Many brands once available only through direct-to-consumer (DTC) websites are now appearing on online marketplaces and in brick-and-mortar stores.
Moving from a DTC-only model to one that includes other channels comes with certain challenges. Though brands can benefit from exposure to new audiences, selling in multiple channels increases complexity and makes it harder to collect data. Costs can rise if a company has to start holding inventory or paying retailers slotting and listing fees.
One DTC CFO recently spoke with CFO Brew about his company’s plan to address these and other challenges.
Moving to the storefront. Now, many brands launch on DTC with an eye to growing past that model once they gain traction. Fly By Jing Asian condiments, Fishwife canned fish, and ThirdLove bras are just a few digital-native brands that are now, or soon to be, available on store shelves.
Halo, a maker of smart dog collars, wants to join them. The company aims to reach more customers by branching out into new sales channels.
During the pandemic, “everything was being done online,” Halo’s CFO, Ned Mavrommatis, told CFO Brew. “But as the company continued to grow, we believed that we could get a lot more growth by getting into other channels as well, whether it’s online marketplaces or in stores.”
Many other DTC companies feel the same way. “Digitally native brands and even e-commerce brands, have seen a little bit of a slower trend” as the pandemic slowed, David Schneidman, senior director at Alvarez & Marsal Consumer Retail Group, told Retail Brew in March. “So finding a quality omnichannel approach to consumers is essential for sustainability.”
An estimated 47% of small to mid-market DTC brands have at least some in-store presence. But getting there isn’t easy.
The company: Halo was founded in 2019 and went from $3 million in sales in 2020 to $50 million in 2022. Its collars use GPS technology to allow dog owners to set up virtual “fences” without the need to install “invisible” fence wires. The collars give dogs warnings via sound, vibration, or static feedback when they approach a perimeter, encouraging them to turn back.
“The product is really what was driving the growth,” said Mavrommatis, who joined the company in 2022. “It resonates very well with people…They spend money on their pets, and they’re looking for ways to keep their dogs safe and enjoy life with their pets.”
Going multichannel: After selling exclusively on its website for three years, Halo started selling its collars on Amazon and its products will appear on Chewy.com starting this Labor Day. It’s exploring selling on other major retailer’s online marketplaces as well, but no formal plans have been announced.
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To increase sales and visibility, the company has also started an affiliate program. Partner vets and pet stores can set up a Halo kiosk in their locations that includes a QR code consumers can scan to buy the collars. The partners get a share of any sales made through the kiosks.
“It gives them [an] additional revenue stream without carrying any inventory,” Mavrommatis said.
Planning for long-term customer retention: To ensure consistent revenue streams, Halo uses a subscription model as a recurring source of revenue. To use the collars, customers must purchase the Halo app, which is available at three different price points with different levels of functionality. The app allows them to create, adjust, and delete virtual fences, and they can also use it to track their dogs’ activity levels or locate their dogs using GPS.
Halo also stays connected to its buyers through its robust customer service options. Smart collars by their nature require a lot of user education. Buyers must learn to set the fences and then train their dogs to stay inside them, a process that takes around 21 days. To support customers, Halo provides both in-house and outsourced customer service, including how-to videos and live Zoom calls, Mavrommatis said.
Upgrading technology for growth: When brands sell solely from their websites, they have all their customer data at their fingertips. When they diversify, they must obtain that data from multiple sources and find ways to standardize and analyze it.
Halo is moving from accounting software which it is “outgrowing” to NetSuite, Mavrommatis said, which will give it more information about, for example, which products are selling and who is reordering. The software will help the company integrate its data and “eliminate the cost and complexities of working with so many different solutions,” he said in a NetSuite press release.
A heavier footprint: Halo doesn’t hold any inventory, Mavrommatis said. Instead, it sends orders—around 300–500 a day—to its manufacturers in Taiwan, who ship the product directly to buyers, he said. “We built a model that’s very scalable,” Mavrommatis said.
To meet the demands of selling on other channels, though, Halo will need to make a tradeoff, and run a bit less lean. While its DTC sales will still operate on the same model, the company will likely need to start holding inventory in the US for the online marketplaces it sells through, Mavrommatis said.
“We’ve already started working with third-party warehouses,” he noted.