D2C brands in Asia before the boom

Investors in Asia are taking notice

The rise of global D2C brands is indisputable, with Yotpo reporting that $2.68B has been spent acquiring D2C Brands and $2.2B in VC funding.

However, there isn’t much data about D2C brand performance in Asia. Despite that, recently there’s been some great discussion started by Nadim Muzayyin on this exact topic, with a positive but realistic summary.

That means DTC isn’t yet a threat to established brands or traditional retail channels in Southeast Asia — but things can change quickly. The DTC model has already taken hold in India, and at DSG, we’ve already invested in some great opportunities there, like SleepyCat, India’s answer to Casper.

In a direct response Chia Jeng Yang believes that there are opportunities for D2C brands in Asia.

Chatting with Nadim from DSG Consumer Partners and reading Ryan Caldbeck’s thoughts from A16Z’s podcast makes me more bullish about Direct-to-Consumer brands and the general ecosystem.

Just last week Tech in Asia also chimed in but I didn’t read about it due to the paywall.

Split down the middle, these investors aren’t saying the market is ready but definitely point to a market opportunity. The billion dollar question is just to what extent are Asian consumers adopting to new brands now and how much further do we have to go?

What Asian D2C brands can learn from the US

2013 and 2014 were popular years for starting a D2C brand, but brands founded in 2011 have received the most funding so far –Sitara Ramesh , Direct-to-consumer brands by the numbers — Breaking down the hype into dollars and cents

Having spent close to the past 10 years in Asia, I’ve seen firsthand how regional companies like Grab, Gojek, Traveloka, Lazada and so on have adopted overseas models for local markets to great success. Thanks in large part to that success, the SEA region is seemingly at a point of mass consumer adoption ripe for D2C brands. There are dozens of reports (kudos to Arnaud Bonzom )showing growth in just about ever key sector and ecommerce is always near the top.

Asian D2C brands have an opportunity to repeat the US D2C boom of 2011–2013. It seems like 2020 will be a key inflection point, with 2021 being exactly 10 years from the start of the US boom. In 2010 in the US, as I previously wrote about here ,there was a huge spike of new Facebook groups. With over 600M groups, there was a perfect storm for brand advocacy and community adoption for D2C brands like Dollar Shave Club and Harry’s, followed by Casper.

If we look at the underlying platforms in Asia, Facebook is no longer the only game in town, with mobile messaging and video apps taking up significant amounts of consumers attention and engagement.

Therefore, for the boom to happen in Asia new D2C brands need to go above social networking and figure out how to leverage the rise in messaging and video.

It’s no wonder then as Nadim listed in his article, that D2C brands in India are further along and closer to a boom as whatsapp and mobile payments have received more investment and innovation compared to SEA markets.

Casper may have got its viral start and rapid community growth thanks to blogging, and facebook posts, but its Indian competitor Sleepycat will need to make the most use of Whatsapp with payments and Video on youtube to continue to outgrow its rivals.

Perhaps the most interesting difference, is that unlike in the US, Amazon is not a dominant force yet in Asia (although that could be changing).

Without an Amazon to compete with in Asia, there are unique opportunities for D2C brands to exploit

“The next frontier in the battle with Amazon is on the back-end,” said David Bell, co-founder of Idea Farm Ventures and a former Wharton professor. “This is where companies like Affirm, ShipBob, and Happy Returns have a critical role to play. When customers can spread payments, get product quickly and return without much friction (and even a bit of fun), the brand wins.” CNBC

In the US, Amazon Prime is a dominating force, but in Asia there isn’t a single company that can compare. Instead, leading marketplaces often times win customers not on the basis of their brand or loyalty but instead of who has the cheapest price or best promotion.To illustrate, Amazon has long valued returns and customer service around their Prime customers, but only recently has one of the regions largest marketplaces Lazada implemented more assurances to its base over returns and shipping. Part of this is no doubt due to lack of logistics on the ground and last mile for delivery in fragmented and emerging markets in Asia. However, part of it is also due to a lack of brand loyalty and therefore company commitment towards service.

It makes sense thus in the US that D2C infrastructure is seen as a key factor in the rise of D2C brands and their ability to take on Amazon where service is so key to success.

While D2C brand infrastructure exists in Asia such as Shopify and various logistics and payment partners such as Stripe, Asian D2C brands are lucky in that customers are more than ever willing to try their products, and they don’t have to go against Amazon’s Prime base to win them over.

This lack of marketplace loyalty is ripe for old and new D2C brands to quickly get huge market share, as has happened with FMGC brands like Wardah in Indonesia. Thanks to improvements on logistics and the rise in the middle class, new consumers are flocking to brands that can communicate with them on their own terms.

Final thoughts on fuel for the Asian boom — D2C Brand marketplace De-coupling

One trend unique for Asia, is the abundance of individual sellers who can leverage social channels like Instagram and Line to amass large followings all on their own.

For now, another factor holding back the D2C boom is an over reliance on marketplace driven sales. It’s a double edge sword because 1000s of people are able to start their brand who otherwise might not be able to, but at the same time they miss out on what actually matters most to brands, which is owning the customer relationship directly and growing a community. As we discussed, because Asian consumers lack loyalty, it means that relying on just a single channel might not be sustainable for true growth.

For Asian markets, these independent brands are still learning as they go with some adopting a 100% commitment to their local marketplace of choice, while others are going for a hybrid approach.

The turning point for the Asian boom is when more Sleepycats of the region can validate a D2C model with a hybrid or exclusive model and therefore give confidence to the smaller D2C brands and independents that they too can grow on their own .