The Lead Foremost 50 Recap

Foremost 50 recap: Growth strategies for D2C brands

By Daniel Teoh & Stephen Wyss

Daniel and I had the pleasure of attending The Lead’s Foremost 50 Forum in New York last week which honored the 50 breakout D2C brands redefining fashion, beauty, and consumer.

At the event, the Foremost 50 and Ones to Watch honorees all shared the entrepreneurial spirit and qualities that drive innovation and evolution in the consumer space. Their stories of determination, resiliency, adaptability, and unwavering belief in their business concepts were truly inspiring.

Here are some key takeaways from the presentations, roundtables, and our one-on-one discussions:

·        Capital Raising: With 92% of the 2022 Foremost 50 businesses securing in excess of $360 million of funding to date, the 2023 class is sure to attract significant investor interest. Roundtables included great discussions exploring the right time, the right amount, and how much work it takes to raise capital.

During a panel discussion of Foremost 50 alumni companies, the best piece of advice shared for growing consumer brands when looking to raise capital was that bigger is not always better. Don’t look for the largest raise, look for the right raise. Large equity raises come with significant pressure and can distract from important operating tasks at hand. It can also result in loss of fiscal discipline and innovation.

Additional advice included: Don’t build your business to sell it, build it to own it! If you build your business with the attitude that you will never sell it, then your decisions will always be the right ones for the business and, in the end, that will build a business that investors are looking for.

·        Growth: Given all that has happened throughout the past three years – the headwinds of interest rates rising, its impact on consumer spending, and fears of a recession – growth was at the forefront of many of the attendees’ minds. Here are some key takeaways:

o  The general consensus was that diversification of channels is key to growth and protecting against any future shocks.

o  Many of the companies we spoke with shared that they are cautiously optimistic about the prospect of growing their businesses in 2023, with several planning meaningful expansions of their brick-and-mortar footprints in the next 12 months to take advantage of revitalized in-store traffic and sales activity.

o  D2C brands looking to scale their businesses are carefully considering their potential wholesale partners, with many leery of the margin constraints created by excessive fees, chargebacks, and compliance requirements that come along with wholesale relationships.

·        Cashflow: Businesses impacted more severely by the current economic environment and historic supply chain challenges discussed how to unlock cash from inventory through liquidators and overseas channels, and the importance of better demand forecasting to lower inventory/purchasing and reduce waste.

·        Inventory management: Companies are mindful of inventory risk, particularly in businesses with a broad range of SKUs. Strategies to mitigate inventory risk include limited run item testing, leveraging customer data across purchasing decisions related to size and fit, and improved customer engagement to reduce returns.

·        Returns processing reimagined: The next generation of D2C companies are tackling the issue of returns with technology-focused solutions provided by third party all-in-one returns platforms. According to one speaker, a poor returns experience results in the loss of the customer 73% of the time. Additionally, the quicker the return, the higher the likelihood the business can resell it.

·        Sourcing and production outlook: The high quality and low cost of production in China is difficult to ignore, but comes with risks and uncertainty relating to geo-political stress, disruptions in logistics, and ever-changing tariffs. Businesses are mitigating this by looking to source some products domestically where it make sense and quality is not compromised. Businesses are hopeful that the impact of infrastructure investments to enhance domestic manufacturing, along with R&D credits for domestic activities and ESG initiatives to drive investment in businesses that are focused on achieving sustainability, will create opportunities to expand domestic sourcing that competes with overseas production in cost and quality.

CohnReznick is a proud sponsor of the Lead, and we are grateful for the opportunity to be involved with the Foremost 50 event and meet the amazing entrepreneurs that are leading the next generation of D2C brands and disruptors!