Edition II | What You Have All Wrong About Direct-to-Consumer

Whenever a trend blows up, everyone starts using it as a buzzword and we end up diluting its meaning. For instance, a rapid shift to digital last year has given many legacy brands the opportunity to build direct relationships with their customers, and as a result for many in the industry, e-commerce has become synonymous with direct-to-consumer. Last week, we talked briefly about how e-commerce is not D2C. We want to clear up some of these misconceptions further by clearly defining what we mean when we say D2C. And set boundaries for what it’s not.

Misconception 1 — Direct-to-Consumer is Equal to Digital

For legacy brands pivoting to D2C, it’s not just about spending marketing dollars to acquire customers online. It’s about building a new product delivery model in a channel-agnostic manner. Let’s elaborate on what we mean. Last month, Wilson — a century-old brand — announced that it was opening its first store. In addition to a curated assortment of sports equipment, the store will feature limited edition products, exclusive seasonal drops, and Wilson’s newly launched sportswear line. According to their press release “This physical expression of the brand will serve as a test lab to gather feedback and input from athletes and consumers alike”.

Wilson has taken a page from the playbook of not only legacy brands like Nike who have built stores as pathways to brand loyalty but also digital natives who have expanded into stores to acquire customers and create a halo effect through the physical manifestation of the brand. We believe that many legacy brands are going to invest in upgrading, transforming, or expanding their physical footprint in the coming years.

Misconception 2 — Direct-to-Consumer Includes Selling on Amazon (or Kohls.com)

Digital teams at some legacy brands are responsible not just for sales on their websites but also through digital channels of wholesale partners such as Kohls.com or Amazon. It is still the case at many CPG brands where an overwhelmingly large portion of digital sales are driven by wholesale partners. Therefore when we wrongly equate D2C with digital we also end up including digital sales from channel partners.

The Lead’s definition of D2C includes only owned channels — digital and physical. Only the brand’s owned channels allow it the freedom to express itself, test new concepts, and serve the customer in line with its values. Most importantly, owned channels allow the brand to gather first-party data to further improve upon its message, product, and service in an effort to build lasting relationships.

Additionally, traditional store-based multi-brand retailers such as Bed Bath and Beyond and Dick’s Sporting Goods have experienced major upticks in digital sales and private label. But we at the Lead, do not count them as being part of the D2C movement because they by definition have been and are aggregators of consumer demand for their own and other brands.

Misconception 3 — Speciality Retailers Have Always Been Direct-to-Consumer

Yes, brands like Gap, Abercrombie, and American Eagle are the original D2C brands. But that does not mean that they are not part of the new D2C movement. Many of them are revamping their product mix, their store footprint, and their technology infrastructure to survive in today’s highly competitive business environment where it’s relatively easy to start a new brand. Just look at how many Instagram influencers have their own brands. Many of them are short-lived or never reach scale and profitability. But in the process, they nip away at the market share of incumbents and change customer behavior.

Young brands are forcing legacy brands to rethink the way they present themselves to a new generation of customers that have very different sets of expectations and aspirations. That to us is one of the core tenets of the D2C movement.

Truism — Success at Direct-to-Consumer Requires Openness to Change

Being good at the new direct-to-consumer business model requires brands to think and work differently than before. Because the onus is on brands and not retailers to interpret consumer signals, brands need a new degree of agility and responsiveness. This responsibility applies to every part of the value chain – from sourcing to fulfillment.

We had an opportunity to speak with one of the leading voices on this truism — Wendy LaHaye, the Chief Product Officer at Fabric. For those that are not familiar, Fabric is a provider of robotics-based last-mile fulfillment solutions. In our interview with LaHaye, we touched on many topics, including what it means to run an agile direct-to-consumer business operation. According to Wendy, “Understanding demand well at the local level is key to running a successful D2C business. But more importantly, brands need to have flexibility in their operations to allow for chasing evolving consumer trends, testing new products/styles and responding to shifts in local demand as consumers move in and out of urban areas.”

So as we think about what is true for success in the direct-to-consumer business model, it is clear that brands need a set of infrastructure capabilities that allow them to respond to changes faster. Technologies such as those provided by Fabric can help brands quickly adapt to this new way of going to market.