Over the past two years, it seems that all we’ve heard is “e-commerce, e-commerce, e-commerce.” The digitally-focused environment that 2020 COVID-19 stay-at-home orders created brought with it an influx of direct-to-consumer (DTC) brands.
And while the rise of e-commerce and D2C has been undeniable, this doesn’t mean it’s untouchable. With consumer prices up 9% from June 2021 to June 2022 (the largest increase in 40 years), shoppers are becoming more and more cautious about their purchases. The first to suffer? Non-essential goods – most of what the e-commerce landscape is made of.
With consumers everywhere spending cautiously as prices continue to rise, what does it mean for e-commerce and the beloved D2C brand?
We’re taking a quick dive into all things direct-to-consumer, what it means to be a D2C brand, the current state of this business model, and how companies can continue to thrive even over difficult financial times.
Direct-to-consumer brands, also known as D2C or DTC brands, rely on the direct-to-consumer fulfillment model: fulfilling and shipping orders directly to an end consumer with no other intermediaries involved.
But, aren’t D2C brands just e-commerce brands? Not exactly. While most D2C brands function as e-commerce brands, not all e-commerce brands function strictly as D2C brands. For example, you can have an e-commerce brand that also sells products through Amazon or a retail store like Nordstrom.
Unlike e-commerce brands, a DTC business can also function in both an offline and online setting. Think Glossier: selling direct to consumers through their website, social channels, and a network of pop-ups and permanent shops.
Net losses for major players like Warby Parker, Allbirds, and AKA Brands were published this month, showing a clear and negative downtrend in the direct-to-consumer space.
Not only that, but major DTC brands like Glossier and e-commerce technology brands like Shopify are reassessing their business structure and laying off employees in what’s becoming one of the most difficult times for consumers and companies alike. Over the past few months, Glossier laid off about a third of its workforce, while Shopify cut 10% of its employees in an attempt to navigate an unstable e-commerce environment.
As the e-commerce craze loses some of its steam, D2C brands are beginning to rely more on foot traffic while opening up retail stores to find customers. By the year-end, eye-wear brand Warby Parker expects to launch at least 40 brick-and-mortar stores. Even beauty brand Glossier, who set the stage for DTC beauty brands everywhere, has announced a shift into wholesale.
For e-commerce brands, this shift comes with a price… a need for in-person employees and an entirely new business model that brings with it new supply chain costs. However, the payoff could be great for all parties involved – D2C brands get to expand their reach by partnering with larger retailers and the retailers attract a newer, younger audience.
While DTC e-commerce sales reached 111.5 billion during 2020 and are expected to continue their upward climb, it’s important to note that 2020 and the following year were a perfect storm of stay-at-home orders and never-before-seen free time.
With more consumers itching to leave their pandemic woes behind, attending in-person events, opting to go out without masks, and even making the trek back to the office, e-commerce brands face the challenge of remaining competitive in a volatile and ever-changing landscape.
To ensure a profitable business, direct-to-consumer companies will need to rethink some of their strategies, including where they’re selling and who they’re selling to. And, just like in 2020, the stakes are high. If DTC brands don’t make the right moves now, they’ll have to face the consequences in the long run.
Take Casper for example. In 2020, the DTC mattress brand cut its marketing spend in the early days of the pandemic, not knowing how consumers would react to work-from-home life. It turns out that they were especially interested in revamping their home spaces. So, when Casper was running to catch up, kicking marketing efforts into overdrive, their competitors were already miles ahead. Their misstep cost them over $90 million.
With so many direct-to-consumer companies around, customers have plenty of different options to choose from when it comes to buying their favorite products. Great for shoppers, but for companies? Not so much. It means the playing field just became much larger and therefore, much more difficult to stand out in.
Plus, with so many online shopping options, customers may not feel as tied to one company as they have felt in the past. It’s increasingly harder for DTC companies to develop strong, long-lasting relationships with their customers. In a time when the cheaper options are likely the best financial move, brand loyalty can easily go by the wayside.
In a perfect world, customers would be instantly attracted to a brand by organic means. The reality is that DTC brands will likely need to leverage some sort of paid advertising in order to get their products in front of ideal consumers.
And let’s face it – unless you pay for it, it’s not very easy to get noticed online. From social media algorithms to SERP ranking, brands who want to reach their customers with as little paid advertising as possible need an in-depth content marketing strategy and a lot of hands to help deliver.
With customer acquisition costs (CAC) at an all-time high, direct-to-consumer brands will need to keep an eye out on their spending to make sure they aren’t putting out more than they can afford.
Though the current state of the D2C industry is a bit bleak, not all hope is lost. There are plenty of action items that companies can implement now to make sure they’re attracting new customers, keeping recurring customers satisfied, and continuing to build a loyal community.
Let’s dive in!
In a digital landscape that’s quite difficult to break through, DTC companies need to meet their customers where they are, both online and offline. This means exploring different ways to sell a product rather than simply through a website.
The future of online shopping is here, right in the palm of our hands. Social commerce, the online strategy where businesses sell products directly through their social media platforms, is expected to reach $80 billion by 2025. Plus, mobile commerce is already accounting for over 70% of all U.S. e-commerce sales. The verdict? Brands that aren’t offering these selling channels to their customers are simply missing out on customer engagement and DTC sales from a mobile-first audience.
The physical storefront is not dead! Total retail sales in the US reached 6.5 trillion (yes, trillion!) dollars in 2021, and this number is only expected to increase in 2022. It’s clear that while consumers continue to shop online, they’re also beginning to come back to malls and retailers worldwide.
Why? There’s nothing like an in-person experience. Being able to try on articles of clothing or test out a product with an associate before purchasing is the power of brick-and-mortar shopping. Plus, brands who partner with retailers or create their own physical storefronts have the distinct advantage of a wider reach as well as more opportunities to connect directly with their target audience.
For brands who aren’t keen on creating an entirely new and permanent physical space for their customers, immersive experiences like pop-up shops and livestream shopping offer an engaging alternative.
While pop-up shops are typically only around for a short period of time, they create excitement and a sense of urgency to get in and take a look around. Similarly, the store within a store (SWAS) approach uses an element of scarcity as well as value-added offerings like product demos, helpful associates, and samples.
Take Tonal below for an example, who partnered with Nordstrom to give the department store customers full access to one of their fitness mirrors:
Technology is the key to a better direct-to-consumer experience, with seamless integrations and digital tools helping speed up and smooth the customer journey. Direct-to-consumer brands who are looking to keep their competitive edge should invest in a tech stack that levels up their customer relationships and adds value to their brands.
In 2022, customers are very much used to instant gratification. They send texts to family members across the country with one click. They get hundreds of thousands of Google search results in less than one second. When it comes to the DTC industry, customers expect this same sort of instantaneous response that they’ve grown accustomed to. Utilizing self-service technology like chatbots or live chats allows customers to interact directly with direct-to-consumer brands in ways that they feel most comfortable with (sending a quick message is much faster and easier than dialing in for a customer representative).
Direct-to-consumer fulfillment isn’t just about getting a product from one point to another. Partnering with a 3PL that offers an advanced tech stack allows merchants to get an inside look into their fulfillment ecosystem for a better approach. A WMS that tracks inventory levels? No more surprises for customers who want to order a new product, only to find it’s out of stock. Real-time order visibility? The ability to give customers updates on their orders, even before they ask.
Returns are simply a part of the DTC industry. It’s better to have a straightforward return policy and a top-tier returns management system than a lackluster returns integration. Why? The way DTC brands handle returns influences customer purchasing behavior. Not convinced? Over half of US consumers say that they’re less likely to shop online with a brand that doesn’t offer free and easy returns. Investing in a returns management system that creates a seamless returns process for both the consumer and the brand can turn one-time customers into loyal brand advocates.
If a company spends all of its time focusing on acquiring new customers, it’s very likely that returning customers will feel left out. But, the fact of the matter is that returning customers are the ones with the ability to boost DTC revenue. In fact, they’re 50% more likely to try new products and 31% more likely to spend more than first-time customers. Customers who come back again and again are the heartbeat of a successful DTC business. It’s time to focus on them.
Whether it’s a points program or a cash-back reward system, having loyalty program options for recurring customers strengthens their bond with your brand. If these programs are done right, customers will begin to work towards spending and redeeming more, all while finding the joy in this “game.” The results? More purchases in search for more rewards.
Return policies don’t have to be the same across the board. In some cases, it makes sense to cater to your more loyal customers and give them a larger window of return. In doing so, the customer will feel both valued by the company and empowered to shop again.
The era of marketing as paid advertisements is over. For direct-to-consumer brands, marketing takes on an entirely new meaning. It’s a method of connecting with customers, before, during, and after their purchasing journey.
Fulfillment marketing is a marketing strategy that adds value to the consumer’s post-purchase experience through customized packaging. It includes anything from branded boxes to thank you notes to extra product samples. The goal? To delight the customer and stand out from the crowd.
Did you know that more than half of consumers are likely to turn a brand away that doesn’t align with their values? Corporate social responsibility (CSR) is one of the most important strategies to include in marketing efforts. Not only does it help differentiate direct-to-consumer brands from their competitors, but it also increases the company’s revenue by turning normal customers into loyal brand advocates.
Conversational marketing is a dialogue-driven approach to communicating with your current and prospective customers. It includes using social media, SMS, or live chat to answer questions directly, recommend products, and solve problems. Why is it so successful? Personalization. With over 70% of consumers expecting companies to deliver personalized interactions, it’s a must-have for the DTC industry.
Marketing in DTC is borderless. Shipping DTC? Not so borderless. A direct-to-consumer brand’s social channels may be reaching potential customers across the globe, but if they don’t have an effective international shipping strategy, building an international customer base will be strenuous.
One of the biggest hurdles a DTC business may face when shipping internationally for the first time is understanding which shipping method works best for their operation: Delivery Duty Unpaid (DDU) vs. Delivery Duty Paid (DDP). DDP involves the seller as the responsible party for paying duties and taxes on the internationally shipped goods, whereas DDU puts the responsibility on the customer once the goods arrive.
It may sound complex, but with a bit of planning and a strategy in place, direct-to-consumer brands can actually increase their sales volume and attract new customers with cross-border fulfillment.
With all of this said, what’s the deal? Can DTC brands still make it during this difficult time?
There’s no getting around it – thanks to the highest inflation in 40 years, 2022 is shaping up to be a tough year for companies and consumers alike. But, the good news is that the direct-to-consumer era is far from over.
That’s right – brands can not only remain competitive but continue to grow even in an inflated economic climate. How? It’s all in the strategy.
Instead of focusing on acquiring thousands of new customers, focus on the existing customer experience. Instead of pouring the big bucks into advertising spend, try connecting with customers through other means of marketing like post-purchase or sustainability initiatives.
There are always ways to improve and grow against all odds.
Consumer demand is changing rapidly, but one thing’s for certain: there are always going to be customers looking to order a package directly to their doorstep. Having a streamlined direct-to-consumer fulfillment strategy ensures these customers are kept happy (while boosting sales).
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