Introduction

The recent decline of the retail industry that manifested with retail bankruptcies and store closures was so spectacular that it was dubbed the retail apocalypse. Store closures by the end of 2019 exceeded the number of store closures in all of 2018, reaching more than 9000 in the U.S.. Retail bankruptcies increased by 35% in 2019, amounting to 23, and among the companies that filed for bankruptcy was Forever 21, an apparel brand that popularized fast fashion, of which business was still booming in 2015, with $4.4 billion in revenue. J. Crew Group also ended up filing for bankruptcy in early 2020. This trend is expected to continue with about 75,000 store closures estimated in the U.S. by 2026. This change in the retail landscape has been mainly attributed to the rise of e-commerce and the decline of traditional retailers, caused by their primarily reliance on brick-and-mortar stores as a sales channel.

Amidst the massive store closures, a group of digitally native startups referred to as Direct-to-Consumer (DTC) brands are maintaining a strong growth rate, higher than that of the total U.S. ecommerce sales, despite some DTC brands' recent struggles due to overcrowding and increased customer acquisition costs. These startups typically start as a purely online business, fully leveraging digital channels for marketing and sales, hence digitally native brands. They are DTC brands because they sell directly to consumers, without intermediaries or retailer ‘middlemen' like department stores. What differentiate these brands from traditional online brands are their specialization on a single or small suite of related products, and innovations in the product or business model (Jin and Shin 2020). With a steady loyal customer base, these brands are establishing a foothold in the market. A prime example is the clothing retailer Everlane. Since 2010, the brand has been growing exponentially, and in 2018, alongside Apple and Amazon, it was listed as one of TIME's 50 Most Genius Companies.

The growing venture capital investments and the incumbent retailers' acquisition of these startups attest to the DTC brands' growth potential and value in the market. By 2017, investment deals involving DTC companies increased to 196, up more than 600% from 32 in 2010, including the $25 million Series B round of Reformation, an apparel brand founded in 2009. Recognizing the value of the DTC brands' digital capabilities, as well as their appeal to consumers in the increasingly digitally driven market, high-profile incumbent retailers have been acquiring DTC companies. For example, in 2018, Walmart acquired ELOQUII, a women's plus-size apparel brand founded in 2011, in addition to two other apparel DTC brands Walmart acquired in the previous year. In 2019, Wacoal International Corporation acquired Lively, a lingerie DTC brand founded in 2016. The DTC brands' focus on digital channels has become ever more relevant, given the recent surge in online shopping, in response to the COVID-19 pandemic.

The DTC brands' continued growth despite the recent industry-wide struggles indicates much potential for the struggling incumbents to learn from these brands. However, till date no study has investigated what draws consumers to the DTC brands. While there is a significant body of prior research examining the drivers of positive online shopping outcomes, the dominant constructs of prior empirical models, such as online shopping quality and e-service quality, are inadequate in fully capturing new online brand values, such as unique brand identity and brand innovativeness, that have arisen from the DTC brands' product and business model innovations. Furthermore, previous studies on DTC brands in the retail industry is extremely limited and lacks empirical findings, as they mostly aimed to offer a conceptual overview of the DTC business model, such as its challenges and DTC brands' branding strategies, or explain the business model's benefits from the company's perspective. To fill this research gap, this paper aims to empirically identify the determinants of the attitude and re-purchase intention toward DTC brands. The findings from this research will offer valuable business insights for not only the incumbents, but also aspiring entrepreneurs. For the incumbent retailers facing increasing competition from DTC brands, the findings can help them identify gaps in their current offerings, and ultimately strengthen their own value propositions. For aspiring entrepreneurs, whether in the early stage of brainstorming business ideas or in the final stage of refining them, the findings can serve as a competitive landscape, useful for developing and fine-tuning business ideas.