Here’s a selection of Big Technology newsletters by Alex Kantrowitz. You can subscribe to the newsletter and receive it every week in your email. sign up here.

They were the hottest names in tech. They are the most loved brands Warby Parker, Stitch Fix, FIGSPlease see the following: Allbirds pioneered a new form of retail, one that went “direct to consumer” — via the internet — instead of selling through established outlets. The promise of no overhead costs, no middlemen and an almost unlimited pool of customers saw these companies rise to the top of the charts, achieving valuations well over the billions. These companies appeared to be unstoppable. They’re now crashing with no bottom.

The gloomy convergence of rising Facebook ad prices, worsening ad measurement, soaring shipping costs, newly-sober public markets, and smaller-than-anticipated customer bases are dealing DTC companies a harsh blow. The Big Technology study of DTC companies public with market capitalizations greater than $800million found almost all these companies have experienced revenue decline, shrinking margins, loss of profit, or some combination thereof. Their combined market caps have fallen to billions, putting them in stark contrast with the rest of the market.

Orchid Bertelsen is the COO at Common Thread Collective. This ecommerce agency works with DTC companies. The environment has become much harder to accept.”

DTC has been the hardest hit by skyrocketing Facebook ads prices. They have depended long on Facebook advertising to help them grow, which has been a costly gamble that is now paying off. They operate mainly without the need for physical stores and have used Facebook to reach people who might not otherwise be able to visit a store. Nearly all DTC companies have low name recognition — Warby Parker went public with just 13% brand awareness — so reaching thousands of people for a few dollars on Facebook helped them compensate. However, the plan didn’t work.

Facebook ad prices have skyrocketed in recent years due to rising demand — and in some cases, contracting supply — leaving DTC companies in a bind. David Herrman is a social media buyer who said the price of advertising on Facebook has doubled or tripled over two years. Herrman explained that in the United States, the cost for reaching 1000 people through Facebook rose from $6 to nearly $18 over the past two-years.

Apple’s iOS privacy restrictions have created a new obstacle for DTC companies to assess whether or not their ads work. Herrman explained that everything was affected by the iOS 14 privacy updates. Meta’s internal metrics, and the mechanisms it uses to assign attribution, are not as accurate as they could be. They may have a difference of around 30-40 percent or even 50%. DTC companies can’t optimize efficiently and now spend more money for less results.

Next, there is the supply chain. After the pandemic, import costs from China rose dramatically, some times by as much as 10. Another cost was added to the DTC budget. It’s not easy to compensate for this cost in volume or pricing, given their dependency on imports. 

Eric Bandholz, the founder of DTC Brands, stated: “The supply chains are destroying many of these DTC brand names.” BeardbrandDTC Company. They are so dependent on China to get their goods, the shipping cost of bulk containers has risen astronomically.” One container to be shipped from China to America cost $15,000 compared to $2,000 before the pandemic. Big Technology reported last May. Multiple DTC sources claimed that today’s price was even higher. Bandholz reported that Beardbrand has begun to shift its entire operation to North America. 

Allbirds thrive in this setting. Hims and Hers, Peloton, RevolveStitchFix, Warby Park, and WayfairIn earnings reports, all three companies reported significant losses, marginal contractions, or both in the previous year. Wayfair lost $78million in its third quarter 2021, after posting $173million in net income in the previous year. Warby Parker lost $91million in the same quarter partly due to stock-based compensation. Revolve’s Gross Margin fell from 56.0% during Q4 2020, to 54.8% during Q4 2021. Hiss and Hers saw their gross margin drop from 77% to 73% during Q4 2020, and 73% respectively in Q4 2021. This is just a partial list.

It couldn’t have been worse timing with increasing interest rates. This is because investors will be less inclined to buy companies that are struggling to turn profit, even though there may be future growth. Some investors are also asking whether these companies merited their valuations given that the addressable market for their products — faux-fancy glasses from Warby Parker or expensive medical scrubs from FIGS — may not be limitless. 

DTC stock prices are suffering and we don’t know where this will lead. Allbirds dropped 64% by Monday 2022. Stitch Fix, Warby Parker and other companies are both down over 40%. Other companies within the same category have experienced a decline of at least 19%. The S&P 500, by contrast, is down more than 11% in a terrible year.

DTC is not yet dead. Some companies may diversify away from Facebook to TikTok, and then figure out how they can return to affordable social media advertising. Some others, such as ChewyBecause of their high lifetime value, they will be able to find the sweet spot where costs can be justified.  Arjun Kapur (VC) said that it is a commitment of 14 years. Forecast Labs.  “The average puppy’s lifespan. According to Pitchbook, $1.05 billion has been invested in the sector so far, and that figure is only for 2022. Despite all the promise of this industry, reality is hard to swallow. It doesn’t seem like things will get any better.