Tim Armstrong On DTC Growth: Look to Tier 2 Markets

Commerce beats media, and appeals to outgoing media executives looking for their next chapter. It was that way for IAC head Barry Diller, when he left Fox and took over QVC and HSN in the late 1990s. Following in his footsteps is former Oath/AOL leader and Google sales executive Tim Armstrong, who has started The DTX company to invest in direct-to-consumer brands and launch direct-to-consumer (DTC) events. It is Armstrong’s biggest bet since he committed hundreds of millions of dollars to launch Patch, AOL’s hyperlocal service.

Interviewed by Recode’s Kara Swisher and Jason Del Rey at a Shoptalk-related event in Las Vegas on Sunday, Armstrong said the “underlying infrastructure is changing” and “direct-to-consumer feels like a platform shift.”

As we’ve all seen in the news, retailers and malls are increasingly losing market share, freeing brands to pursue their own paths to the consumer. Major DTC success stories like Warby Parker eyeglasses, Casper mattresses and Harry’s razors get most of the attention and funding, but Armstrong says that “10,000” DTC opportunities are awaiting investment and innovation.

Already, his company has invested in six new niche companies that reflect new consumer patterns, including DIY manicures at home (Olive and June), health-oriented beverages (Dirty Lemon), workwear for woman (Argent) and school and neighborhood comparisons (Niche). Armstrong says he’s invested hundreds of thousands of dollars to low millions in each entity.

The big trend is for DTC companies to have their own flagship stores in first tier consumer markets like New York, Los Angeles and London. Armstrong wants to take it to the next logical step and bring the DTC brands to “second tier commerce markets.” There is tremendous consumer benefit — and money — in having direct interactions with consumers in the rest of the country and the world, he says.

It’s not just money and stores. Armstrong vaguely described creating a new breed of “off mall” retail event– although major mall companies like Westfield and The Grove are already deep into producing their own events with Rebecca Minkoff and others.

This is not Online to Offline, Armstrong emphasizes, but Offline to Online. Addressing the desire of consumers to have more real world experiences, Armstrong says that “I’d rather spend some of my time offline interacting with brands, and have experiences online.”