DTC Ecommerce Evolution: Why Online Retailers Expand to Physical Stores

[00:00:00]Ecommerce was supposed to  be the future of shopping.

[00:00:03]No stores, no middlemen just brands  selling directly to you online.

[00:00:08]Direct to consumer.

[00:00:10]DTC startups raised billions and reached  millions of customers, with no stores.

[00:00:15]Skims, Allbirds, Dollar  Shave Club, Harrys, Casper.

[00:00:19]They exploded while old retail brands died. But something has changed.

[00:00:24]Retail is making a comeback, and  ecommerce is facing new challenges.

[00:00:28]And now, something even stranger happened. Those online only brands are opening their own retail stores. What happened?

[00:00:44]Ecommerce was supposed to change  everything, and in a way, it kinda did.

[00:00:50]Before, you not only had to get customers  aware of your product, but get it to them.

[00:00:56]Huge chunks of revenue went straight  to retail costs like rent, staff, utilities, and if you didn't have your own shop, a big margin went to the retailer. Then came the internet.

[00:01:07]Suddenly, you could go straight to customers. No need for a retail shop, no middleman.

[00:01:13]Direct to consumer, which we'll just call "DTC." The brand lives entirely online, and you can target customers with ads, outsource  fulfillment to another company — no problem.

[00:01:24]And it was great for customers too. You don't have to go out, no need to deal with all the annoying stuff in retail stores. This month I bought a new TV. I knew which model I wanted, but the salesman  in the store was relentless.

[00:01:37]"What about this model?" "Do you have  a screen cleaner?" "Do you have surge protection?" "Do you want 4 years warranty?" It just made me think "why didn't I just order online, and pickup?" Is retail necessary?

[00:01:50]Why have this weird middle space  between you and the product you want?

[00:01:54]Many thought the same, and soon,  ecommerce began to explode.

[00:01:58]DTC brands began to pop up everywhere. Giants like Amazon and Alibaba appeared, but also a wave of new brands. Warby Parker (2010), Everlane (2010), Dollar Shave Club (2011), Harry's (2013), Casper  (2014), Glossier (2014), Away (2015), Allbirds (2016), Skims by Kim Kardashian  (2019) — the list goes on and on, and on.

[00:02:14]These brands collectively attracted  billions in venture capital.

[00:02:18]Dollar Shave Club had about  $20 million in backing, and was eventually acquired for $1 billion. Allbirds had 5 separate funding rounds, totaling over $200 million, before an IPO. Skims, the clothing brand, is now worth over $4 billion. And on the other side, retail stores were dying.

[00:02:51]Old retailers were scrambling to get  online, but it could only do so much.

[00:02:56]They still had the massive overhead  of physical stores and staff.

[00:03:00]In the 2010s came the retail apocalypse. Gigantic brands began to go under one by one: Sears (2018), Toys "R" Us (2017), Borders (2011),  RadioShack (2015), Sports Authority (2016), Forever 21 (2019), and Barneys New York (2019). (Maybe scroll through this list).

[00:03:13]Customers were going to Amazon  or other DTC brands instead.

[00:03:50]It wasn't just big retail brands either. Small businesses felt this, and especially malls.

[00:03:56]Between 1970 and 2015, the growth of malls  was twice the growth of the population.

[00:04:02]Malls were growing twice as fast as people were. These shopping hubs were appearing everywhere.

[00:04:07]Then came ecommerce. Malls saw foot traffic drop by 50 percent between 2010 and 2013. But it wasn't just because of higher costs.

[00:04:17]Many closed down thanks to "showrooming,"  where customers looked at products in person, then ordered them online for cheaper elsewhere.

[00:04:24]Usually, Amazon. In 2019, over 9,300 stores closed in the US, a 59% jump from 2018. All of this was bad, but it was about to get much, much worse. In 2020 came the pandemic.

[00:04:39]Things were already in motion, but  here, they began to accelerate.

[00:04:43]Retail stores that somehow weren't  online now had to be, or die.

[00:04:48]Ecommerce grew 43% from 2019 to 2020 in  the US — a jump of almost $250 billion.

[00:04:56]Covid appeared to be the final nail  in the coffin for in-person shopping.

[00:05:00]Retail became an "outdated business  model," and it seemed like it was becoming a thing of the past. So… why hasn't it?

[00:05:15]Despite all these stats and bankruptcies,  we don't seem to be in this "post-retail, ecommerce utopia" like some MBAs predicted. Malls are still around; in fact, many are more popular than ever. How much of retail sales do you think comes from ecommerce? 40%? 30%?

[00:05:34]It's actually just 24%. And that figure is just core retail, meaning electronics, clothing, that sort of thing. For total retail, including everything like gas stations, restaurants, auto  dealers, ecommerce falls even lower.

[00:05:48]According to the US Census  Bureau, it's just 15.8%.

[00:05:53]It definitely spiked in the pandemic, and  it is growing, but at about 0.1–2% per year.

[00:06:00]Ecommerce seems to have plateaued.

[00:06:02]I think we've collectively realized  the limits of digital retail.

[00:06:06]And because of that, something interesting  is happening to those DTC brands.

[00:06:10]In the 2000s, or even 2010s, if you started  one of these, it was basically free money.

[00:06:16]Of course, not exactly, but you had  an ocean of untapped consumers and a unique selling point baked in: the internet. But more and more companies moved online.

[00:06:27]New brands and old brands. There's more internet traffic from customers, but now more and more  businesses all competing for them.

[00:06:34]The global DTC market, valued  at $583.48 billion in 2024, is projected to reach $2.75 trillion by 2033.

[00:06:43]That's a lot of businesses spending  lots of money to get you to buy.

[00:06:47]The price of customer acquisition is way up. 60% up from just 5 years ago.

[00:06:52]Most successful DTC startups already allocate  20–40% of their revenue to marketing.

[00:06:58]And most of them are through  a narrow group of channels.

[00:07:02]Ad spend on Facebook, Google search ads, SMS, email, influencers, SEO blog posts,  and organic social media content.

[00:07:10]Getting customers online is getting more  expensive as more people are doing it.

[00:07:15]Yet, while acquisition costs  are up, so are return rates.

[00:07:19]Return rates have more than doubled  since 2019, climbing from 8.1% to 16.9%.

[00:07:26]This brings a big cost, from 20%–65%  of the item's original value.

[00:07:31]Restocking, shipping, logistics, communication. All time and money the company loses.

[00:07:37]It's becoming a bigger problem, but  not for the reason you might think.

[00:07:41]Some are because of size mismatches for clothes  or product defects, but a big one is bracketing.

[00:07:48]This is "when shoppers buy multiple sizes  or colors of the same item, planning to return what doesn't work. This is common with  younger shoppers. Reports show that half of Gen Z does this when buying clothes and shoes" It's essentially the showrooming of DTC.

[00:08:03]And this reveals one of the  deeper costs of ecommerce.

[00:08:07]Something which, unfortunately,  no online brand has solved.

[00:08:10]Buying in person lets you better evaluate a  product's quality, and this is a massive thing people forget about retail and us as humans. We like to evaluate the risk.

[00:08:21]That TV I bought in store? I could  have just ordered for pickup, but part of me wanted to see it first. Make sure it was really what I wanted, even if I was 100% sold on it. Even if online makes more sense, we still seek physical confirmation. With ecommerce, you can't touch, feel, or try on products, increasing the risk of buying something  that will break in a couple of months or less.

[00:08:43]This is especially bad since online products are  in photos with perfect lighting and shadows; they have clear, seamless backgrounds; imperfections  are removed in post and color-corrected.

[00:08:52]If they're clothes, they've been ironed,  have the perfect photoshoot, even down to the right model with the right skin tone to match. Compare that to you trying on a shirt in-store.

[00:09:02]For some items, this is okay. But not all of them.

[00:09:06]Physical stores do a lot that  online shopping simply can't.

[00:09:10]And there's still more. The whole experience of shopping is a lot of fun.

[00:09:14]Going out with friends/family, comparing  products in person, visiting multiple stores — it's a social experience. It's usually more fun than just scrolling and adding items to your cart. Which has caused something interesting and ironic to happen. DTC brands are now pivoting to retail.

[00:09:31]But this retail looks a little different. And the strangest part is that it's being pushed by those raised with the internet. Chapter 3: The Retail Rebound Over the past 8 years, we’ve  posted 1,100 videos! Yet, we still haven’t crossed 1 million subscribers. We are close, though, and I believe 2026 is the year. And if you subscribe right now,  we can actually make that a reality.

[00:10:01]You would think Gen Z loves  ecommerce and hates retail.

[00:10:05]But that's not what the data shows.

[00:10:08]Each generation preferred buying  in stores less than the previous… Until Gen Z.

[00:10:14]64% of them prefer buying items in store, more  than millennials, Gen X, and even baby boomers.

[00:10:20]So, why? They see it as a way of getting more information before they buy,  and ensuring they're getting quality and value.

[00:10:28]With more and more customer  acquisition and advertising, "Gen Z know they can't trust everything they see  in an advertisement or read on the internet."

[00:10:37]"In fact, 92% of Gen Z shoppers  do research before making a purchase — the highest rate of any generation" The generation that grew up with the internet also understands its pitfalls quite well. But there's something else.

[00:10:51]Gen Z, more than any other generation,  "enjoy a unique and experiential in-person shopping experience." And this shows us a huge transformation happening to retail. DTC brands eventually realized retail is never going away, but also, it's a  way to really connect with customers.

[00:11:09]Retail shouldn't just be a place to  collect items, but to experience a company's culture and what sets it apart. So, they began to move into retail.

[00:11:18]In August 2024, Warby Parker announced it  would open 900 regular retail stores in the US.

[00:11:24]Gymshark opened a 13,000-square-foot  flagship store in New York City in 2025.

[00:11:28]It has workout rooms, events,  and spaces for community.

[00:11:32]The clothing brand Guizio  also opened one here in 2024.

[00:11:36]Skims opened its very first  store in DC in 2024 too.

[00:11:39]Glossier has begun opening multiple  permanent stores since 2021.

[00:11:43]On the flipside, something  else is happening to malls.

[00:11:46]Malls now have a focus not just  on shopping, but on experiences.

[00:12:08]Despite how long malls have been around,  Gen Z are the ones driving growth to malls.

[00:12:13]They enjoy these new social experiences.

[00:12:16]Playing pickleball, go-karting, rope courses,  but one of the biggest are pop-up stores.

[00:12:21]Short-term stores, often for  trending and luxury brands.

[00:12:25]These are especially good at bringing  people in, as they aren't around for long, and are usually sought-after items. After all, one of the best things about the mall isn't something to buy, but something to do. At least, for Gen Z.

[00:12:39]As such, one of the most important parts of  malls now aren't the shops, but the restaurants.

[00:12:59]Not just food courts to quickly  eat, but a place to stay and enjoy.

[00:13:03]The longer you stay at the mall,  the more shops you look through, the busier they feel, and the  more you're likely to spend.

[00:13:09]Ecommerce didn't kill retail. But it exploited its weakness.

[00:13:14]A lack of convenience, and a lot of  annoying pain points for customers.

[00:13:17]Those that didn't offer something  strong over online shopping simply died.

[00:13:21]Retail stores which didn’t serve  customers well closed down.

[00:13:25]But retail didn't die. It'll never die, but much of it had to evolve to stay relevant. The two can co-exist, as long as they both bring something unique. Speaking of brands that died, one e-commerce giant that rose to $10 billion and then went bankrupt  is wish.com. Check out this video to learn more.