Sneakernomics: The Unintended Consequences for Brand DTC

Ok—Let’ start here: Retail is really, really hard.

A lot of brands think retailers are a bunch of greedy whiners, who don’t take responsibility for their mistakes. While some of those may exist, that attitude fails to understand how hard retail is.

The aggressive push to grow DTC at the expense of their wholesale partners is now exposing brands to the same trials that their wholesale partners face.

The modern DTC era started in the mid 90’s when the sneaker business collapsed, and brands found themselves stuffed with inventory. Brands frantically opened outlet stores to flush out their excess inventory. After cleaning up the market, brands found that they then needed to comp those closeout sales in order to show growth. brands became retailers overnight, with all the baggage that  comes with it.

With the advent of ecommerce in the 2000’s, brands quickly embraced the new channel, although some farmed out ecommerce to third parties, a move that set shoe brands back for years.

Brands fell in love with the idea of capturing both the wholesale margin AND the retail margin. What many overlooked was the additional costs of selling in pairs instead of pallets. But progressively, brands got better operationally, and final margins equalized.

Then the pandemic hit. The need for ecommerce accelerated quickly and every brand saw DTC sales leap. Ecommerce penetration hit record levels. Happy days are here again!

Brands made the mistake of believing that the ecommerce gravy train would last forever. They dropped retailers aggressively without understanding that not all of the sales from the discontinued retailers would be captured on their own ecommerce sites.

At the same time brands failed to manage the marketplace, bringing in far too much product for the demand. Aggressive promotions were needed to clear the excess. Brands were deeply discounting nearly every day.

Any good retailer will tell you that is so easy to promote your way to growth, at least in year one. And those same retailers will tell you how hard it is to wean yourself off excessive promoting. Brands cannot expect to cut back on promotions and still meet their stated growth goals, not without compelling new products, which does not seem on the horizon.

We’ve also seen brands walking back the business to discontinued retail. Brands need sales badly right now. We can expect the excessive promoting to continue, even as the inventory situation normalizes.

So—it sounded really easy, didn’t it. Grab all that margin. Show retailers how lazy and stupid they were. What really happened is that brands have forever altered the landscape of sneaker retail.

Ours was an industry where brands were sacrosanct. One great brands are tarnished, perhaps forever.