For several years now, there’s been a new kid on the block in the world of distribution. It’s called direct-to-consumer (D2C) retail.
Consumers are choosing to cut out the middleman and go direct to the brands they enjoy in ever-greater numbers. According to eMarketer, D2C sales accounted for $17.75 billion of total ecommerce sales in 2020 – up 24.3% from the previous year.
In light of this shift, traditional retailers and legacy brands are facing stiffer competition than ever before – and many have gone with the adage of ‘if you can’t beat them, join them.”
But choosing to go direct to the consumer isn’t just a matter of adding a new selling channel; it means totally reframing how you think about your brand and your interactions with customers.
When there are no intermediaries to handle transactions or order fulfillment on your behalf, this means that everything is down to you. It’s a burden of responsibility that creates many opportunities to build closer relationships with your customers – but also causes many D2C transitions to get off to a rocky start.
We’re going to explore this trend of established brands diving into the D2C space – and what retailers need to bear in mind if they’re considering transitioning into D2C ecommerce.
When the direct-to-consumer revolution began in the 2010s, it heralded a very different way of doing retail. Being successful as a D2C retailer didn’t require brands to offer a unique product; it was about disrupting traditional retail categories by putting the customer at the heart of the experience.
It’s this philosophy that led first-generation agitators like Dollar Shave Club, Casper Sleep, and Warby Parker to attract millions of consumers away from the friction of traditional retailing – in favor of curated product offerings and simplified, direct relationships with brands.
What do all of these brands have in common? They started out as digitally native, online-only brands that relied on sophisticated direct marketing strategies to build awareness.
But as the COVID-19 pandemic took hold last year, a very different group of retailers started investing in D2C strategies; major legacy brands seeing their well-oiled network of distributors paralyzed by lockdowns and in-store restrictions.
With ecommerce sales booming globally, brands including Coca-Cola, Nestle, Lindt, and Lululemon have dipped their toe into D2C. With more companies than ever launching D2C initiatives, this marks a major shift in how brands are seeking to connect with customers.
While the pandemic has provided a serious incentive for brands to go digital, it’s certainly not the only reason that retailers are adopting D2C en-masse. The growth of D2C has been part of a much longer-term transition of brands wanting to gain control over not only their branding and distribution – but the customer experience as a whole.
Unlike traditional retailers, D2Cs have direct contact with their customers and target audience through the shopping journey. They can spot key buying patterns, optimize marketing campaigns, and analyze live-chat conversations in real-time, rather than relying on often disparate or incomplete information from retail partners.
It’s this shortcoming that has led many new consumer brands to ‘go it alone’. After launching in 2014, ColorPop Cosmetics quickly became one of the most influential brands in beauty due to its unique synergy between production, marketing, and customer feedback.
By manufacturing locally in California, ColorPop is able to rapidly disseminate products to key beauty influencers, who in turn educate their audiences. Best of all, the brand is able to tweak products or design new ones right off the back of customer responses on social media.
According to co-founder Laura Nelson, it’s the nimbleness of their supply chain and robust customer insights that allow them to beat trend-setting makeup giants at their own game:
“Our business model gives us the opportunity to be very in tune with fans. When you ask them to get engaged, it’s important to show an immediate response. If it takes months, they feel disenfranchised. Like, ‘Why should I even tell you what I think?”
In a direct-to-consumer model, brands are responsible for managing the end-to-end shopping experience. This independence allows your brand to be front and center, rather than the retailers who stock your product.
If we think about a legacy brand like Coca-Cola, it’s difficult to separate the product from certain contexts; we see Coca-Cola in the grocery store, in restaurants, and movie theaters. It’s the strength of Coca-Cola’s distribution strategy, rather than its marketing or branding, that has put the company where it is today.
Extreme ubiquity has made Coca-Cola one of the world’s most recognized brands – but not necessarily one that resonates with consumers. After all, having your product characterized as the ‘standard’ soft drink option on the shelf or fast food menu isn’t really the definition of sexy branding.
Because D2C allows customers to bypass intermediaries, they spend more time engaged by your content and brand story. This enhances your ability to shape their perceptions of your brand and product.
It’s difficult to talk about D2C without discussing the lure of the bigger profit margins that come with vertical integration. However, most digitally native D2Cs find they ultimately need to bring in retail partners if they’re going to become profitable.
Because traditional B2Cs have the advantage of having established a loyal customer base offline, they have an even bigger incentive to take them elsewhere.
In 2019, Nike made a much-publicized decision to end its partnership with Amazon to focus on bringing customers a more personalized shopping experience. The reasoning was clear: Why let others take a slice of the pie when you could have it all to yourself?
This was part and parcel of Nike’s ambitious goal to have 30% of its ecommerce sales be D2C by 2024, a goal that they hit – and exceeded – in June 2020.
But this success wasn’t just down to the pandemic. Since 2018, Nike has invested heavily in apps and gamified rewards programs that give consumers access to exclusive offerings – putting the savings made from ending partnerships to good use.
There’s both an opportunity and a warning in this example; cutting out the middlemen means you can save valuable revenue from leaking outside the supply chain. But if you’re going to shoulder the entire responsibility of coordinating distribution and branding, you need to be certain you can do it right.
If you’ve decided to launch a D2C offering, you need to think carefully about what this means for your other selling channels. Is your online store designed to replace your presence on online marketplaces? How is it going to complement offline locations where your product is stocked?
In multichannel retailing, it’s easy to fall into the trap of seeing more channels as equalling more customers. But unless you’re very deliberate about your D2C value proposition, you can end up cannibalizing other selling channels.
It’s this same phenomenon that’s behind the massive rise of store closures by the likes of Macey’s; as online shopping became more accessible, its customers were left with few reasons to shop in person.
But while it may be tempting to follow in Nike’s direction by ending retail partnerships, it’s important to note that they can offer some distinct advantages.
For example, in-store customers get to interact directly with products before purchasing, which helps to lower return rates. So, if opening your own store locations isn’t on the horizon any time soon, maintaining an in-store presence through selected partnerships could prove advantageous.
For example, CoverGirl Cosmetics made the decision to maintain its traditional partnerships with drugstores even as it ramped up its own D2C channel, with the goal of using these data insights to aid its retail partners in selling more effectively.
Moreover, the opening of its flagship store in Times Square boasting AR ‘try on’ mirrors and exclusive merchandise shows that successful D2C retailing doesn’t have to be a standalone offering. Augmenting experiential retail with the convenience of buying direct is a powerful strategy that gives consumers far more opportunities to engage with your brand.
So, it’s important for retailers to take this opportunity to evaluate existing partnerships and decide which will continue to provide value in light of your D2C initiative. By optimizing your distribution strategy, you can ensure that you’re only putting products in locations that offer you long-term benefits.
In a regular retail distribution strategy, it’s your stockists and retail partners who are responsible for handling the vast majority of customer care. They are the ones who have your product stocked on their virtual or physical shelf, and who supply the sales associates that assist customers with inquiries and processing sales.
But when it comes to D2C selling, these responsibilities are entirely on your shoulders. If your customer has a question or is experiencing a problem with their purchase, it’s up to you to step up.
It’s important to note that stellar customer service is what allowed D2Cs to gain a foothold in the first place – by finding innovative ways of ‘doing it better’ than their traditional rivals.
Casper Sleep, for example, took on a product category monopolized by massive retailers boasting an overwhelming number of options. By initially offering just one mattress design with free shipping and returns within 100 days, they bought a level of simplicity to a purchase often fraught with anxiety. This is why so many consumers flocked to buy Caspar Sleep products – even though they lacked the ability to test them out before buying.
This is a prime example of why superior technical support and customer care are essential if your D2C channel is going to succeed. Because if it’s sub-optimal, what incentive do consumers have to buy from you directly?
Hiring a customer support team is the first step to ensuring that your online store is highly responsive to customer requests for information. Tools such as AI bots and live chat with service reps allow you to solve issues without delay, whether that’s updating customers on the status of an order, or telling them when a certain product will be back in stock.
Although content creation is often associated more with a company’s marketing efforts than technical support, formats such as blogs and webinars are invaluable for educating customers on product offerings, after-care, and even styling and use options.
By investing in these kinds of care strategies, you can add far more value to customer interactions with your online store – and provide them with major incentives to shop direct.
Despite being one of the most fundamental changes in your operation, direct-to-consumer fulfillment strategies often receive little mention because it’s not a customer-facing part of the business. But if you don’t get this right from day one, your customers will definitely notice delayed shipments or incorrectly fulfilled orders.
D2C fulfillment differs from traditional retail fulfillment in several key ways. For one, it means transitioning from shipping in bulk to distribution centers to handling thousands of small parcels going direct to customer’s homes. This requires a complete restructure of your warehousing and fulfillment strategies, in addition to implementing the software capabilities to manage customer orders and inventory levels in real-time.
Naturally, this can be a huge burden for retailers to take on – especially when they’re unlikely to have this kind of logistics expertise in-house. Furthermore, investing in new facilities and technology is a massive upfront cost that’s unlikely to be cost-effective.
For this reason, many brands choose to outsource to an experienced D2C fulfillment provider who has the manpower, infrastructure, and management systems to create a streamlined system from the very start. This helps to ensure a much more seamless transition into D2C selling.
Making the decision to transition to D2C is not for the faint-hearted, but the rewards are well worth it for those who invest the time and effort into making sure that their D2C offering is right for both their brand and their customers. The best and worst part? You no longer have retailers and wholesales to hide behind. This is great when all is well – but does mean having to seriously step up to the plate when things go wrong.
It’s also important to remember that going D2C doesn’t have to mean abandoning your other selling channels in favor of going direct; maintaining an offline presence through valued retail partners can help to reinforce your brand on the ground and expose your offerings to new audiences. By carefully balancing the needs of your customers across channels, you can develop a powerful distribution system that gives your brand a stronger competitive edge.