Direct to Consumer is the Future of Brands
After experiencing disruption from agile, direct to consumer brands, many traditional brands are starting to move towards similar models. A simple reason why… traditional retail is effectively a tax. This is not to say that retail doesn’t add value, but for many products, there is a ton of available margin with which to build D2C businesses. Factor in other retail related costs like returns, shrinkage, damages, co-op marketing etc., and the proposition becomes even stronger. Margins aside, the most compelling reason for brands is establishing a direct relationship with the shopper. In a world awash with third party data, first person relationships are proving to be an invaluable competitive advantage over inferred shopper behaviors.
Retailers have husbanded shopper data for years, now brands can simply build their own datasets and use it as an advantage over retailer and competitor alike.
Not surprisingly, brand icon Nike is at the forefront of this trend, reorganizing its entire organization around building closer relationships with its consumers. This includes streamlining SKUs, reporting structures, and product development cycle times. The question becomes, will Nike eventually bypass retailers altogether? There are already some harbingers of this future as some investors have called into question the relationship between Nike and some of its retail partners. The reality is that the traditional retail distribution model is now very much in flux.
One of my favorite brands, Nespresso, was way ahead of this trend, building a full vertical and even including a closed loop recycling element into its product. Nespresso is triple threat for direct to consumer combining excellent product quality (no need to cut corners to make some retailer happy), very smart use of consumption data, and growing automation. Nespresso was one of our family’s first D2C experiences, but it opened the door to many other brands. We now get shaving, paper products, cleaning supplies, and other categories either direct from the manufacturers, or Amazon Subscribe, and Save. Margins that would have gone to stocking shelves, multiple logistics, promotions etc., are used instead to fund simplicity of shopping and removing friction from the process.
Obviously retail adds value. Curation and stocking products, customer service, returns, support, and advice are all part of a great retail experience. Sometime its just nice to have someone to ask a question. Unlike the early dotcom era, most of those functions take place easily from the palm of a shopper’s hand. In fact, It’s often easier than a store. Retail margin can cover a ton of digital. The Yin and Yang of brand and retailer relationships is going to be tested like never before as the ‘sea of sameness,’ that is the majority of retailing, becomes irrelevant to shoppers that have unlimited options not bounded by geography.
Shopper Marketing expert Mike Anthony astutely points out, shoppers will simply see fewer brands as retailers seek to rationalize their offerings with more focused product edits. This will cut both ways in stores. Often, brands have provided a cushion for retailer profitability through trade funding and co-op dollars (you don’t think retailers pay for their own marketing do you?). This will further crimp Retail Relevancy in terms of the amount of attention they are able to garner through push media… Thank Goodness. Meanwhile, brands will redeploy those funds to build better relationships with shoppers, and in the offing, get better “first party” data about what really drives behavior, loyalty and engagement.
It’s easy to envision a day where all of my shoe interactions don’t involve a store. I already buy all of my dress shoes from Cobbler Union, a direct to consumer shoe manufacturer with no physical presence except its HQ in Atlanta. I get inspiration for sneakers from sneakerheads like myself, and publishers like Complex and High Snobiety. I have a regular connection with Nike with its Run+ app. With rare exception, retailers are not part of my shopping journey. After all, what serious sneakerhead wants production shoes? I recently bought a pair of gold Nikes because, why wouldn’t you? I googled ‘Gold Nike’ and I honestly can’t tell you where they came from. It just didn’t matter.
How will this shift in shopper behavior play out? No one really knows. What is certain, shopper’s will have many more choices and that’s ultimately good for them!
But keep in mind an overriding principle will be… SIMPLICITY is the new EDLP! Make it easy for them… and they will buy it from you again and again and again. Frictionless fulfillment is the retail of the future.
Keep it simple, and your customers won’t be the only ones who benefit. #RetailRelevancy