Established brands in the US will sell more than three times as much DTC ecommerce this year than digitally native brands. A total of $161.22 billion is expected to be generated by DTC by 2024.
Why is this growth taking place? Ecommerce growth accelerated by 10 years in 90 days during the pandemic. Consumers have shopped online 84 percent of the time since the pandemic began. Many of them were shopping virtually for the first time. People are now more open to online shopping as expectations have shifted.
DTC brands are no longer a novel concept; shoppers are increasingly seeking them out. DTC brands accounted for 60% of all purchases made by Americans in 2021. Through DTC models, brands cut out the wholesalers and retailers and instead sell directly to consumers. You can do the same.
What is direct-to-consumer (DTC)?
Direct-to-consumer (DTC) is when brands or manufacturers sell their own products directly to consumers. With a direct-to-consumer model, products are sold without a third-party retailer or wholesaler.
In DTC retail, the following characteristics are present:
- The stock levels of DTC brands are managed by the brands themselves. It is the brand’s responsibility to sort, package, and ship orders placed by customers.
- Source or deliver the goods without relying on third parties.
- Customer communication and fulfillment control are key characteristics of DTC brands.
As a result of its ability to bring brands closer to customers, direct-to-consumer retail is becoming increasingly popular. The direct-to-consumer model strengthens relationships between brands and customers. Also, brands benefit from going direct-to-consumer by understanding who buys their products.
In many cases, Direct-to-Consumer reduces the number of steps in the buying cycle and improves the customer experience. Recently, 66% of online shoppers have made direct purchases from brands.
A 17.4% increase over 2021 is predicted for DTC ecommerce sales in 2022, according to eMarketer.
Wholesale vs. direct-to-consumer
When it comes down to it, direct-to-consumer sales refer to selling direct to customers rather than selling through channels like Amazon or Nordstrom. Producing products in bulk and selling them to retailers is considered a wholesale model. These products are then marketed and sold by the retailer as a middleman. By eliminating retailers’ sales commissions and display space costs, the DTC model lowers costs and enhances profits.
Direct-to-consumer marketing focuses on reaching people who are most likely to purchase the product. Customer preferences are often monitored over time in DTC to reach a more targeted customer base.
Retail and direct-to-consumer
It isn’t always clear cut which strategy is better for wholesale versus DTC retail. There are some brands that combine both, such as Nike.
DTC accounted for only 15% of Nike’s total revenue in 2010. By 2020, that number had grown to 35% for the athletics retailer. Nike’s DTC business generated $44.5 billion in revenue in 2021, and it expects to hit $50 billion by 2022. It is clear that Nike has demonstrated how selling DTC and partnering with retailers can coexist. However, it isn’t always that simple.
It is common for retailers to sidestep trusted partners in order to strengthen the customer relationship. The sales competition between DTC brands and retailers can seem fierce. Introducing direct-to-consumer sales to your brand is a delicate balance between increasing your brand’s DTC reach and maintaining ties with existing retailers. A brand’s partnership with big-box retailers can be strengthened by DTC when done right. It’s usually just a matter of following some best practices and treating your retailer as a partner. Traditional brands are recognized by 82% of online shoppers, so to maximize revenue, brands need a mix of retail and DTC sales.
Direct-to-consumer marketing benefits
One in seven of this year’s ecommerce development dollars will be generated by direct-to-consumer sales, according to retail expert Andrew Lipsman. A decade from now, he expects another $100 billion to be added, bringing the total to $212.9 billion.
The majority of online shoppers prefer purchasing directly from the brand rather than from a third party retailer. The shift towards direct-to-consumer brands: what’s driving it? Both brands and customers benefit from this combination.
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Establish a competitive position against established retailers
DTC brands can stand out from the crowd in areas where traditional retail brands may blend in. Brands who sell directly to consumers can showcase their individual values without worrying about retailers interpreting their products.
66 percent of shoppers say understanding individual brands’ values is easier. It is apparent that DTCs have a great advantage because 70% of consumers prefer to shop with brands whose principles they agree with.
The challenge for each direct-to-consumer business is to convince customers that it offers something no one else can. A key characteristic of Saatva, which was founded by Ricky Joshi, chief strategy officer, is that it avoids the “glitz and glitter” associated with typical DTC brands. Furthermore, DTC brands are not limited to what retailers believe are trending items, but can offer a full assortment of products. Shoppers can be driven to your DTC site by offering more choices.
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Distribution channels under control
Wholesalers deliver products to end consumers after they have been shipped to traditional retailers. You are more vulnerable to problems if you have a long supply chain. Everyone next in line is delayed by one bump in the road.
Direct-to-consumer retailers expose their supply chain to less risk. Global supply chains are being ravaged by COVID-19, making that more important than ever. A good example is Molson Coors Beverage Company. Traditional distribution channels were disrupted by the pandemic. The company went direct-to-consumer through its online store and saw a month-over-month increase in sales of 188%.
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Get feedback from customers and experiment with new ideas
Direct sales to consumers mean that you are aware of the entire customer journey, from start to finish. The insight gained will give you a better understanding of what they’re buying (and how).
Your product will develop and iterate faster if you have this insight into your consumers’ experience. With access to customer data, you’ll know what customers are looking for and what stumbling blocks they face.
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Opportunities for investment and funding
US retailers will close 50,000 stores by 2026, UBS predicts. Investing in DTC brands is a result of this retail apocalypse.
Brands do not make all of that investment themselves. DTC brands are being flooded with money from venture capital firms more quickly than ever before. Among D2C startups globally, Crunchbase data show that over 600 deals have raised $8 billion to $10 billion since the beginning of 2019.
An $80 million investment in 2021 brought Glossier’s total funding amount north of $260 million, making it one of the most notable investments.
Digitally native brands have caused big-box retailers to claim major stakes as they grow. A $80 million investment was made by Target in the DTC mattress retailer Casper. A $310 million deal was struck between Walmart and Bonobos in 2017. Dollar Shave Club was also acquired by Unilever last year for $1 billion. A middleman-less retail channel is seen as a valuable proposition by investors. Wholesalers and big-box stores do not require them to compete on price. Direct sales to consumers have higher profit margins than indirect sales.
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Customer experience can be personalized
A majority of online shoppers say that individual brands offer a more tailored experience. With DTC brands, customers can receive personalized experiences without being limited by big-box retailers.
42% of brands plan to provide personalized product recommendations to their customers in 2022 through tools such as quizzes, custom mobile apps, and behavioral data gathered from third parties or first parties. In the gift finder quiz, Universal Standard’s size-inclusive clothing brand asks customers what style of clothing they prefer and what colors they prefer.
The customer experience can also be personalized with subscription programs for DTC brands. Besides generating recurring revenue for DTCs, these also boost customer loyalty. Fabletics, for instance, offers special benefits to its VIP members. Each month, the brand offers subscribers exclusive discounts, free shipping, and a curated collection. By personalizing shopping, we remove the stress from it and make it more enjoyable.
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Increase margins without raising prices
Companies that sell directly to consumers don’t have to cut their margins. The retail price of a product is not shared by retailers, wholesalers, or marketplaces.
In addition to reducing CAPEX costs, DTC brands can also reduce commercial rental costs. Growth can be achieved without renting expensive retail spaces. Since DTC brands own their own distribution channels, they can sell their products at a lower cost.
D2C brands were preferred over traditional retailers because of their lower prices. In almost half of the cases (48%), consumers go directly in order to save money. We followed closely behind with free shipping and fast delivery.
Closing Thoughts
The advantages of selling directly to consumers are undeniable. Selling to wholesalers doesn’t cost you a lot, or take a huge cut from big-box retailers.
Do not consider DTC to be your only option, though. In the DTC world, legacy brands like Nike have demonstrated how you can leverage retail partnerships without sacrificing your legacy brand identity. The number of brands that are moving to direct-to-consumer (DTC) is on the rise.
Creating digitally native segments of your brand will help you test the waters. Make sure your customers are satisfied with your owned channels and that they continue to buy from you.
