Once seen as the future of retail, the direct-to-consumer (D2C) segment seems to be losing its sheen. With Hindustan Unilever (HUL) reportedly in buyout talks with Minimalist, a Jaipur-based skincare brand, for Rs 3,000 crore, the sector’s challenges in scaling up are under scrutiny. Amid plateauing sales and dwindling funding, D2C startups face an uphill task to sustain growth.
The sector witnessed a 19% drop in funding in 2024, falling to $672.8 million from $830.2 million in 2023, as per Tracxn data. This sharp decline follows an even steeper fall from $1.8 billion in 2022. Revenue slumps have compounded the woes: brands such as boAt, Zivame, Wow Skin Science, Ustraa, and Wrogn reported a decline in revenue in FY24, while Mamaearth’s revenue from operations shrank 6.9% in Q2FY25, leading to its first quarterly loss in five quarters.
Anirudh A Damani, managing partner at Artha Venture Fund, attributes this to a misjudgment in consumer behaviour. “Many D2C brands targeted middle-and bottom-tier consumers, expecting online shopping habits to stick post-Covid. However, these consumers remain loyal to established brands like HUL, which offer trust, affordability, and omnipresence,” he said.
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With scaling challenges mounting, acquisitions have become a viable exit strategy. Over the past two years, 21 D2C startups have been acquired by larger players. Notable deals include Reliance’s acquisition of Clovia and Insight Cosmetics, Tata Consumer Products’ purchase of Soulfull and Organic India, and Marico’s buyouts of Beardo, Just Herbs, and Plix.
“Acquisitions allow larger FMCG players to experiment with new consumer segments without risking their core customer base, while providing startups with a much-needed lifeline,” Damani added.
Wow Skin Science is reportedly exploring potential buyers, further underscoring the segment’s struggles.
The shift toward profitability has pressured D2C startups to adopt omnichannel strategies, but offline expansion has proven costly. Leasing and operating physical stores, ensuring consistency across channels, and heavy marketing expenses have weighed on margins. “Investors are wary of the ongoing cash burn, forcing startups to rethink their business models,” said Dushyant Singh, managing partner at Playbook Partners.
Sector-specific slowdowns have also hit startups disproportionately. The declining wearable device market,
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