DTC - the grim reaper for retail stores?
Who doesn’t love feeling like they just got hold of a bargain? With consumers increasingly turning to the internet to not only research their product desires but also to help them find a bargain price to buy at, it’s no wonder the direct to consumer (DTC) model has exploded.
What is DTC?
In simple terms, DTC allows manufacturers and resellers to reach out directly to their prospective customer base through their website and some sort of e-commerce platform. This model cuts out the need for a retail presence and with it, a myriad of associated costs. In addition, for probably the first time, it allows the manufacturer to build a detailed profile of and relationship with its customer base directly using its very own data. For the customer, they get a minimum-effort way to purchase at a lower price without compromising profit for the manufacturer leading to a win situation for all.
Amazon is of course the poster-brand for DTC, allowing everything from global brands to highly-specialised niche producers to attract an otherwise impossible to reach market. But there are some other great examples of where this works, including sectors such as health supplements, pet care and home cleaning products. Interestingly, while early thinking pointed to DTC being particularly effective for non-emotional and very transactional purchases, it’s increasingly becoming a highly-personalised experience (think subscription boxed based on personal preferences), thanks to the richness of data that manufacturers and resellers are able to benefit from.
We can point to some industry-changing trends that are as a minimum, disrupting the market and in their entirety, are fundamentally changing the entire industry. The rise of smart devices and social media have significantly changed consumer purchasing behaviour, with many retailers learning the hard way that feedback from a dissatisfied customer or criticism from a social media influencer can turn into a major PR disaster. The flip side is the increased control that consumers feel they have by having more direct relationships with the people who actually make their products and in fact, social media allows many of these brands to have a fully-fledged personality that would otherwise be very difficult to achieve (take a look at @innocent on Twitter to see what we mean!).
It’s not all just about followers and influencers though; the numbers back up the reality of the DTC model invading the retail sector. Nike has quadrupled its DTC revenue since 2009, from $2.18bn to $10.43bn in 2018 and they are predicting over $12bn in 2020 – numbers that are hard to ignore. Significantly, this is at a gross margin of 62% rather than the 38% it achieves in wholesale sales. New entrants to market are winning too; in the men’s razor market, the emergence of online-only start-ups Dollar Shave Club and Harrys Shaving have taken the industry by surprise, offering a monthly subscription service for razors delivered directly to the customers door at a fraction of the price. The fact that Dollar Shave Club was acquired by Unilever for $1bn just two years ago is testament to the growth appeal of this approach.
It’s not a win for everyone though and in this case, it’s traditional bricks and mortar-only brands that are feeling the pinch as a result of the DTC model flourishing. While Mike Ashley’s suggestion to ‘tax the internet’ with a 20% premium on online-only products feels excessive, brands are nonetheless having to think about how to make the most of their physical stores in this unchartered territory. Where we are seeing this work most effectively is with brands like Apple and Samsung who have a fantastic online experience that is supported by a physical store experience that is designed to offer an extension of its brand identity. It’s less about pure sales but more an enhancement of the purchasing process, offering physical collection, support and upselling of their products.
So, what next for the high street? There are still a number of ways you can hold appeal for customers who yearn to augment their shopping experience with something more tactile. For this demographic, the ability to touch, feel and engage with products simply cannot be matched by an online-only offering. Appealing to your customer’s senses and creating an experience out of their physical shopping experience, making sure retail assistants are knowledgeable and fully engaged with the products they are selling and offering personal touches such as personal shopping or online tools to help see how a product would look are all best delivered in person. Social media is here to stay, so embracing your sector influencers and creating engagement strategies to attract them as brand supporters is a savvy PR move, but one that requires commitment and ongoing interaction with to make sure it feels authentic and genuine. Finally, don’t under-estimate the power of the customer data you hold and use this to personalise your marketing efforts in the same way online retailers are doing; it obviously works so why not leverage this to your advantage.
The pace of change in retail is relentless and our only certainty is that its going to continue in this vein. As a sector, we’re just getting our heads around omnichannel and customer experience and so DTC seems to have come from nowhere. But instinctively it feels like its here to stay so the questions for retailers is once again, “how are we adapting”? because if we don’t, we’ve got a pretty good idea of how it will end.
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