Is direct-to-consumer the future? We take a look at the rise of this ecommerce model and ask… is it the future of retail?

Once reserved for challenger start-ups, direct-to-consumer (DTC) is now being wholly embraced by big and small brands alike. In fact, Nike project DTC – led by digital sales – aims to deliver 60% of its total revenue by 2025¹, meaning they’re slowly pulling out of brick-and-mortar retail channels to focus on online. But is this trend a fad, or a new way of doing business that is likely to stick around for years to come?

In the beginning

DTC actually dates back to the 1920s, when clothing brands began to open their own stores to reach customers first-hand. But it’s really taken off in the digital age. Direct-to-consumer was originally a way for niche and single product brands to sell without going cap in hand to retailers. It became so popular because it offers higher margins and the chance to connect first-hand with the customer. It also gives businesses greater control of the end-to-end customer experience.

Now everyone’s at it, but why?

DTC is a retail model of skipping the ‘middle man’ and selling directly to your customers, and it’s typically done online – eliminating the need to have a physical store or partner with big retail brands and resellers. Many brands are moving away a reliance from brick-and-mortar channels to build on DTC. What are the main reasons for switching to a direct-to-consumer model?

Cost savings: Online operations can drastically cut overheads and make a real difference to a business’ bottom line. You can save on rental costs, alongside securing higher margins that are typically sacrificed to a third party.
More control: A DTC brand has increased control over their customer relationships, because they are interacting with them directly, alongside their brand messaging – reducing the possibility of reputational risk if a third-party provides poor service.
Customer communications: When it comes to service, a direct line of communication with buyers is key – meaning you can quickly resolve issues.
More customer data: DTC brands have access to more (or at the very least, more timely) data about their customers – who is buying their products, what are they buying, and why – enabling them to make more informed decisions.
Competitive advantage: Moving quickly and being among the first in your industry to be a DTC brand helps you to secure more customers.
Selling socially: Many DTC brands now sell via social media, which offers access to a huge potential customer base and the ability to organically build ‘buzz’ around your products.

DTC spotlight: L’Oréal

L’Oréal has pivoted its business model in recent years to focus more on ecommerce and direct-to-consumer. While they still rely on purchases at physical stores, in 2019 their online sales grew 52%² when compared to the previous year. Their Global VP Guive Balooch says, “Everything we do now is about DTC… The journey people go on to buy our product is so multifaceted that we’re trying to focus on ways we can build services around that process. E-commerce is a specific part of that journey.”

But it isn’t ‘goodbye’ to physical stores…

Conversely, some DTC brands are moving onto the high street and opening physical stores. Just as a constant deluge of emails in our inbox impacted the cut-through of email marketing, many brands find it hard to stand out in an online DTC world. A brick-and-mortar store gives brands greater presence and helps them get noticed, alongside helping them offer a more tangible customer experience. When surveyed, 44.4% of consumers said they prefer in-store shopping to online. But it’s experience that really sells: 27% of respondents who prefer shopping in-stores said they do so because “they enjoy the presence experience of shopping in a store and visiting a physical location”. Another 25% said they like to touch, feel and experience products without the limitations of an online-only shopping experience.³

However, this same survey found that 48% of respondents said they’ve stopped purchasing certain items in-store and now purchase them online. Meaning that perhaps a hybrid DTC approach of physical and online sales will help brands to reach – and keep – the most customers.

DTC looks set to keep on growing, particularly in a post-pandemic world where buying habits have been possibly forever altered. But bigger, more established brands are likely to embrace the hybrid model of physical and online retail to maximise their sales. Those that are the most customer-focused, delivering what they know their shoppers want, and who embrace selling via social media will thrive.

_{¹ https://qz.com/2025862/nikes-direct-to-consumer-sales-are-taking-off
² https://digiday.com/marketing/everything-dtc-inside-loreals-tech-hub/
³ https://www.forbes.com/sites/forbesbusinessdevelopmentcouncil/2022/05/16/brick-and-mortar-shoppers-have-spoken}

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