As we kick off the new year, we’re covering trends from key markets in 2022. We’ll recap the state of each industry over the past year, the ad strategies of its biggest players, and what we predict 2023 will hold.
Direct-to-consumer (DTC) brands are transforming every aspect of the consumer world.
Warby Parker ushered in the DTC era more than a decade ago, paving the way for companies like Bombas, Allbirds, and Harry’s to thrive.
At the same time, legacy players, like Nike and Adidas, have evolved to meet the shift in shopping behavior.
Since 2011, Nike has grown DTC sales from 16% of revenue to 35%, while Adidas outlined plans for DTC sales to make up 50% of its revenue by 2025.
The competition for consumers’ attention and wallets is also forcing the hands of DTC advertisers.
Here’s how DTC advertisers spent in 2022 and what we can expect from them this year.
MediaRadar Insights on DTC Advertising in 2022
In 2022, direct-to-consumer (DTC) advertisers, including Squarespace, Chime, and Bombas, spent $11b on ads, representing an 8% YoY increase from 2021.
In Q1, advertisers spent $3.2b, a 24% YoY increase from Q1 2021. January saw $1b in spend, a drop of 6% from the previous year.
The decrease was likely due to the uncertainty surrounding surging Omicron cases and advertisers’ desire to feel out consumer sentiment around the looming recession. According to Reuters, U.S. consumer confidence dropped slightly in January.
While DTC advertisers spent billions for the remainder of 2022, they did so with caution, evident by their consistent quarter-of-quarter decreases (QoQ).
In Q2 and Q3, advertisers spent $2.8b and $2.5b, respectively, representing YoY increases of 12% and 4%. That said, Q2 spending dropped by 13% QoQ, while Q3 did so by 12%.
In Q4, advertisers spent nearly $2.6b, a 7% decrease. But spending increased by 3% QoQ from Q3—a modest increase considering the busy holiday shopping season.
In 2022, consumers spent more than $211b online during the holiday season. Many of those purchases undoubtedly went to digital-native or digital-first DTC brands.
Drivers in DTC Advertising
Advertisers in retail, media & entertainment, technology, finance, and apparel drove DTC ad spending in 2022, collectively spending $7.6b or 69% of the investment from DTC brands. (These are the same top categories for January 2023.)
Retail DTC advertisers increased spending by 8% YoY to nearly $2.2b.
Food and drug DTC retailers were at the heart of the increase, investing $583mm or 19% of the investment from retail DTC advertisers. Big names, like Maplebear (Instacart), Uber and DoorDash, combined to spend more than $496mm or 85% of the food & drug DTC retail ad spending in 2022.
For these food-related advertisers, the increase comes amid lingering pandemic concerns and millions of people refusing to give up the work-from-home life. People also grew fond of these services over the past few years, ingraining them into society.
In Q2 2021, DoorDash’s revenue almost doubled, despite restaurants reopening. Meanwhile, Uber’s Q4 2021 report touted $25.9b in gross platform spend, up by 51% YoY.
That said, consumer cutbacks on restaurant spending could cap advertiser’s budgets.
Advertisers in another retail category, home furnishings, accounted for 14% ($304mm) of the total spending. Unsurprisingly, online marketplaces accounted for 13% or nearly $273mm of the category’s spending as people opt for online shopping instead of brick-and-mortar locations.
Media & Entertainment
Media & entertainment advertisers, including those promoting fantasy sports leagues, book subscription boxes, game titles, and gambling apps, increased spending by 14% YoY.
Advertisers for gambling apps—DraftKings, Flutter Entertainment (FanDuel) and MGM Resorts International—find themselves in a unique situation.
After years of funneling billions into non-traditional tactics to earn market share—Caesars made a fleet of Ubers in Arizona look like chariots—gambling advertisers are readjusting their sights as they prioritize profitability.
David VanEgmond, a former FanDuel and Barstool Sportsbook executive, said, “You’ve seen the industry pull back and say, ‘Wow, fighting for market share got pretty ugly in terms of losses.’”
As gambling companies switch their focus from customer acquisition at all costs to profitability, ad dollars will flow to digital channels that allow advertisers to measure their campaigns and maximize returns.
Technology DTC advertisers increased spending by 27% YoY to $1.5b. Most of this spending (83% or $1.2b) came from advertisers promoting software, consumer electronics and information technology.
One of the biggest spenders, Squarespace, dedicated 85% of its January spend to video ads and made a big splash at Super Bowl LVI by teaming up with Zendaya.
“Our belief is that the new internet economy will be fueled by the imagination of a new breed of creators and entrepreneurs, constantly exploring and experimenting with all the possibilities behind their idea,” said Kevin Nabipour, Squarespace’s director of strategy, content and partnerships.
Squarespace is no stranger to teaming up with celebrities and creators, which lends light to its target demographic—younger generations—and where its ad dollars will go in 2023.
Squarespace wants to embolden the next generation of creators to build their empires on its platform. To reach them, the company’s in-house creative team launched a three-spot campaign.
To show their commitment to Millennials and Generation Z, they’ll also invest in podcasts, but that’s nothing new to the company.
In a post-customer survey years ago, Squarespace found that a third of its new subscribers came from its audio ads. Advertisers have invested heavily in podcasts ever since.
In 2015, the company spent 2.5x more on podcast ads than the next highest company. At one time, its ads were responsible for a third of all revenue for the podcast ad placement platform, Midroll.
It seems inevitable that podcast ads will play a role in Squarespace’s strategy and other DTC brands in 2023 and beyond.
Finance advertisers invested $1b in 2022, representing an 8% YoY increase from 2021. Banks, credit cards, and accounting/taxes were the top drivers for financial institutions, combining to spend more than $481mm.
Chime and Experian were two big spenders. Chime leaned heavily into TV ads in January 2023, with 64% of its budget going to the traditional format.
Spending from Chime, Experian, and other finance DTC advertisers makes sense as millions of people put a premium on healthy financial habits after a turbulent few years. In fact, nearly 40% of people who had emergency savings before March 2020 said they dipped into those funds during the pandemic.
Meanwhile, roughly half of non-retired adults said the economic consequences of the coronavirus outbreak will make it harder for them to achieve their financial goals.
Ongoing layoffs will continue to put pressure on people and increase financial anxiety. As that happens, financial advertisers will find their products and services in more demand than ever.
Apparel DTC advertisers increased their budgets by 23% YoY in 2022 to more than $892mm.
Accessories DTC advertisers played a big part in that surge, spending over $340mm (38%) of this spend.
Meanwhile, apparel advertisers, including those from Bombas, Mejuri (fine jewelry), and Stitch Fix, invested nearly $161mm.
While advertisers weathered 2022’s uncertainty, the tides may be turning.
Despite spending $134mm in January—Bombas invested 61% of its ad dollars in online video ads—cost-cutting measures will almost certainly extend into ad budgets.
Wayfair laid off 870 employees in August 2022, while Stitch Fix cut 35% of its workforce in two rounds of layoffs. The RealReal is also treading water, with a recent announcement of layoffs citing “profit imperative.”
DTC Advertisers Won’t Ride the Spending Wave in 2023
Most DTC advertisers had a big 2022, but early indications show that the recession and less consumer discretionary spending will put them in a tough situation.
While ad spending won’t completely stop in 2023, it’ll be hard to justify flashy campaigns and big ad investments when so many employees are starting their job search.
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