Wyatt Wees
February 3, 2025
The rise of direct-to-consumer (D2C) brands over the past decade came with bold promises: better products, lower prices, and a more personalized customer experience – all made possible by “cutting out the middleman.” However, as the D2C landscape matures, many of these promises have remained unfulfilled, revealing fundamental flaws in the pure-play D2C model.
The Fall of La Passione
I have closely followed the story of La Passione since their meteoric rise in the mid 2010s. This brand was the poster child for ‘Cutting out the Middle-Man’. They proudly displayed a comparison on their product page showing the additional overhead that customers were forced to pay when buying from the traditional distribution network(see below). I tried to recreate the image from memory since the web site is no longer active.
This was the promise and for a while it worked. The brand grew and attracted investment. 3 million euro in 2019 and 8.3 million euro in 2021. The most notable move in terms of visibility came in 2022 when they sponsored the world tour team MOVISTAR as technical clothing sponsor. The brand had seemingly arrived.
Unfortunately due to macroeconomic headwinds beginning at the end of 2022, of which I have written about extensively, the brand ran into trouble.
At the end of 2024 the brand announced the closure of their online store with the ominous text: “La Passione closes its online store at the end of 2024. Stay with us to discover what the future holds.” The founder Giuliano Ragazzi has announced his exit from the company on Linkedin here.
So what happened? I have compiled some of the factors that I believe contributed to the demise of La Passione and the overall shift in the profitability of the D2C model.
The Myth of Cost Savings
Perhaps the most prominent promise of D2C brands like La Passione was that eliminating retailers and wholesalers would result in significant cost savings for consumers. The reality has proven more complex:
The hidden costs of running a D2C operation have often exceeded traditional retail’s efficiencies of scale. Individual shipping, high customer acquisition costs, and expensive returns handling have forced many D2C brands to maintain prices similar to or higher than traditional retail competitors. The “cutting out the middleman” narrative overlooked the valuable economic functions that middlemen actually serve in aggregating demand and optimizing distribution.
The Customer Acquisition Cost Trap
D2C brands promised more authentic, direct relationships with customers. Instead, they’ve found themselves trapped in an increasingly expensive battle for attention:
Digital advertising costs have skyrocketed as platforms like Facebook and Instagram become saturated with D2C brands. Many companies now spend 20-30% of their revenue on customer acquisition – far more than traditional retail’s marketing costs. This has created a vicious cycle where brands must continually raise prices or compromise on quality to maintain profitability while feeding the digital advertising machine.
The Quality Compromise
Many D2C brands positioned themselves as premium alternatives to mass-market products, promising superior materials and craftsmanship. However, as pressure to maintain margins intensifies:
Numerous brands have quietly downgraded materials or moved production to lower-cost facilities while maintaining premium pricing. The need to fund heavy marketing spending has forced compromises in product quality that contradict the original brand promises. Some companies have started using cheaper materials or reduced quality control standards while maintaining their premium positioning.
The Scale and Profitability Problem
The D2C model promised better unit economics through eliminated middleman margins. Instead, many brands have discovered that:
Scaling a pure D2C business profitably is extraordinarily difficult. The costs of customer acquisition, fulfillment, and customer service often exceed the margins saved by eliminating retailers. Many brands have been forced to enter wholesale partnerships or open physical stores – effectively becoming the very hybrid businesses they once criticized.
The Innovation Slowdown
D2C brands positioned themselves as agile innovators, promising rapid product development based on direct customer feedback. However:
The pressure to maintain growth has led many brands to focus on safe line extensions rather than true innovation. The promised rapid iteration based on customer feedback has often been replaced by cautious incrementalism. The need to maintain consistent revenue growth has discouraged the risk-taking that characterized early D2C successes.
The Identity Crisis
As pure-play D2C brands struggle with profitability, many have been forced to embrace hybrid models:
Opening physical stores despite previously declaring retail dead. Entering wholesale partnerships with the very middlemen they promised to eliminate. Selling through Amazon despite positioning themselves as alternatives to marketplace dependency.
The fall of La Passione and the broader challenges facing D2C brands reveal that “cutting out the middleman” was an oversimplified promise that overlooked the complex realities of modern retail. While the D2C model introduced valuable innovations in customer experience and brand building, its future lies not in purity but in pragmatism.
Successful brands will likely embrace hybrid approaches that combine the best of direct and traditional retail channels, focusing on sustainable unit economics rather than rapid growth.
As the retail landscape continues to evolve, the hard-learned lessons from D2C’s first wave – including the true costs of customer acquisition, the value of traditional retail infrastructure, and the importance of genuine product differentiation – will be crucial for building more resilient and sustainable brands in the years ahead.
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