people are hungry. Levi Strauss & Co. reported profits last year that were $159 million more than pre-pandemic numbers. It’s official—Covid sweatpants are OVER, man.
Omnichannel Growth / Bursting at the Seams. Kim Kardashian’s shapewear brand Skims has doubled its valuation from just nine months ago. Now valued at $3.2 billion, there’s no word about whether this was an all primary capital deal or if Kim took money off the table. Dan Primack (Axios) notes this is unusual. Skims ranked at #1 in our Nine by Nine report for DTC to Omnichannel transformation.
More Touch: Moncler is going fur-less. Rhianna raised $125 million for Savage X Fenty, her body-positive lingerie line (Fenty ranks at #2 in our Nine by Nine for Inclusive Brands). Glossier has “made some mistakes” and has announced layoffs of 80 corporate employees. The DTC giant raised $80M just 6 months ago.
Corporate Responsibility / The Growth of Organized Labor. Starbucks employees have been pushing towards unionization in their cafes. So far, 30 stores across 14 states have joined in the filing. Is this the beginning of a shift in food service workers?
Free Speech / Ultimatum Answered. Spotify has already started taking Neil Young’s music off of their platform and noted that they “hope to welcome him back soon.” This has caused a backlash as many Spotify Premium subscribers purport to be leaving the platform over the decision.
Editor’s note: from Insider’s #113 on brankmanship in negotiations:
“Proactive communication, surveying of existing customers, discussions with focus groups, and alternative peering agreements could have prevented disruption of service; allowing [a company] to save face. This puts the online streaming giant in a difficult position in negotiations with every other media org for the next two years [if they cave].”
If Spotify sees a large fallout in subscriber numbers over the decision to remove Young’s catalog, it could cause them to backpedal. This would ignite the next major battle for free speech, as Twitter was in the Trump era under Jack Dorsey’s leadership. Watch this space.
The Era of Corporate Responsibility / Cannabis Prime. Amazon is showing its support for ending federal cannabis prohibition. Back in June, the company decided to treat marijuana like alcohol among its employees, and removed it from their drug screening program.
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