Brands like Allbirds for shoes, Warby Parker for Glasses, Dollar Shave Club for razors, and Chewy for pet products have become arguably household names in the US.
Apart from being multi-billion dollar businesses that have provided early investors great returns, there is another thread that connects them.
These are all Direct-to-Consumer brands, also known as D2C Brands.
D2C as a concept is not a new one. However, its potential materialized with the rise of developed e-commerce infrastructure, mature payment mechanisms, and a positive cultural attitude shift towards online shopping. Above all, the brands that are going this route own the end consumer relationship, which matters the most in the world of retail.
As it has been noticed several, successful business models of the West become the guiding light for players in developing nations.
The D2C wave in SEA is no different. During its early days, it was showing signs of a promising future in SEA but has accelerated greatly over the last couple of years.
The ecosystem now allows going direct
SEA is home to a large, young population with high internet connectivity and online penetration across categories. 40 million people came online the first time in 2021, with the economy expecting to hit US$175 billion in GMV in the years to come.
This coupled with a relatively lower level of organized retail penetration, challenges in setting up retail distribution infrastructure, and development of e-commerce infrastructure were supporting the rise of online commerce in the region.
It has typically been observed that before a market breeds D2C brands, it sees e-commerce marketplaces and the surrounding infrastructure thrive. This has certainly happened in SEA, with the likes of Shopee and Lazada commanding billions of e-commerce GMV every year.
The surrounding infrastructure, be it logistics, digital payments, warehousing, marketing etc has also largely been solved for.
It is hard to argue that marketplaces in Southeast Asia have now reached a scale of mass adoption. Typically, as seen in the US, this then allows for a second wave of demand for more personalised products and niche brands. In other words, a deeper understanding for the needs of consumers.
This set the stage for a new approach, going direct to these consumers.
A fragmented market with huge D2C potential
The comparison of SEA with the US ends with the construct of the marketplace ecosystem.
Unlike the relatively singular market with Amazon in the US and Alibaba and JD in China, Southeast Asia remains a very fragmented market, where users are still price-conscious and not brand loyal. This actually opens up an even greater opportunity for D2C brands. As seen below, consumers are now very receptive to trying out new brands.
The flagbearers of this wave in SEA
Southeast Asia is a unique market, where the rise of D2C is expected to be in conjunction with social commerce.
Influencer-led sales, whether through livestreaming or other channels, have seen a rapid increase over the past year. The majority of these brands are in the consumer products sector, with several successful models now being built in the space.
This is definitely not an exhaustive list, but is certainly testament to the growth of these models.
Love, Bonito which started as blog shop platform Bonito in 2005 for selling imported women’s apparel, went on to become a design-led D2C women’s apparel brand with a focus on comfortable workwear. Technology is at the core of their operations as they provide apparel for Asian women that fits Asian physique better and has local sensibilities. To increase brand awareness and maximize touchpoints, they have pivoted further to become an omnichannel brand.
Similarly, Pomelo, another fashion brand has been able to make a mark in the D2C segment. Their journey has also been very interesting as it grew from a Thailand-based D2C brand into an omnichannel retailer with a presence in five countries serving customers in more than 50 countries, and now is morphing into a platform that features multiple brands.
Pomelo has consistently tried to innovate the business model to enhance the customer experience – an example is its tap Try Buy orders which allows customers to order items online through the app or website, select a store or partner location to try on their selected items, and only pay for only what they choose to keep.
Fashion and Beauty & Personal care products go hand in hand and are one of the most sought-after categories online.
In the BPC segment, Sociolla, an Indonesia-based beauty brand, journey has been phenomenal. The company clocked over US$40 million in sales in 2020 alone. Being agile and having deep-rooted market insights into the local market, have helped them stay ahead of their international competitors in this highly competitive category. Their “Glow at Home” campaign during the pandemic was a major success and drove engagement with a new set of customers.
D2C brands success in Fashion and BPC segment is also attributable to the presence of multiple e-commerce platforms like Zalora, Shopee, and Lazada which are a major source for product discovery and demand generation in SEA.
Signature Market, a Malaysia-based player, in the healthy food segment is also one of the successful D2C players in SEA. It is no hidden fact that rising health awareness, focus on fitness and new diet trends are influencing consumer preferences significantly.
Signature market started out as an online retailer of private labeled healthy snacks and has now extended into wellness, baby foods, supplements amongst others. It also allows shoppers to make purchases by dietary choices like Vegan, Sugar-Free etc.
These are a select few examples but there are many other small and large brands which have noticed phenomenal growth like From Yours, Happy Human, Sonno, Soko etc. since the pandemic.
Another interesting contributor to a wave of these D2C brands is the rise of the aggregator model. This is a space that has seen over US$10 billion in capital raised globally over the last two years. Not only is this beneficial for smaller D2C brands selling on marketplaces like Amazon, but it also provides them the necessary firepower to scale these brands.
The consumer is, and will continue to be right
With 8 out of 10 individuals expected to buy products online, the future of D2C brands is bright in Southeast Asia.
Hurdles definitely remain. With incumbents expanding their online presence, competition and cost to acquire new customers are increasing day by day for digital-first brands, while profitability is still a distant dream for a large number of them.
However, what is undeniable is that the SEA consumer is now more than ready to consume these D2C brands. The ecosystem is well and truly primed for multi-billion dollar businesses to be built in this space.