At one point in the spring of 2021, it seemed like every other Instagram advertisement was a kind little company trying to sell you something right at your front door. mattresses that resemble sleeping bags. subscription-based toothbrushes. Woolen sneakers. Pastel boxes of skincare products. Their names were clever, their fonts were friendly, and their voices sounded suspiciously alike. This entire direct-to-consumer brand ecosystem appeared to be the retail industry’s future for a portion of the pandemic. Many of them are currently being wound down in silence.
One aspect of the collapse’s intrigue is that it hasn’t been noisy. Hand-wringing local news segments and parades of bankruptcy attorneys cause department stores to fail. With a final email to subscribers stating that inventory is limited and the team is appreciative of the support, DTC brands typically pass away more gracefully. an unsuccessful shift to wholesale. A liquidation sale disguised as a “thank-you event.” One morning, the website simply doesn’t load.
| The DTC Bankruptcy Wave: Key Information | Details |
|---|---|
| Industry segment | Digitally native, direct-to-consumer brands |
| Pandemic peak years | 2020–2021, the boom era |
| 2020 retail bankruptcies | 52 filings tracked by CB Insights |
| 2021 filings | 21 (a 60% drop, briefly misleading) |
| Notable 2023 collapse | Bed Bath & Beyond, April 2023 |
| Beauty group failure | Forma Brands (parent of Morphe), Jan 2023 |
| Telehealth-style DTC casualty | SmileDirectClub, late 2023 |
| Common funding source | Venture capital, often via SBA-tracked small-business pathways |
| Retail platform of choice | Shopify and similar e-commerce stacks |
| Leading consumer-protection regulator | U.S. Federal Trade Commission |
| Most cited cause of failure | Cheap capital, paid-acquisition addiction, weak unit economics |
| Recurring theme | Sales surged in 2020, then never grew into the valuations |
In January 2023, Forma Brands, the owner of a number of influencer-led labels and the cosmetic brand Morphe, filed for Chapter 11 bankruptcy. A few months later, Bed Bath & Beyond, which is not strictly DTC but represents the same period of digital expansion gone wrong, collapsed. The mail-order orthodontics business SmileDirectClub, which at one point seemed like a tiny revolution, closed its doors in late 2023, leaving clients in the middle of their treatments with plastic aligners and no one to contact. Showfields, a Manhattan retail concept that claimed to be the most fascinating store in the world and housed dozens of DTC labels under one roof, ran out of runway and shut down. After a difficult period as a public company, Casper went private. Allbirds is battling to remain on the list. The patron saint of pandemic optimism, Peloton, is still alive but has undergone a recalibration, shrinkage, and quiet.
The pandemic isn’t really what connects these tales. Instead of being the cause, the pandemic was the catalyst. Around 2020, cheap money, an abundance of venture capital, and a generation of founders who had been taught that growth at all costs was a virtue rather than a warning sign came together. Everything appeared better than it actually was because of the lockdowns. People were willing to try a new electric toothbrush because they were at home, bored, and online. Charts of sales became vertical. Boards used extrapolation. Then, as is often the case, the world reopened and the math reasserted itself.
To put it simply, the math was never easy. Many of these businesses were paying Meta and Google more to get a customer than they could ever make from that client. There was a high rate of subscription churn. There were few repeat purchases. It turns out that most people don’t purchase a mattress more than once every ten years. The only reason the unit economics appeared respectable was because the top line continued to increase, and the cash continued to flow because interest rates were almost zero. Everything else changed when that final condition did.
The wreckage has a generational quality that is difficult to ignore. These companies taught a specific segment of Gen-Z and millennial consumers what it should be like to shop. the simple packaging. The box contained a handwritten note of gratitude. On the inside of the lid was the arrogant little slogan. It had a certain charm. In retrospect, there was also a lot of marketing masquerading as identity. It was the sense of being the type of person who purchased the goods that made people fall in love rather than the products themselves.
Most retail veterans anticipated this. Last year, James Gellert of RapidRatings cautioned that once interest rates and consumer behavior returned to normal, a wave of pandemic-era businesses would have to face harsh consequences. Bigger companies can absorb a slow quarter and have deeper balance sheets and supplier leverage. Smaller, digitally native brands don’t. Some will be purchased as parts. Some will continue to be sold in Walmart aisles under licensed names. The founders will move on to the next pitch deck, and a few will discreetly become products inside someone else’s catalog. There’s a sense that the next 18 months won’t be pleasant and that the heroes of 2021 won’t look like the survivors.
