Why DTC Is A Trend Worth Following
Posted by Rick Berger on Mar 11, 2020
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Direct-to-consumer (DTC) is not a novel retail approach. In simple terms, it’s a model in which goods are sold directly to the customer. Frankly, it’s something that has been done for centuries. But it’s somewhat of a megatrend right now. As brands look to capture the hearts and wallets of shoppers, they are shifting away from third-party retailers, wholesalers and middlemen. Instead, it’s all about their official channels.
Nike is one brand with plans to grow its direct-to-consumer business—250 percent in the next five years. Levi’s is in the midst of a similar pivot, with its direct sales increasing by double digits in recent quarters. Worth noting is that these strategic overhauls, at the more “traditional” brands, are not being made blindly. They’re likely based on learnings from the digitally native brands that have grown steadily in recent years and have given consumers a new way to shop.
What all direct-to-consumer brands have in common is their laser focus on the customer. Sure, getting products into the hands of the customer has always been the game plan in retail. The difference today, though, is that retail is less transactional. When you focus on direct sales, you commit to the experience of buying over the act of selling. This allows for a few key things.
It gets you closer to the customer. With data on customer purchasing behaviors and preferences, you better understand how to serve them. This has implications for the whole business. For marketing, it helps you know what messages and mediums are best. For planning, it ensures you make the right merchandise available at the right places, times and prices. These data-driven insights ultimately enable you to drive loyalty and grow sales.
It allows you greater control over your brand. In a direct-to-consumer model, the brand controls its own production and distribution. As such, it’s easier to respond proactively to market trends and what customers want. This level of personalization and even customization is what shoppers expect today. Beyond the product, you can let your brand experience be whatever you want it to be, from positioning to design. The sky’s the limit when you have full control over your customer experience.
It opens up key omnichannel capabilities. When you blur the lines and enable customers to buy directly, you allow for fulfillment and returns across all channels. This is infinitely easier for both the customer and brand because of the complete view you gain of the shopper’s journey and the order’s lifecycle. You can also share inventory across all locations, ensuring products are available to be sold from every demand source.
Among the core reasons to shift to a direct-to-consumer business model is the proven benefit of having stores. Recent research from the IAB found the majority of DTC brands report they are profitable and looking to expand. In fact, in 2018 it was said DNVBs were set to open 850 stores in the next few years. What the countless store closures recently actually represents is the opportunity for direct-to-consumer brands to fill the gap with something new.
Direct-to-consumer brands view physical retail differently than traditional ones. What sets them apart specifically is their technology-first approach. They ubiquitously use tech across the entire customer journey. This ensures that the digital experience customers love online transcends seamlessly into the physical world. The store environment also becomes a test agent, where brands can experiment with products and innovation to engage a community.
Further, one of the other major draws of stores is the halo effect it has on other channels. When you open a store, web traffic and online sales in that area can increase by 30 to 50%. Of course, being in the right neighborhood is important for this to be true. This is another area where direct-to-consumer wins. With a keen understanding of who your customers are and where they’re located, you can set up shop in only the markets you belong in.
Stores don’t even have to be as big as they once were. Look at megaprojects like Hudson Yards, American Dream, and the Boston Seaport. These shopping centers aren’t necessarily anchored by big box stores. They are home to DTC brands that can thrive with less square footage because of their omnichannel operations. With endless aisle and fulfill from anywhere systems in place, among others, you can dedicate the store to the experience.
Creating a frictionless direct-to-consumer experience is not without its challenges. But, you can make the shift to DTC seamless for your entire business if you bear in mind the following considerations. With them driving your strategy, you will be setting yourself up to bring the joy back to shopping—the true barometer for success in retail today.
1. Technology. You need to have the right systems in place to transition your business to direct-to-consumer. Importantly, the systems need to be fully connected and future proof. Try a cloud foundation that is flexible and can seamlessly integrate with your existing business systems while also ensuring ease of future innovation.
2. Value over cost. You’ve likely put a lot of effort and resources into building your online business. You don’t want to lose what you’ve done so well digitally in the physical world. As such, think of the technology you invest in today as the systems that will carry you through to tomorrow. It’s a strategic roadmap effort for your entire business.
3. Balance. Being a direct-to-consumer brand pays dividends. But it’s possible you need to consider a combined strategy, with your own channels and partners. At the end of the day, you need to be where your customers are. Broadening your retail presence shows commitment to the market and to your customer. Make it easy for them to shop your brand anytime, and anywhere.
Rick Berger is President at NewStore. He has spent his career working with retailers and fashion brands to harness the power of retail software. As a result, he uniquely understands the important role technology can play in their day-to-day operations.
