Consumer Brands Are Going Direct (D2C)

How brands trade with consumers is changing, with brands now going direct and adopting D2C strategy & tactics that sees retailers impacted yet again.

The traditional retail distribution route of Brand > Retailer > Consumer cannot survive the ever-decreasing retail margins; selling price discounting, higher cost prices and ever-increasing costs of premises & logistics.

Gone are the days of retailers obtaining profit improvements from their suppliers, as brands struggle with their own revenue & margin reductions.

In fact, margins are so tight that in order to improve profits, manufacturers are taking their brands direct to consumers and adopting a D2C strategy, both on the high street and online.

“Change almost never fails because it’s too early. It almost always fails because it’s too late.” - Seth Godin

NIKE DIRECT

NIKE have been en-route to establishing their D2C strategy since 2015, naming it, “Consumer Direct Offense“, and it's working.

NIKE Direct revenues have grown from $6.6bn to $16bn in 2020 and they show no signs of slowing down and have made their intentions clear.

“Leveraging the power of digital, Nike will drive growth – by accelerating innovation and product creation, moving even closer to the consumer through Key Cities, and deepening one-to-one connections.”

NIKE's D2C strategy will not only improve their revenues, it also delivers margin improvements, gives better brand experience for customers and perhaps most important of all, it gives NIKE massive data capture opportunities.

The impact on retailers of more brands adopting D2C strategies is of course devastating.

Why Brands Are Going Direct?

Customers shopping habits are changing and the 2020 covid crisis simply accelerated the move to online shopping, causing some high streets to become almost ghost towns. Charles Darwin made it clear that to survive, we must adapt and that is what the major consumer brands are doing. Retailers must act fast if they are to survive.

A recent Barclays survey, highlighted that companies adopting a D2C strategy stand to gain £13bn in revenue in the next five years.

• Three-quarters (73%) have already adopted this trend as part of their business strategy
• Seven in ten (72%) believe selling D2C and cutting out the ‘middlemen’ (retailers, wholesalers) is good news for both consumers and manufacturers
• D2C now accounts for 16% of all manufacturing sales in the UK, with sales increasing by 55% last year

Benefits of a D2C Strategy

Brands adopting a D2C strategy benefit in numerous ways;

1. Consumers Demanding A Better Customer Experience: Brands are far more capable of delivering their own brands values than third parties.
2. D2C Builds Brand Relationships: Once established, brands can have a direct and personal relationship with consumers.
3. Consumer Data: It's believed that customer data is more valuable than oil but regardless whether this is statistically true, under GDPR rules, retailers sharing data is a thing of the past.
4. Selling Direct Avoids Brand Dilution: However good a retail partner is, they cannot guarantee 100% deliverance of all brand values in message or execution.
5. Declining High St Footfall: As high streets become a shadow of their former self, brands must find alternative sources of revenue.
6. Increased Sales: Being in direct control of their selling opportunities and not competing in close proximity to their competitors is a clear advantage.
7. Improved Margins: Cutting out the middleman of retail distribution adds significant gross margin to brands top line.
8. Speed to Market: A to B is much quicker than A to Distribution to Retailer to B.
9. Full Product Range Presented Online: Even the largest retail partner cannot accommodate a brands' full range.
10. Selling Prices Controlled: There are very clear laws in the UK about selling price management and having D2C control allows brands to manage prices as they wish.
11. Dedicated Shopping Environments: Brands like NIKE have established dedicated brand shopping experiences, supporting their brand values and reiterating the core marketing messages.

Retail is changing at a fast pace, with brands now going direct and adopting D2C strategy & tactics that sees retailers impacted yet again. What will retailers do to combat this?

More info on developing a D2C Strategy in this Experts Guide.