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Regular Industry Development Updates, Opinions and Talking Points relating to Manufacturing, the Supply Chain and Logistics.

It’s time to blow up your business model and switch to DTC

It’s time to blow up your business model and switch to DTC
Retail is in the middle of the most significant reinvention that we’ve ever seen. What it means to be a retailer is evolving, and has been ever since the introduction of ecommerce. Mobile technology and social networks are changing the way people shop, and influencing consumer expectations in every aspect of their lives.

All this is coupled with the traditional market influences of growing competition, cost pressures, and the economy – forcing retailers to simultaneously focus on innovating and improving operational efficiencies.

With the rise of consumer platforms, brands simply no longer need to rely solely on their distributors to stay in business, and many aren’t, causing a tectonic change in the retail and services industry - the Direct-To-Consumer (DTC) movement. While it began a few years back, the likes of Dollar Shave Club, Under Armour, and Glossier have exploded into the market and these brands, plus many more, have been paving the way in recent years.

The appeal of DTC
Brands have a variety of reasons for investing in DTC ecommerce, beyond the simple desire to grow existing revenue. Warby Parker, Casper, Bonobos and the brands mentioned above have a competitive edge because they remain in control of four things: customer data, customer relationship, profit margins, and the overall customer experience – from discovery to delivery.

Perhaps though, the single most important reason behind the wholesale shift to DTC is that savvy brands are now responding to recent shifts in consumer online buying behaviour which indicates that shoppers are much more open to purchasing products directly from websites of brands. According to a recent survey, 59% of respondents preferred to do research directly on brand sites and 55% want to buy from brands directly.

This climate offers massive market opportunity for brands, there remains pushback to the process of integrating a direct to consumer model.

The reasons behind the hesitation in adopting a DTC approach follow similar themes: whether it’s concerns around upsetting retail partners, becoming B2C fulfilment ready and being able to compete with the same-next day shipping expectations being set by the likes of Amazon. Others have issues around investment, their technology capabilities or lack of ‘know how’ around how to get started with the shift from a B2B to DTC model.

These concerns are understandable, but brands cannot allow them to hold their businesses back. Almost half (48 per cent) of manufacturers are now racing to build DTC channels[1], and the number of brands selling directly to consumers is expected to grow by 71% this year[2], with notable examples such as Nike and L’Oreal, following suit.

With even the mega brands jumping on the DTC train, it poses some very tough questions for traditional brands. Do they look to address and overcome the challenges with DTC selling? Or, remain as they are and face being left behind?

Technology is key to DTC
Ask brands to name their key goals for any major business shift or technology investment and they will undoubtedly highlight the need to achieve change without disruption. Adopting this kind of measured approach is particularly relevant for brands considering establishing their own DTC ecommerce presence.

Unfortunately, for many brands this has led to simply setting up an ecommerce site and leaving it as a standalone channel. Often, in this case not enough thought is being given to supporting the frictionless ecommerce experience that customers now expect, from outstanding user experience, to same-next day delivery options, real-time shipping and delivery updates, or follow up recommendations and personalised offers.

As a result, many brands lag both on the digital end and operationally, leaving consumers frustrated with a digital experience that doesn't align with the expectations that are being set by their retail competitors.

That’s why the best advice for brands thinking about creating a DTC channel is to take the time to carefully think through how to implement the shift, and then determine the likely consequences of that change.

As part of that consideration, it’s also incredibly important to have the right technology partners in place before shifting to DTC, particularly those that can help make the process as smooth as possible. Ideally, manufacturers should be working with providers that have experience of helping other brands emerge into DTC. Additionally, it’s logical to work with partners who are specialists at getting ecommerce operations up and running and integrated with the rest of the business as quickly and easily as possible, via connectors to major ecommerce platforms.

At the same time, a brand will need to get quickly up to speed with all that running a DTC ecommerce operation entails. This will mean investment in an engaging and responsive website and systems that can efficiently manage consumer-oriented inventory, order management and fulfilment.

The DTC opportunity is here and it must be capitalised on. It’s time for brands to blow up their business model and make the switch. Those that use the right front end and operational systems from the outset will find the transition to DTC a much more seamless process.

In addition, brands with the right technology in place can enhance the DTC experience at all points of the buying experience, and, in doing so, position themselves as competitors to retail and born online brands.

The time is now though; if established brands don’t act fast to implement a DTC game plan, there’s a risk they’ll be left by the wayside.

Richard Parfect
Fund Manager, Seneca Investment Managers
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