Liz Salway on DNVBs; Consumer Habits; and Walmart

Liz Salway joins ExchangeWire's Anne-Marie Sheedy and Lindsay Rowntree to discuss profit loss of digitally-native vertical brands; the new normal of consumer habits; and Walmart’s 2021 advertising revenue.


- Digitally-native vertical brands (DNVBs), companies that typically began online and operate via a direct-to-consumer model, are more often than not failing to turn a profit, even in cases where they are generating high revenue and sales rates. Despite rapid growth, thanks in no small part to the e-commerce boom sparked by lockdown measures, many DNVBs who have gone public are still burning through capital and seeing losses expand.

Whilst some of these brands may have established themselves as real market disruptors, and could stand to become sustainable in the future, questions remain over whether every DNVB has a realistic understanding of the market they’re trying to break into and of the economic viability of their business model. Writing for Forbes, Steve Dennis points out that it’s a lot harder now for brands to accrue consumers with positive customer lifetime value (CLV) due to price hikes in digital marketing and tighter privacy regulation. Dennis also asserts that much of the disproportionate growth experienced by some DNVBs likely derives from pricing and promotional strategies that are unsustainable, which have helped them to steal share from incumbents without making a profit.

Many disruptor brands have also found that remaining exclusively digital has impeded their ability to become profitable, and have sought to create an in-store presence of some form in order to broaden their addressable market. However, the success of this strategy is as yet unproven – Warby Parker, who IPOed in September, have opened 160 stores, yet have seen losses increase. Dennis concludes that many DNVBs will struggle to prosper, or even survive, amidst the more challenging marginal economic conditions of online shopping and a widespread slowdown in e-commerce.


- Consumers have “settled into a new normal” when it comes to their spending habits, with physical retail making a notable return since the end of lockdown. The latest Retail Sales Monitor report from the British Retail Consortium (BRC) and KPMG found that total retail sales grew 4.9% compared to February 2020, with in-person sales continuing to climb despite declines in consumer confidence and lower foot traffic due to Storm Eunice.

Online sales of non-food items fell by 28.4%, contrasting sharply with the 82.2% rise seen in February 2021. Total sales were largely driven by apparel and footwear, as consumers sought back-to-work outfits after lockdown restrictions were removed, with many venturing in-store to try things on before purchasing them. Yet while online sales have decreased from the highs seen during the pandemic, consumers’ preference for online shopping has not made a complete u-turn – four in every ten pounds shed online is spent on non-edible products compared to three in ten prior to Covid. Furthermore, in-store sales of food items declined 7.5% from February 2020.

Commenting on the findings, Helen Dickinson, chief executive of the BRC, said that “retail has driven five years’ of digital transformation in 24 tumultuous months”. Yet these positive findings could soon be tempered by the growing cost of living, thanks to increases in food prices and upcoming rises in National Insurance and energy costs set to take effect from next month.


- Walmart have reported earning USD$2.1bn (~£1.6bn) in advertising revenue in 2021, thanks largely to their retail media network, Walmart Connect. Although it may pale in comparison to the retail heavyweight’s USD$152.9bn (~£117bn) Q4 2021 revenue, the result proves advertisers’ appetite for consumer purchase data, as well as Walmart’s dominance in this still relatively nascent space.

Retail data has piqued the interest of retailers, who can sell insights into their customers’ purchasing habits to help marketers better understand and target their audience. Over the past couple of years, nine out of the ten biggest US retailers (including Target and Walgreens) have built their own media networks to capitalise on this growing trend, with Walmart reporting particular success thanks to their huge scale (the supermarket giant say that 230 million customers worldwide visit Walmart-owned properties online or in-store each week, with 90% of US households shopping at their stores annually). The number of active advertisers on Walmart Connect increased by over 130% year-over-year in 2021.

The supermarket giant still sell display advertising and sponsored search on their owned-and-operated properties, and recently launched a DSP to enable advertisers to target Walmart shoppers across the web. The company can match transactions made using debit and credit cards to an “anonymised ID” that is attributed to an individual. They then work with data brokers to connect online and offline purchases with wider information (such as a customer’s email address and postcode) under what Walmart Connect VP Jeff Clark calls “identity resolution”. The company can then use this information to aggregate households and deliver targeted advertising via their DSP, and can even use the same technique to see whether consumers purchased the product that was advertised to them, according to Clark. 

Although the retail behemoth have remained obstinate about not implementing a loyalty scheme on the basis that it would undermine their promise of offering “everyday low price[s]”, Clark indicated that a similar offering may soon be available via their subscription service, Walmart +, making up for what some deem a blindspot in their marketing strategy.