When Consumer Sentiment Drops, Should DTC Brands Cut Ads or Lean In?

The University of Michigan Consumer Sentiment Index averaged 72.5 in 2024, then collapsed to 57.6 in 2025 and a record-low 49.8 final reading in April 2026. That is a 31% peak-to-trough drop in 18 months, the steepest sustained sentiment decline since the 2008 financial crisis. Most operators ask the wrong question when this happens. They ask "should we cut marketing?" The 10-K filings of 11 public DTC and CPG brands say the better question is which way to flex, and the answer is not the same for every category.

I have been a fractional CFO to 35+ ecommerce, DTC, and CPG brands managing more than $650M in combined revenue across the US, Canada, the UK, and Australia. I have watched founders make the marketing-flex decision through the 2022 demand correction, the 2023 inventory unwind, the 2024 sentiment rebound, and now the 2025-2026 collapse. The brands that win in cycles like this are not the ones that make the biggest cut or the biggest bet. They are the ones who already knew, before the cycle started, which direction they would flex and how far.

The marketing-spend decision in a sentiment downturn is not a budget decision. It is a positioning decision dressed up as a budget. If you cut to survive, you cede share to whoever is leaning in. If you lean in to grab share without the gross margin or runway to back it, you become the brand that ran out of cash six months before sentiment recovered. Both moves are right at the right time. Both moves are wrong at the wrong time.

The two strategies: cut and conserve vs lean in and grab share

Every public DTC and CPG brand in our data set picks one of these two strategies. The middle ground, "spend the same as last year", is rare in the data because revenue moves and ad costs move, so any operator holding nominal dollars flat is implicitly making a flex decision they did not name.

Strategy 1: Cut and conserve

Reduce marketing as a percent of revenue. Pull back paid acquisition. Reallocate to retention and owned channels (email, SMS, organic content, community). Preserve cash. Wait out the cycle. This is what the textbook says you do in a downturn.

The textbook misses something: cutting marketing pulls revenue down too, often by more than the cost saved. The brands that cut hardest in our data set saw revenue decline alongside the spend cut. Beauty Health (the parent of Hydrafacial) dropped marketing from 43.75% of revenue in 2022 to 31.11% in 2025, a 28.8% relative cut. Their share of the medical-aesthetics category cratered. The cut "worked" in the sense that the P&L stayed survivable. The cut "failed" in the sense that they handed share to competitors who held or grew their spend.

Strategy 2: Lean in and grab share

Hold marketing spend percent or increase it. Buy attention while CPMs are softer. Take share from competitors who pulled back. Bet that sentiment will recover within the runway window, and that the share you bought during the soft period will compound through the recovery.

This is what the data says brands like e.l.f. Beauty, Lululemon, and Honest Co did from 2023 through 2026. All three ended up in a stronger competitive position when sentiment finally bottomed. None of them cut. All three increased marketing as a percent of revenue while sentiment was falling.

Which is right? It depends on three things: gross margin, runway, and category elasticity. We will get to the framework in a minute. First, the data.

Which brands cut marketing in soft demand periods?

Five brands in our 11-brand sample cut marketing as a percent of revenue from peak to trough. The pattern is clear, apparel and beauty pulled back hardest. Here is the year-by-year picture from public 10-K filings:

Brand	Category	2022	2023	2024	2025	Change
Beauty Health (SKIN)	Beauty CPG	43.75%	36.31%	35.39%	31.11%	-12.6 pts
Beyond Meat (BYND)	Food CPG	4.92%	5.01%	2.60%	2.21%	-2.7 pts
Revolve (RVLV)	Apparel DTC	16.49%	16.07%	14.80%	14.31%	-2.2 pts
Warby Parker (WRBY)	Eyewear DTC	14.07%	11.71%	12.38%	12.64%	-1.4 pts
Bark (BARK)	Pet DTC	12.55%	10.41%	12.91%	12.83%	+0.3 pts

The Beauty Health story is the clearest cut-and-conserve case. Marketing went from 43.75% of revenue in 2022 down to 31.11% in 2025, a 28.8% relative reduction. The company was protecting EBITDA after a stretched 2022 acquisition cycle and a turnaround mandate. It worked on the income statement. It hurt them on share.

Beyond Meat is the most aggressive cutter in absolute terms. The company has been managing through a 4-year revenue contraction; marketing dropped from 5.01% in 2023 to 2.21% in 2025, a 56% relative cut. This is conservation in its purest form: marketing budget shrinks faster than revenue because the company is buying time, not buying customers.

Revolve and Warby Parker are subtler. Both are healthier businesses than the headline cuts suggest. Revolve dropped from 16.49% to 14.31% over four years, a 13.2% relative reduction, but the absolute spend rose because revenue grew. Warby Parker actually started recovering its marketing percent in 2024-2025 after a 2023 trough. These look like surgical cuts, not panic cuts.

Which brands leaned in, and what happened to their share?

Three brands in the sample leaned in hard during the 2024-2026 sentiment collapse. All three gained share or held a leadership position. Here is what the data shows:

Brand	Category	2022	2023	2024	2025	2026	Change
e.l.f. Beauty (ELF)	Beauty CPG	33.44%	16.71%	20.43%	21.43%	,	+4.7 pts (vs 2023)
Lululemon (LULU)	Apparel + retail	4.75%	4.05%	4.47%	5.11%	5.56%	+1.5 pts (vs 2023)
Honest Co (HNST)	Personal care	15.23%	10.58%	11.92%	13.79%	,	+3.2 pts (vs 2023)
Yeti (YETI)	Outdoor DTC	6.96%	7.65%	7.73%	,	7.78%	+0.8 pts (vs 2022)

e.l.f. Beauty is the clearest "lean in" example in public DTC. While most beauty CPG brands held or trimmed marketing through 2024-2025, e.l.f. ramped from 16.71% of revenue in 2023 to 20.43% in 2024 to 21.43% in 2025, a 28% relative increase into the worst sentiment period since 2009. They were not cutting because they had the gross margin and balance sheet to absorb it. The market rewarded them: while the broader prestige beauty category was reporting flat-to-down growth, e.l.f. continued to outperform. The 21.43% marketing-of-revenue ratio is unusually high for a public CPG, but it is matched by category-leading growth.

Lululemon is the clearest counter-cyclical apparel example. Most apparel brands in our sample cut marketing as sentiment collapsed. Lululemon went the other way, from 4.05% in 2023 to 4.47% in 2024 to 5.11% in 2025 to 5.56% in 2026. The 37% relative increase happened while consumer sentiment was falling 31%. Premium apparel was supposed to be the most exposed category in a downturn. Lululemon's 2025 and 2026 results say they bought share while competitors went quiet.

Honest Co is a turnaround story playing the lean-in card. Marketing dropped to 10.58% in 2023 (a survival cut), then stepped back to 11.92% in 2024 and 13.79% in 2025. The trajectory says: once the balance sheet stabilized, leadership chose to reinvest in marketing rather than maximize near-term margin. Revenue inflected positively across the same window.

Yeti is the steady accelerator. Marketing increased from 6.96% in 2022 to 7.78% in 2026. A small increase relative to the others, but unusual in the outdoor category, most direct competitors held or trimmed. Yeti has been consistently buying brand attention through every macro environment for five years running.

How sentiment moved, the macro layer

The University of Michigan Consumer Sentiment Index (UMCSENT) is the cleanest single signal for what consumer demand is actually doing. Here is what happened across the window:

Year	UMCSENT Annual Avg	Pooled DTC Marketing % Median
2021	77.6	16.45%
2022	59.0	14.65%
2023	65.3	10.58%
2024	72.5	12.38%
2025	57.6	13.31%
2026 (prelim)	56.5 (April: 49.8 final)	6.67% (small sample)

The pattern is not "sentiment falls, marketing falls." If it were, the chart would slope cleanly. Instead, public DTC brands seem to lag sentiment by 6-12 months. The 2022 sentiment trough showed up as the 2023 marketing-percent trough (10.58% pooled median). The 2024 sentiment recovery showed up as a 2024-2025 marketing-percent recovery (12.38% then 13.31%). The 2025-2026 sentiment collapse has not yet shown up in the data, but the 2026 reading shows the median compressing toward the cutters.

This lag is the gap that operators have to manage. Sentiment moves first. Marketing budgets move second. The brands that move with sentiment (cut when sentiment is falling, lean in when it is recovering) are pro-cyclical and lose. The brands that move counter to sentiment (lean in when sentiment is bottoming, trim when it is peaking) tend to win, but only if they have the gross margin and runway to ride out the gap.

What is the framework, when do you flex which way?

The flex decision comes down to four inputs. Run through these in order any time you are asked to materially change marketing spend.

1. Gross margin

If your gross margin is above 60%, you have the unit economics to lean in. Every dollar of new revenue contributes 60+ cents to fixed cost coverage and ad spend payback. e.l.f. Beauty runs gross margin in the high 60s, that is what funds 21.43% of revenue back into marketing. Lululemon runs gross margin around 58%, also enough.

If your gross margin is under 50%, you do not have enough contribution to lean in unless you have a clear plan to expand margin during the window. Beyond Meat sits in this zone and chose conservation, correctly, given balance sheet and category dynamics. Before you assume your margin is fixed, check the input costs you do not control day to day, since something as far upstream as oil prices moving your shipping margin can quietly shift which side of that 50% line you land on.

2. Runway

If you have 9+ months of cash runway at the increased burn rate, you can lean in. The bet is that sentiment recovers and CPMs normalize before you run out of buffer. If you have under 6 months, do not lean in, the math does not work because you will not be in business when the cycle turns.

This is where I see private DTC brands get into trouble. They look at e.l.f. Beauty leaning in and assume they can do the same. They cannot, because e.l.f. has $300M+ in cash and a 9-figure ARR base. A $20M private DTC with 4 months of runway and a 45% gross margin needs to cut.

3. Category elasticity

Discretionary categories, apparel, luxury, premium beauty, see demand fall sharply with sentiment. Essential categories, food CPG, personal care, pet, see demand fall less. The brands in our data cluster around this: discretionary brands cut more aggressively (Revolve, Beauty Health), essential and premium-loyalty brands flexed less (Yeti, Bark, Lululemon).

Know which side your category sits on. Apparel-heavy DTC almost always benefits from a cut in the early innings of a sentiment decline. Food CPG, pet, and category-leader premium-lifestyle brands tend to benefit from leaning in. Big-ticket durables sit at the most exposed end, which is why home and furniture DTC takes the sharpest hit when sentiment and rates move against the buyer at the same time.

4. Competitor behavior

If your top 3 competitors are pulling back, that is the moment leaning in pays the most. CPMs drop. Share of voice opens up. Acquisition becomes 20-40% cheaper than it was during peak sentiment, even though absolute consumer demand is softer. The arbitrage window opens when most operators close their wallets.

The reverse is true too. If your competitors are leaning in and you do not have the gross margin or runway to match, cut and live to fight the next cycle.

The hardest part of a sentiment downturn is not the budget call. It is sitting still long enough to make a real call instead of a panic call. I have watched founders cut 40% of marketing spend in a single board meeting because the macro headlines spooked the room. Six months later, when the cycle inflected, they did not have the brand to ride the recovery. The cut took 30 minutes. The recovery took 18 months.

How does discretionary vs essential category dynamics change the call?

Apparel and luxury are the first categories to soften when sentiment falls. Food CPG, personal care, and basic-needs categories are the last to soften, and the first to recover. The data backs this up.

• Apparel and luxury (most exposed): Revolve cut marketing from 16.49% to 14.31% (2022→2025) as sentiment fell. Premium apparel category sales contracted in real terms 2024-2025. Lululemon is the exception, they leaned in because they have category-leader status and gross margin.
• Beauty (mixed): e.l.f. Beauty leaned in (mass beauty, low-price-point, actually counter-cyclical via the "lipstick effect"). Beauty Health cut hard (premium medical aesthetics, expensive consumer purchase, pro-cyclical to sentiment).
• Food CPG (resilient): Beyond Meat cut marketing for company-specific reasons, not category dynamics. Most food CPG holds or grows marketing through sentiment cycles because consumers do not stop eating.
• Pet and personal care (resilient): Bark held marketing roughly flat; Honest Co stepped marketing up. These categories see demand erosion last.
• Outdoor and lifestyle (premium loyalty): Yeti held a steady upward marketing trajectory. Premium-loyalty brands with a clear authentic identity tend to outperform during sentiment downturns even though their products are technically discretionary.

If you are running a business in a discretionary category, your default move in a sentiment decline should be: cut paid acquisition, hold owned channels, defend brand. If you are running a business in an essential or premium-loyalty category, your default move should be: hold or lean in, especially if competitors are pulling back.

What should private DTC learn from public-company behavior in 2026 and beyond?

I work with 35+ private DTC and CPG brands at Eightx, ranging from $5M to $150M in revenue. The lessons from the public-company data translate directly to private-company decisions, but the math is harder because private companies have less capital cushion.

1. Decide your flex direction before the cycle starts

The brands in our data who flexed best had a written plan before the downturn. They knew their gross margin, their runway, and their category elasticity. When sentiment turned, they executed the pre-decided playbook. The brands who did not have a plan reacted late and over-corrected.

Build the plan in your annual budget cycle. Two scenarios: "soft demand" (sentiment falls 10+ points) and "very soft demand" (sentiment falls 20+ points). Have the marketing-spend response pre-decided in each.

2. Do not match e.l.f. or Lululemon if your gross margin is under 55%

The temptation when you read public-company data is to copy the leader. Do not. Public companies have access to capital you do not. e.l.f. ran marketing at 21.43% of revenue with $300M+ cash on the balance sheet. A private DTC at $30M revenue with $4M cash and 50% gross margin cannot do that, even if the strategy is "right" in theory.

3. Cuts compound. Lean-ins compound harder.

The brand-equity damage from a 12-month deep cut takes 18-24 months to repair on the recovery side. The brand-equity gain from a 12-month lean-in compounds for years. If you are choosing the pro-cyclical move (cutting in soft demand), make the cut surgical, protect brand-building, kill paid performance excess. If you are choosing the counter-cyclical move (leaning in), commit fully, half-leans-in usually fail because you do not move the needle on share of voice.

4. The owned-channel reallocation is real, but it is a smaller dollar amount than founders think

Email, SMS, and organic content do compound through downturns. They cost less per dollar of revenue than paid acquisition. But the reallocation does not fully replace paid spend dollar-for-dollar, especially for brands under $50M revenue with smaller email lists. Treat owned channels as the foundation, not the substitute.

5. The flex decision is a CFO call, not a CMO call

This is the part most ecommerce founders get backwards. The CMO knows what the marketing channels can do. The CFO knows what the balance sheet can survive. The flex decision sits between those two answers, and in our experience, it should sit on the CFO's desk because the downside of getting it wrong is balance-sheet damage, not just a missed quarter. (For benchmarks on what right looks like by category and stage: marketing spend as a percent of revenue across public DTC.)

Frequently Asked Questions

When consumer sentiment collapses, do DTC brands cut marketing spend?

The 10-K data is split. Discretionary categories (apparel, beauty, beverage) typically cut marketing as a percent of revenue when sentiment weakens, Revolve dropped from 16.49% to 14.31% (2022 to 2025) and Beauty Health from 43.75% to 31.11% over the same window. Resilient categories (premium apparel/lifestyle, food CPG) often lean in: Lululemon raised marketing from 4.05% in 2023 to 5.56% in 2026, and e.l.f. Beauty went from 16.71% in 2023 to 21.43% in 2025 while sentiment was falling. The decision is not "cut or hold", it is whether your category benefits from competitor retreat.

What is the average marketing spend as a percent of revenue for public DTC brands in 2025?

The pooled median across 8 public DTC and CPG brands in fiscal 2025 was 13.31% of revenue, with a mean of 14.18% and an interquartile range of 5.11% to 14.31%. That is a tight band considering the categories range from food CPG (Beyond Meat at 2.21%) to specialty beauty (e.l.f. Beauty at 21.43%). Apparel DTC clusters around 12-15%, beauty CPG around 21-31%, and outdoor/premium-apparel around 5-8%.

How did the University of Michigan consumer sentiment index move 2022 to 2026?

The University of Michigan Consumer Sentiment Index averaged 59.0 in 2022, peaked at 72.5 in 2024, then collapsed to 57.6 in 2025 and 56.5 (preliminary) in 2026 through March. April 2026 final reading was revised to 49.8, the weakest on record, driven by year-ahead inflation expectations spiking to 4.7%. Quarterly Q4 2025 averaged 52.5; March 2026 was 53.3.

Which public DTC brands leaned into marketing during the 2025-2026 sentiment collapse?

Three patterns dominate: (1) e.l.f. Beauty raised marketing from 16.71% of revenue in 2023 to 20.43% in 2024 to 21.43% in 2025, capturing share from premium beauty competitors who pulled back. (2) Lululemon increased marketing from 4.05% (2023) to 4.47% (2024) to 5.11% (2025) to 5.56% (2026), a steady accelerator into weakening sentiment. (3) Honest Co stepped marketing from 10.58% (2023) to 11.92% (2024) to 13.79% (2025). All three gained or held share. The pattern: brands with strong gross margins and high-conviction product positioning bought attention while competitors went quiet.

Should a private DTC brand cut marketing in a downturn?

It depends on three things: gross margin, runway, and category elasticity. If your gross margin is above 60% and you have 9+ months of cash runway, the public-company data argues for leaning in, CPMs drop, competitor share opens up, and the cost per attention falls 20-40%. If your gross margin is below 50% or runway is under 6 months, cut and conserve to live to fight another cycle. The brands that lost the most in 2022-2024 cycles were the ones that under-spent in good times and could not flex either direction in bad times.

Sources

• University of Michigan Consumer Sentiment Index, FRED (UMCSENT)
• University of Michigan Surveys of Consumers
• SEC EDGAR 10-K filings for WRBY, ELF, BARK, RVLV, FIGS, SKIN, YETI, HNST, BYND, LULU, CELH (fiscal 2018-2026)
• Eightx benchmark content pipeline aggregation: dtc-marketing-spend-trend-2020-2026 (n=11 companies, 2018-2026 marketing spend %)
• Average DTC Gross Margin (Public Companies), Eightx benchmark