Paid Ads Squeeze DTC Margins
Sean Frank, CEO of Ridge, on the state of ecommerce post-COVID
The core change is that paid customer acquisition now eats too much of the sale for mid margin DTC brands. If a $300 suitcase costs $150 to make, only $150 is left before shipping, payment fees, returns, payroll, and ads. In the same interview, Ridge argues winning brands now target sub 20% product cost and average order values above $150, because Meta and Google still take most paid spend and clicks have become much more expensive over time.
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This is why premium ecommerce has shifted from clever branding to hard unit economics. Ridge describes the old playbook as viable when Facebook clicks were cheap, but says growth now requires more dollars left over after each order to feed the ad machine.
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The comparison to Hermès shows the new benchmark. Hermès reported €5.3B of gross margin on €7.5B of H1 2024 revenue, about 71% gross margin under standard accounting. That is far above a 50% product margin luggage model, and leaves much more room for marketing and overhead.
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Away still prices core carry ons around $295 today, which shows the price point held up. The pressure is underneath, where rising ad costs, fulfillment, and other selling costs mean a brand cannot rely on a simple 2x markup and still scale profitably through paid channels.
The brands most likely to pull ahead are the ones that either manufacture much cheaper relative to price, raise basket size with bundles and adjacent products, or earn traffic without paying for every click. The rest of ecommerce keeps moving toward fewer, stronger brands with luxury like margins or unusually efficient demand generation.