You only need to rewind about 20 years to erase direct to consumer (DTC) as a channel from most profit and loss statements. You can go back another 180 years to the 1800’s to find what most would say is the start of retail with the Brooks Brothers department store. That’s a lot of combined history for brands and retailers.
Take a moment and put yourself in the shoes of your retailers. Over the last 200 years, since that initial department store popped up, they’ve operated as partners to brands. Brands supplied the products, retailers sold them to their community. A whole culture developed around brands and retailers working together.
But, in the last 20 years, many brands have started a successful additional revenue channel largely built on the years of support from retailers and the mutually beneficial culture they helped build.
As a brand, it’s crucial to consider this retailer perspective as you forge new channel strategies.
But now, as the world starts going back to main street, consumers are relearning the value of a face-to-face shopping experience outside of their homes. Retailers are once again becoming the link between a brand and it’s community. They are able to offer a smile and the right product in the way a brand is not. For brands, that means forging strong partnerships with retailers is the best strategy if they hope to meet their customers where they want to shop and deliver a durable brand experience.
What does this look like? Wes Allen, an experienced specialty retailer, put it recently on LinkedIn:
“The trick to overall brand health is to manage your brand so that you make a profit on what you sell direct, your wholesale partners make money on what they sell, and every customer can buy knowing that they will have a consistent pricing experience across any of the channels.”
Wes Allen, Principal, Sunlight Sports.
Recently, Simeon Siegel of BMO Capital put out research calling into question the viability of DTC only strategies, and the notion of those strategies alone being a successful, margin-rich opportunity for brands.
Ben Unglesbee of Retail Dive’s Brief captures it nicely. You can read his entire post here.
Unglesbee highlights the BMO reports analysis of brands large and small shifting into more direct to consumer selling, and if that strategy is actually more profitable. Recent reports have found that wholesale sales deliver higher margin before taxes and interest as compared to DTC sales. Additionally, DTC channels could mean lower sales dollars overall, even if the brand is capturing more of the sale price. With DTC, revenue per item may grow, but the amount of sales lost at retail make it an overall profit loss.
SGB also covered the BMO’s report. They sum it up nicely, by stating that the analysis showed that increasing DTC channels has not raised company-level revenues, gross margins, merchandise margins, earnings before interest and tax (EBIT) margins, and EBIT dollars.
Look no further than our partner Locally for market insights that confirm blended retail remains the way forward, because consumers interact with both channels interchangeably.
From our perspective at Envoy B2B we see results directly with the clients we work with. Rumpl landed 30 new accounts in a single month this year. Twisted X has achieved a 109% increase in B2B dollars, and increased B2B e-commerce orders. We’ve been in support of meeting the customer where they shop, online or at retail, as a fundamental growth strategy for years (remember our Wholesale Is Not Dead campaign?). And, we expect we will continue to champion that combined approach.
As consumers take delight in returning to stores, we are reminded of the retailers role as the connective tissue between the brand and its community. While the shift toward DTC has only taken 20 years (exacerbated by the recent pandemic), there’s over a century of strong partnership between brands and retailers to draw on as an example of a better strategy for growth.
DTC might be the new kid on the block, but it turns out the best strategy for long term brand health is to take a combined approach that realizes the strengths of both channels - DTC and wholesale - together. That’s how you grow your brand, support your retailers, engage your consumers, and grow your profits.