Direct-to-consumer companies such as Casper, Allbirds, and Peloton are facing challenges.

The direct-to-consumer boom is coming to an end.

Despite receiving billions in venture capital funding, the once-thriving group of direct-to-consumer (DTC) companies experienced a decline in profitability three years after achieving a record year for initial public offerings (IPOs) in 2021.

According to Neil Saunders, managing director of GlobalData Retail, the profitability aspect now distinguishes the successful direct-to-consumer (DTC) companies from the unsuccessful ones. Many DTC companies lack profitability and a clear path to profitability, which makes investors anxious, particularly in the current market where capital is expensive.

In the 2010s, companies such as Allbirds, Warby Parker, Rent the Runway, and ThredUp emerged as pioneers of a new retail era, fueled by social media advertising and the convenience of online shopping. This surge in popularity was supported by a significant influx of venture capital funding, facilitated by low-interest rates.

In less than a decade, venture capital funding skyrocketed from $60 billion in 2012 to an astonishing $643 billion in 2021. Approximately 30% of this funding was invested in retail brands, with over $5 billion specifically allocated to companies that combined e-commerce and consumer products. With the Covid-19 pandemic driving more online shopping, venture capital funds heavily backed digital native direct-to-consumer companies.

A CNBC analysis of 22 publicly traded DTC companies reveals that more than half have experienced a decline of 50% or more in their stock price since going public. Notable companies such as SmileDirectClub and Winc have declared bankruptcy, while Casper, a direct-to-consumer mattress company, went private after a lackluster year-and-a-half of trading. Most recently, meal kit subscription service Blue Apron exited the U.S. stock market after being acquired by Wonder Group.

Many DTC darlings are being forced to reevaluate their business model to survive a shifting consumer landscape.

The direct-to-consumer cohort of the 2010s is now pivoting in the new decade.