By David Clucas
Direct-to-consumer (DTC) retailing has become a reality for most active-lifestyle brands, but as consumer shopping habits rapidly shift, many are finding that retail is tougher than they expected.
Whatever route brands choose to go DTC, here are five realities that come along with the decision:
- Distribution Will Be Key: While buying direct involves a simple few online clicks for consumers, they’re not so fond of waiting for shipping. All of a sudden, brands who used to ship to a few hundred retailers and distributors are now shipping to thousands of consumers, which presents a logistical challenge and extra costs. If anything, the best brick-and-mortar retailers are now capitalizing on the millennial generation’s instant-gratification desires, and better aligning stock with local demand through services such as Locally.com. For brands doing DTC, one solution has been utilizing increased brand-store locations across the country as virtual warehouse/distribution points for faster service.
- Marketing Costs Will Increase: So you think you can dump retailers, go direct and hire a 20-something to market on social media for cheap? Good luck. One of the biggest areas we’ve seen brands underestimate is the extra costs of DTC marketing. By pulling back from third-party retailers, brands not only lose shelf-space advertising, they lose the people in the stores talking about their products day-in, day-out with consumers. There’s also a lot of brand validity gained when your product sits next to Nike or Patagonia in a third-party retail environment. Yes, brands might garner fatter margins from those DTC sales, but a lot of that money will need to go toward professional marketing services to make up for losses on the other end.
- Easy and Tough Entry For Niche Brands: Today’s start-up costs for new niche brands to go DTC are relatively low. Whether through a Kickstarter campaign or a simple e-commerce site, small brands with great ideas are getting noticed (call it consumer democracy), whereas they might have been passed up by retailers in the past. That’s a good thing, but a lot of people want a piece of the pie, especially when the barriers to enter are so low. The DTC start-up market is now flooded with a million ideas and brands competing for a small consumer segment that’s willing to take a chance on a brand they’ve never heard of. Entry may be easy, but competition is fierce.
- Increased Vendor Inventory Risk: There’s some debate of whether more DTC increases or reduces inventory risk for brands. Some say by keeping retail closer to the vest, they can better manage inventory and overstock. But the reality is that DTC has brands carrying more inventory, and when winter weather doesn’t show up or the economy tanks, that risk falls directly back on them.
- Omni-channel, Omni-channel, Omni-channel: The above realities are why “omni-channel” has been the retail buzzword of 2016. Brands have realized that in today’s marketplace they need the full spectrum of retail that can successfully market, sell and deliver products to their consumers when they want them. In a perfect world, consumers want to research online, find the best product, and pick it up in store (perhaps try it on, if apparel or footwear) all in the same day.
And the omni-channel strategy isn’t just for big corporate brands. Small start-ups can apply omni-channel practices on a local level by partnering with at least one local specialty retailer, even if at the smallest of levels, to gain that extra exposure, validity and flexible service. In fact, it’s all for the better, because next year we predict there will be a new (old) retail buzzword that will rise to the top — “local, local, local.”