This episode is jam-packed with valuable insights into the strategies, trends, and innovations shaping the retail industry with a focus on direct-to-consumer as a channel and the importance of experiential retail.

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On this episode, I’m joined by Sonal Gandhi, the Chief Content Officer at The Lead. The Lead is a B2B media company that serves retail, fashion, and consumer brands through events, and insightful research, and they have an award ceremony based on rankings of challenger brands and incumbent consumer brands all across the United States.

Sonal is an industry analyst with over fifteen years of experience in the retail sector and she possesses a deep understanding of how emerging technologies and disruptive business models are shaping the strategies of global retailers and brands. She’s held key strategic roles at organizations such as Shoptalk, eBay, and Macy’s and has made significant contributions as an industry analyst at Forrester Research.

In this episode, Sonal and I will discuss key trends in D2C eCommerce as a channel and she’ll share her insights on how brands can use D2C as a channel to grow their businesses. She’ll also discuss the importance of consumer data, lifetime value, and D2C success, as well as The Lead’s upcoming 2023 Lead Innovation Summit in New York taking place this July, which I will be attending.

You’re going to gain insights into the strategies employed by the world’s foremost retailers and brands. You’ll learn how about pivotal trends that are defining the future of the retail industry. You’ll get to understand the importance of viewing direct-to-consumer as a channel rather than a business model. We would speak about the value of experiential retail and its connection to D2C as well as explore the options of bootstrapping versus raising capital if you’re operating a consumer brand. Pay attention and learn from Sonal’s insights, she has a lot to share, and I know you will find her information valuable.

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Sonal, welcome to the 2X eCommerce Podcast.

Thank you for having me.

Pretty impressive track record thus far. Do you want to give us a brief introduction about you, your background, and how long you’ve been in the retail industry, and then we’ll take it from there?

I consider myself an industry analyst. I started my career at Forrester, went on to join the industry as part of the strategy team, and then I was part of the content team at Shoptalk when it first started. I’ve been observing trends in the retail fashion industry for over fifteen-odd years or maybe more. I’m not trying to date myself here but it’s for a long time. I’ve seen waves of changes over the course of these years. What I would call myself is somebody who’s observed how the industry has shifted and who’s won and who’s lost over the course of these years.

You’re one of the brains behind those hugely elaborate white papers and reports we get from Forrester, it’s phenomenal. They normally pick the cream of the top from universities and get great analysts on Forrester.

Back at Forrester, I used to cover media and not retail. I came to Forrester for an acquisition, which is a smaller research agency they acquired called Jupiter. That’s how I started.

We’re here to talk about D2C and The Lead. The Lead is an event and content platform for D2C. We should define what is D2C. Let’s start off with that.

A common misconception is D2C is eCommerce. We don’t think D2C is eCommerce. D2C is a way to go to market that includes your physical stores. D2C is your own channels, whether it’s your website, your mobile, your Instagram shop if you have one, which is rare, your live stream channels, or your stores. It’s all-encompassing. It’s where you go and transact with your customer and you own that transaction. That’s what we define as D2C. We see across the board that a lot of larger brands are now embracing that definition and putting D2C on top of organizations that own both stores in eCommerce. Large organizations like Nike are truly separating that business from wholesale and running it as a business.

D2C is a channel, it’s a way to sell directly to consumers. Whether it’s online or whether it’s in-store, it’s D2C. Some brands tend to also categorize the Amazon channel as D2C. Would you consider Amazon as D2C?

I don’t think so. Amazon is either a marketplace or it’s a typical wholesale relationship. Either way, we would not classify Amazon as D2C. Amazon may be part of your digital business but it’s not D2C.

We’re seeing trends. With D2C, there seem to be two sides of the same coin. On the one hand, you’re looking at trends from companies such as Nike. As of 2021, 40% of their sales were direct, whether it was in-store or on their website. On the other end of the scale, you have brands like Athletic Greens that have been direct-to-consumer from the get-go and they’re scaling their businesses D2C through media. What joins them up together, their D2C strategies? What do you think is a common thread with established retailers or established brands trying to connect much deeper with customers? Does this mean that the middleman is getting thinner? I like to get your thoughts please.

It depends. For a CPG brand, D2C is hard. As a consumer, you’re not used to buying directly from a brand like Colgate or even a food and beverage brand. Those brands are still building significant portions of their business through D2C or they’re starting out as D2C and then branching to wholesale. For them, the growth definitely is through wholesale partnerships because that’s where the mass distribution is. For them, the way that they use D2C is similar to Nike where it’s about building loyalty, it’s about having your best customers interact with you in an experience that you create, and having that relationship where they come back to you for more.

Some of these CPG brands are building subscription businesses where you’re now coming back with a brand every month or every few months for more. For Nike, it’s the same, it’s about owning that relationship with the customer and providing them with the experience that you want to provide. Ultimately, the point is the same. There’s some argument on whether D2C is more profitable than going wholesale but there are costs associated with selling directly, customer acquisition, logistics, etc, which, depending on the brand, evens out. I do think that D2C is important for that long-term relationship with the customer.

Would you say it is down to customer data or would you say it’s down to maximizing lifetime value?

Most brands are investing in D2C so they can understand who their customer is and what they want, and offer them things that the customer wants, but also produce things. A lot of the fashion brands that sold wholesale had no idea who the end customer was or what their preferences were. Knowing that customer helps them down the line, down the value chain, where they can produce things that the customer wants, understand the entire demand cycle, and incorporate that data.

That data is valuable for D2C. A lot of brands still have to use it in an effective way. The data exists but brands are still learning to use that data in a way that makes sense. Yes, gathering that data and building that database is important. In this stage where most brands are, having that LTV is important and having that loyalty relationship. Wholesale partners come and go and your relationships change there. This way, you control that relationship with the customer. You can keep that customer from coming back if you deliver a good experience.

What I’ve taken from what you said is the data gets the LTV. Honing in the data, learning, and knowing more about the customer enables you to serve them better, which, in the long haul, benefits the brand and the relationship with their customers, which is phenomenal. Let’s talk about The Lead. I want to get into The Lead and understand what you guys do there. Could you give us a quick overview of what you guys do?

We started with the premise that the fashion and beauty consumer industries were still trying to figure out the innovation that was happening in the space 4 or 5 years ago. We started to help brands connect to Silicon Valley as we would say it. The way we start to highlight this innovation was by highlighting these young and new digital native brands that were coming about and changing the conversation. They were relating to the customers in different ways, delivering products in different ways on different cycles, and eating away at market share not alone but together with some of the larger players.

They changed the conversation, they changed the way brands go to market to some degree. Over the course of the five years that we’ve been covering this industry, we’ve seen a lot of larger brands, more traditional wholesale enterprise brands, now starting to adapt some of that playbook in order to build that D2C business. They’re trying to understand how these digital native brands are going to customers. That’s where we come in is we collate all these winning strategies for both young as well as larger brands on how to build a sound direct-to-consumer business that outlasts the competition and that lets you create those long-term relationships with clients regardless of whether you’re in a good economy or bad.

Our audience is typically digital native first brands. Some of them are already omnichannel but most of them are digital native and in the sense of it. What are your thoughts on the bootstrap? It’s another categorization. First, you have the incumbents, retailers, or brands, and then you have digital native brands.

Within the digital native brands, you have bootstrapped digital native brands that use revenue and a bit of debt to grow their business without giving much equity away. You then have other companies looking to raise equity in the markets. To be honest, when you look at Allbirds, for instance, I was reading through a tweet and the valuation is ridiculous. What the market is valuing many digital native brands, particularly eCommerce or retail consumer digital native brands that have raised tons of money, hundreds of millions of dollars, is nowhere near what they were anticipated.

In many cases, it’s gone to the negative. They raised more money than their current valuation. With that in mind, where would you suggest people should gravitate towards? Should they bootstrap in 2023 or should they still raise money? Is there still a space for raising money? You come across with a lot of brands with your events and the content you put together.

Every brand’s growth is you grow and then you hit somewhat of a plateau. In order to get up to that next level, you need an infusion of capital. You can grow up to a certain point being bootstrapped, investing the profits back into the business. If you need to get beyond that, you need to jump over that hill sometimes. You do need to raise money. It could be that you want to bring a new product line to your customers because you’ve exhausted your own ability to create products and now you need to infuse cash in order to do more R&D and more development. That could be one reason.

Or you’ve hit a point where your customer acquisition costs being completely online have gone through the roof. You need to start to open stores or you need to experiment with pop-ups and other things. You need an infusion of cash when you’re going to open a store. There are points in each business’s journey where you do need cash and you have to think as a CEO or as a founder whether you’re at that point and whether the market is also available or whether the cash is available to you.

There have been lots of ups and downs in the last couple of years where the cash has been tight for businesses like that. Things have changed. Businesses had a lot of cash available to them a couple of years ago. The availability of funding, especially with the interest rates going up and all those things, things have changed. You have to have a good reason and a good justification for raising that cash.

You can go a long way without raising cash. We’ve had a lot of businesses on our list that have grown brick by brick and making sure that their first purchase is profitable and putting that profitability back into the business and being creative in the way they acquire customers. You don’t have to be on Instagram or spend all the money on Instagram. We’ve seen brands going from road shows to road shows or using podcasts or other unconventional media in order to get customers. You have to see how far you can get with that creativity before you use cash in order to get to the next level.

Cash fuels whatever is underneath it. If there is a success, it should help amplify that success like gasoline on fire. If that fire is not much success, there’s no more traction, then it’d be difficult. I like what you said with regard to being specific with your growth ambitions. If you’re going to launch a particular range and you need to be funded or you want to open up a store, it’s quite specific. Where are you gravitating toward? Is it equity? Is it debt? Is it a mix of equity or debt? What’s the temperature of the markets in the consumer space from your perspective?

I’m not an advisor but I do interview a lot of the CEOs that are running some of these businesses. What I can tell you based on our survey and based on our conversation and the data that we’ve gathered over hundreds of conversations that we’ve had over the last year, venture capital is still what people want. If you ask them if they’re about to raise money, the majority of people still want to raise capital through venture.

Even the debt, the second most of the surveys that we did was venture debt. Raising debt before you raise around through venture so you can convert some of that debt into equity. Those still remain popular. Although there are a lot more options available to brands outside of those and they’re growing. A lot of these financial institutions have diversified the way they go to market. They are now enabling a lot of the direct-to-consumer brands to be able to take that. That wasn’t the case before.

The Lead, you do events. You have a Foremost 50 list with the cream of the top of D2C or digital native eCommerce businesses. You have the Leading 100, which are SaaS companies that serve or enable D2C. You have Direct 60, which executives from established brands. You release it every year and you present the winners in an award ceremony. What time of the year?

Each of these lists comes out at different times of the year. Our objective with these lists is to identify innovation. The Foremost 50 list, which is our longest-going list, has been now released about five times. That list identifies innovative digital native businesses and they could be innovating with the product that they’re bringing to the market, their business strategy, their customer acquisition strategy, and the way they’re using capital to grow.

We look at seven different criteria. How much buzz do they have in the industry? How efficient they are in growing their businesses? We look at all these different criteria to identify these 50 businesses each year. That’s to show the world where the industry is headed. Who’s the one that’s bringing a new proposition to the market that you need to pay attention to because you can learn something from the way they’re approaching the industry? That’s one of the lists that comes out in February.

We do a little award ceremony for it in March. I invite some of these CEOs. The leading 100 came out, that’s our mid-year list. The Direct 60, which identifies executives from established enterprise brands, comes out in September. We space them out. The idea behind the list is let’s identify these changemakers whether they’re brands or they’re SaaS companies or they’re individuals within large brands that are doing something different and innovative that’s going to impact how all of us go to market in the coming years.

You then have events. You have The Lead Innovation Summit and The Foremost 50. Are the events the same as the award ceremonies?

We do small executive events, those are for award winners and their teams whenever their lists are released. We do this one big event a year where every brand is invited to attend and that happens in two days in July. It covers all of the content that you’re looking to build a good direct-to-consumer business, whether it’s customer acquisition, loyalty, customer experience, personalization, how to be more profitable, how to grow your business from $30 million to $100 million, or how you create interesting experiences in stores. It runs the gamut of all the topics that a lot of the D2C businesses are interested in learning about from brands that are doing it well.

I’d love to join. I definitely would love to attend the July 12 and 13 one in New York, for sure, The lead Innovation Summit. It’s an interesting and fantastic in-person networking event with other executives whether you’re a digital native or whether you’re an established brand. One of the graphics I loved when I first came across The Lead was the one on your homepage, which is called The Future of Brands to Consumer. It has three triangles. They’re all interlaced so it’s almost like a Venn diagram but with triangles instead. You have Incumbents like LVMH, Ralph Lauren, J.Crew, Adidas, and Levi’s.

On the other hand, you have the Challengers, the challenger brands like Rhone, Allbirds, Tecovas, Untuck, and all that good stuff, new brands. At the bottom, you have the Enablers, the commerce enablers like Shopifyplus, SAP, Afterpay, and Google. It was cleverly put. In the middle, you have The Lead, you’re that forum that brings them all together. I’m quite graphic in the way I process data. I got it and said, “This is clever.” You’re more than fashion, you cover other retail verticals. Do you want to share the other retail verticals so readers can gauge to see if their vertical fits in the way your forum is structured?

We cover fashion, beauty, home, and CPG, food and beverage, personal care, and home essentials. All of these brands from Blueland to Colgate have been part of the community, part of our events, and have been featured on our list. It’s anything that someone would wear on their bodies or sit on is what we call them, that’s the space that we’re in. It’s any brand that’s trying to build that direct relationship with the consumer product brand. We don’t cover services but any brand that’s trying to sell a product directly to consumers.

On a final note, I want us to cover experiential retail and how that connects with the direct-to-consumer experience. Do you have any takes or thoughts on experiential retail?

Customers are going back to stores but they’re expecting more from stores, they want newness, they want something to talk about, and they want to discover something that they wouldn’t have discovered if they were sitting at home. They want a more wholesome experience as you would say or an experience that takes them somewhere. Brands have to find ways to be creative with their physical experiences and we’re seeing a lot of interesting evolution there.

For digital native brands, it’s a lot about showcasing their product that they can’t showcase on the website that well. It’s about giving their product that physical three-dimensional space for people to discover what that is. There are lots of different partners that are helping brands right now get out and be in some of these physical spaces whether it’s pop-ups or places with multiple brands or even in the spaces where there are events happening. There are all these different ways to get your product out there or through even partnerships with Nordstroms, Macy’s, and Target where you can have short or long-term relationships with them.

Getting your product out there in the physical space is important for brands. It also helps them discover why a product is working or not working. Some products work better online and some products work better in a physical space when it comes to how consumers experience it. It’s a great way to get new customers but also understand what’s working and what’s not working with your product. For younger brands, being out there is important. You have to judge whether it’s the right time for your business or not.

For larger brands, it’s all about creating that excitement to go to your store. Even brands like Glossy are now creating these interesting store layouts with the subway theme or whatever that may be to entice people to come into the store. Whether you have funding or not, a well-curated or well-put-together store is important to get that customer and also the right location. A lot of the brands we’re seeing are going to a lot of these young tier-two markets like Austin and places that are not Soho, Williamsburg, San Francisco, and LA. There’s also the location aspect of it. Go where a lot of younger customers are and it’s not as expensive. That’s also some of the things that we’re seeing.

I like the point on collaborations. I’m also seeing pop-up shops or sections in retail spaces dominated by digital native businesses or brands that have their home online but they’ve all collaborated together to create an experience within like Macy’s or any other Selfridges. It works because consumers have followed the foot trail from digital to physical and they make those connections because they know they’re digital native.

Macy’s and Selfridges need to have those new brands in there to create excitement to get customers to come in without having to replenish the merchandise that they purchase. Having these pop-ups can create newness and excitement for customers to come in. It works both ways. It’s a win-win for both.

I was in Chicago over the holidays and I saw Tonal. We don’t have Tonal here, at least I haven’t seen Tonal. It’s like a mirror and it has some pulleys to work out so you see yourself working out. We got to experience and experiment with it in a space, it was a Nordstrom. It was quite interesting seeing what I had seen online in person and trying it. If it resonated with me and I was in the right conditions, I don’t live in Chicago, it could have swayed a purchase because I’ve tried before I buy.

Peloton did it a lot. The first time I tried a Peloton was in a hotel in San Francisco. It was the early days so they’re doing their distribution in hotels and many other places. I was like, “This is a Peloton.” It would have swayed my decision to buy a Peloton because I tried it so took a photo because it was a different experience.

You also spend more time with the brand so your recall of the brand is going to be long. If you don’t have Peloton now, you might get it a year from now because you’ve now have that recall.

For those who want to find out more about The Lead, it’s The-Lead.co. The Lead has an Innovation Summit. If you are digital native or your brand and you are serious about direct to consumers, a channel you want to maximize for the future, you have to be there, it’s July 12th to 13th. Check out their website, it’s nice, and join their mailing list. What more can I say? Are you guys active on social media? Would you like to share your handles if you are?

We are active on LinkedIn, that’s the main social media channel that we use. We post a lot of content on LinkedIn. We also have a weekly newsletter that we publish every Friday afternoon and that is a recap of all of the news that happened this week that pertains to direct-to-consumer businesses. Whether it’s brands opening new stores or partnering with creating new pop-up types of experiences or creating new sustainable initiatives, we capture all of those important news items that are only about direct-to-consumer and send that out to our database. Please sign. We have a little take on the week’s news at the beginning so it explains what’s going on in the world. That’s the easy way to keep up with everything direct to consumer.

Sonal, it’s been an absolute pleasure having you on the podcast. Thank you for coming on the 2X eCommerce podcast.

Thank you very much for having me. This was so much fun.

Cheers.