Retail sales in August this year fell to the lowest rate since the 2008 financial crash, and many retailers are struggling as a result. Manufacturers will also be worried as they are irreversibly linked to retailers, and as news of store closures becomes ever-more frequent, it may be time for this sector to take a different approach to business.
Many are considering adopting a new business model, bypassing the usual routine of selling goods at a mark-up to consumers via a retailer, and selling direct to consumer (DTC) instead to secure their future in the retail landscape.
The adoption of a DTC model has been gaining in popularity over recent years, with established DTC brands such as Nike placing more emphasis on this side of their businesses, alongside new pure-play DTC players such as Harry’s and Casper.
In fact, 81% of consumers plan to spend with a DTC brand in the next five years and market growth is pegged at 18% per year – so, this trend is showing no signs of slowing.
Benefiting business and consumer
DTC is an attractive option for many B2B companies and it’s easy to see why. Removing the middle-man places autonomy back in the hands of the manufacturer. Having direct access to consumers will allow a business to garner data-driven insights about its end-users and provide the purchase journey they desire.
Companies will consequently be able to make better informed decisions around product, service and marketing that will allow them to more accurately meet demand and potentially reach new audiences and gain market share, while ensuring that existing consumers keep coming back for more.
The new-found knowledge and autonomy that comes with DTC retailing can also be used to help businesses stand out from the competition. Not only will their product no longer be as directly comparable to that of a competitor sold in the same retail outlet, but companies will also be able to build more lasting and loyal relationships with their consumers through the use of effectively tailored incentives and promotions; a valuable asset to have in the current treacherous retail market.
According to PwC, 73% of consumers consider customer experience as an important factor in their purchasing decisions, so if businesses can differentiate themselves and add value to their brand with good customer service, they are already one step ahead of other B2B retailers.
Consider the whole picture
On the other hand, manufacturers must be acutely aware of the risks that come with adopting a DTC approach, and how to counteract them. Firstly, they risk jeopardising relationships with existing retail partners, as they will now be in direct competition rather than collaboration with these businesses.
Fortunately, there are a few solutions to this problem. They could choose to only distribute select and exclusive products DTC, so as not to compete directly with retailers. Alternatively, much like Majestic and Naked Wines, they could choose to create a new brand that sells DTC while the original business continues to run as normal.
They must also ensure that they have considered the whole supply chain before making the leap to DTC retail. For most, this shift would entail the development of a consumer-facing e-commerce presence and logistics operation capable of fulfilling many individual orders rather than meeting wholesale demand.
For many, this significant business model evolution may seem like an impossibly daunting task. However, with more businesses adopting DTC by the day, firms need to act quickly so as not to be left behind. This is especially prevalent when counteracting the new entrants to the market, as these pure-play start-ups have agility on their side, accelerating their time to market.
So, as the retail industry continues to struggle, manufacturers must make the tough decision between investing resources in adapting their business, or risk throwing their hat into this expanding ring.
Mel Tymm, industry principal, Maginus