An Economist Intelligence Unit (in 2012) found the number of wholesale brands selling directly to their consumers would grow by 71% in 2013, which at that time brought the total to over 40% of all manufacturers.
Additionally, an eMarketer report projected retail ecommerce will reach 2.578 trillion in 2019.
These are quite impressive statistics, but are you really surprised?
As consumers have moved online, so have wholesale businesses. At first, it was simply seen as a way to make more from each sale and increase volume or as an online channel for B2B (wholesale to retailer). Today, the industry is starting to recognize direct-to-consumer ecommerce as a path toward competitive advantage and growth.
What are the benefits of moving your brand into the DTC ecommerce arena? Is your brand ready to take on that level of customer fulfillment?
I’m writing today to help you answer those important questions. There are a great deal of variables involved in the process, and it’s important to understand the benefits and risks involved.
Why go direct-to-consumers?
Wholesale brands are finding more and more competition in retail spaces, and that trend doesn’t seem to be slowing down. Where a pre-internet business may have found themselves competing with 3-5 other brands for retail shelf space, today they may potentially face hundreds of competitors, both on and offline.
As square footage becomes increasingly precious, retailers are finding themselves with less to offer and, especially for smaller brands, a higher cost of doing business. Many are turning to the potential of DTC as a way to move their brand around these obstacles.
Grow your sales
As traditional retail becomes even more crowded, you may find your brand losing out on its fair share of the real estate. You may also find yourself losing retailers altogether. At this point, DTC presents an excellent opportunity to regain sales that you’ve been losing out on as a result of this overcrowding.
If your brand hasn’t encountered this problem, DTC ultimately offers an avenue through which you can remove the ceiling created in traditional retail. A direct channel to your customers means a new way to reach them and further opportunities for increasing your volume. Plus it’s practically free of the geographic constraints put in place by traditional retail stores. DTC means reaching people far beyond your retail reach.
Gain control over your pricing
Direct-to-consumer ecommerce doesn’t merely offer growth potential; it also puts the power over price back in your hands. The direct-to-consumer business is shifting toward full price. The retail markup that was once being made on your products, can now be yours to keep. From this position, brands are able to manage their own promotional power to drive incentives, customer acquisition, and brand loyalty.
Strengthening your brand
Buyers are changing. Today they’re looking much deeper into who a brand is and what they have to offer. Today’s buyer wants the brand they’re buying from to offer the complete package. Not just a quality product, but an exceptional user experience from start to finish.
Going direct to the consumer means being in control of the entire journey your customer has with your brand. Where poorly trained retail staff or inefficient business systems may have held your brand back in the past, DTC allows you to execute as you see fit.
Develop a closer relationship with consumers
The opportunity to develop a closer relationship with your customers is one of the main advantages of DTC. Ecommerce technologies allow brands to track information-rich consumer data at a level that allows them to provide a personalized, one-on-one shopping experience that fits their buying journey. Providing this level of user experience makes it far easier to become the brand that your customers know and trust, bringing them back to you time and time again.
Test new markets and products
The investment made in going direct to consumer is minimal compared to that of traditional retail. Online DTC avenues allow brands to position a product (or the entire brand) in front of a new market with far less investment and risk involved.
The feedback brands receive from a test of this sort provides the opportunity to judge future growth potential in that geographic market. For example, if you were considering expanding your brand into a retail location in Brazil, you could first develop an online DTC channel and target the market with Facebook Ads to collect enough feedback to make a data-driven decision on whether or not to move forward with the potentially costly expansion.
Are you ready to go DTC?
Your current capabilities and your ability to expand them will determine your readiness for participating in direct-to-consumer ecommerce. In order to make the decision of whether or not to move forward, you’ll need to look at the following facets of your business.
Retail channel conflict
As you begin to supply your customers directly, your retail supply chain will undoubtedly view this as a threat to their future business. They may restrict your exposure to their customers or cut your brand altogether.
This conflict will create a need to restructure your product development, merchandising, and your overall supply chain.
Developing new products
One of the greatest benefits your brand will receive as it moves into DTC is the wealth of consumer information you receive. That information comes along with a need to meet your customers with what they have come to expect from top DTC brands. Your buyers may be looking for a new level of specially curated and localized offerings.
DTC also comes along with a new set of inventory merchandising challenges. Consider what effect DTC will have on your inventory planning and markdown optimization, especially if your brand will be opening a store. How will it affect your inventory replenishing procedures? What new IT systems will need to be put in place to handle the transition?
Where traditional retails order may have been massive and less frequent, direct-to-consumer ecommerce means adjusting to a much higher frequency and a fraction of the quantity. Do you have the systems in place to handle the new fulfillment procedures?
Perhaps the biggest leap your brand will take when moving from wholesale to DTC is in creating a unique, highly engaging customer experience. In order to drive your customers, you’ll need to offer a very individualized and unique experience that drives buyers to purchase directly from you, rather than retail stores that carry your brand.
What will it take to get started?
The investment required to dive into direct-to-consumer ecommerce will vary greatly from brand to brand. If you’re seeing declining sales from your retail channels, you may need to make a more serious investment in DTC to make the transition more quickly and begin recovering some of those losses.
If not, you may only need to invest in an ecommerce site in order to test your ability to thrive in this marketplace. Pop-up shops and stores within stores are common starting places for brands wanting to maintain a physical presence.
You will also need to implement digital marketing. In addition to your traditional advertising campaigns, you will need to hire an agency or internal team to experiment with paid search and comparison shopping strategies to drive traffic to your website. Avoid fractured attempts at tactics—you must have a comprehensive digital marketing strategy for search engines and social media to promote your products and grow your audience and customer base.
By now you know how you stand to benefit from transitioning or increasing your investment into direct-to-consumer ecommerce. You also understand what challenges you may face and what you may need to change within your business in order to make to shift successfully.
DTC offers wholesalers plenty of opportunity for improvement if they’re willing to put in the proper effort to change their business model. However, if you decide to grow in this arena, we wish you the best and our team is available to provide demand generation.
Here’s to your direct-to-consumer success!