What: As customers return to in-store shopping, DTC and tech retailers are struggling to adjust to decreasing sales amid the economic downturn.

Why it is important: Brands that thrived during the pandemic are changing strategy in response to shifting consumer behaviour. The result is a cascade of layoffs at the executive level as well as adjusted distribution models.

Fast-growth strategies were beneficial during the pandemic, but now existing retail disruptors are facing the consequences. As these companies attempt to course correct their bottom lines, the retail industry is seeing a reduction in the workforce for both big and small players alike. Many, like Shopify, assumed the e-commerce boom, which propelled such brands during the pandemic, would continue for the next 5-10 years. However, consumer behaviour is not only shifting in-store but is declining as macroeconomic trends point toward a recession.

Ipsos for Publicis Sapient and Salesforce reported that internet-native brands are twice as likely than brick-and-mortar stores to report they’re unprofitable. Newer startups are also struggling to find funding as global startup funding has dropped 23% year-over-year in the second quarter. Job openings are also decreasing especially in retail, increasing the severity of the layoff trend in the US job market.

A majority of layoffs are happening at the executive or corporate levels. Warby Parker, for example, has fired 15% of corporate staff, yet it stated the downsizing will not involve store or customer service employees. In fact, the company expects to open 40 new brick-and-mortar locations with a goal to expand their footprint to 900 from 175 stores today.

Aside from layoffs, brands are making changes to their supply chain. In the case of Glossier, the DTC brand has completed flipped its distribution strategy by entering a wholesale deal with Sephora. Peloton, on the other hand, has announced it will stop owned-manufacturing operations and has established a partnership with a third-party Taiwanese company. Other notable brands restructuring include Stitch Fix, Klarna and StockX.

Overall, these brands view restructuring as vital to their growth and profitability and a natural reaction to the shifting consumer behaviour brought about by macroeconomic global challenges. As the recession continues to trouble consumers, it is likely brands will continue adjusting their strategy to maintain stability.

Economic downturn forces disruptive retail restructuring