As we head into 2021, the direct-to-consumer (D2C) retail model is showing no signs of slowing down. Even after the stratospheric growth seen during the COVID-19 pandemic, the D2C market is still projected to achieve nearly 20% growth this year - marking a huge shift in how consumers shop and discover brands.
While D2C has pros and cons as a distribution strategy, there’s no doubt that the newfound level of interest from the biggest offline retailers is going to shape the model as the retail sector heads toward recovery.
So, what does D2C have in store for 2021? It’s going to be the year when online goes offline - and vice versa.
We’re well past the stage of referring to D2C brands as niche consumer offerings. As consumers continue to search for solutions to ongoing brick and mortar restrictions, the transparency offered by the D2C distribution model is growing more appealing. Not just for newly-launched brands, but to big-box retailers wanting a slice of this lucrative pie.
Consumers globally have felt the impact of overstretched supply chains during the pandemic. While this isn’t limited just to large-scale retailers, those with a complex structure of vendors and distributors have been hit the hardest.
By assuming direct control over distribution, traditional retailers can facilitate faster and more streamlined processes via multi-node fulfillment and O2O (online-to-offline) retail strategies for higher customer satisfaction and loyalty.
Consumer insights are a virtual goldmine in a climate of high competition, especially with D2C’s low barriers to the marketplace. By coordinating marketing, customer care, payment processing and inventory management, brands stand to gain in-depth data that builds a more complete picture of what customers want, rather than relying on often disparate information from vendors.
The pandemic has been a welcome lesson in how retailers’ ability to pivot can be the difference between surviving and thriving. Even amid supply shock and struggling parcel networks, D2C businesses have proven themselves less prone to disruption due to their strong digital infrastructure and direct customer service strategies.
With retail unlikely to return fully to a pre-pandemic ‘business as usual’, D2C is attracting increased attention as retailers look at how they can better protect their operation against future disruption.
We all know the story: Physical retail is dead. With department stores shutting up shop and the suburban malls continuing to disappear, the pandemic has only accelerated the inevitable - right?
Not quite. Brick and mortar has taken a big hit due to COVID-19, but D2Cs are grappling with their own problems, too. As customer acquisition costs rise within a competitive market, many brands are being forced to generate brand discovery opportunities elsewhere.
We’ve already seen several D2C brands make a successful transition to in-store retailing.
Eyewear brand Warby Parker now operates over 100 stores across North America following its beginnings as a digital native. Likewise, D2C beauty giant Glossier has established immersive, brand-centric flagship stores in New York City, Los Angeles and London, with additional ‘pop-ups’ in Nordstrom to promote its new fragrance during the 2019 holiday season.
Casper Sleep, one of the darlings of the D2C world, has augmented its online operation with numerous partnerships with leading retailers in the US, including Sam’s Club, Target, and Costco - all while running a comparatively small number of its own store locations.
This increasingly hybridized approach to D2C reflects consumer desires for unique and immersive retail experiences that ecommerce cannot deliver. In a post-pandemic world, the lure of brick and mortar will be dictated by stores’ ability to do more than just replicate their online catalog.
In short, they need to make it worthwhile for their customers to turn up in person.
Partnerships with well-established brick and mortar retailers have two-way appeal. D2Cs get to connect with shoppers in different demographics without the risk of committing to a more permanent brick and mortar arrangement. Retailers can leverage the benefit of increased foot traffic - and more importantly - increase their relevance in a fast-evolving market.
With brick and mortar stores ready to capitalize on consumer readiness to return to pre-pandemic activities, we can expect to see more D2Cs choosing to venture into physical selling channels.
Even as digitally-native brands move into brick and mortar, this is happening in tandem with a reverse trend; established offline retailers getting in on the success of D2C by launching (or acquiring) their own offerings.
Even as retailers’ own ecommerce operations grow increasingly sophisticated, they need to combat consumers’ growing desire to buy direct; 55% of consumers say they would rather buy D2C than through an intermediary brand.
And as alternative shopping journeys such as BOPIS and shopping in-store for home delivery continue to find currency amongst consumers, brick and mortar retailers are well-positioned to facilitate seamless shopping journeys - paired with a selection of in-house offerings.
Although not known for selling ‘cool’ products, Walmart’s decision in 2019 to launch its own exclusive, online-only home decor brand MoDRN marked a clear shift in retailers trying to emulate D2C brands - right down to their minimalist aesthetic:
Other giants have taken a different approach by choosing to acquire existing D2Cs; Unilever, one of the world’s largest consumer goods conglomerates, snapped up Dollar Shave Club for a staggering $1 billion. P&G was ready to follow suit in its acquisition of Billie until it was blocked by the FTC due to concerns this would “eliminate innovative nascent competitors.”
Some commentators are critiquing these moves as killing off competition (not to mention the allure of independent online brands). Yet it’s important to note that difficulty in scaling is a common problem for digitally-native brands. As order volumes rise, many merchants struggle to deliver boutique, end-to-end experiences en-masse.
By receiving the backing of large-scale retailers with extensive experience with nationwide distribution, this can extend something of an olive branch to brands who want to focus on the customer experience over building complex logistics channels.
It’s safe to say that as the D2C model matures, we’re going to see increased symbiosis between the newcomer brands and the big retail players - because one is going to need the other to achieve lasting marketplace dominance.
It was 2020 that gave digitally-native brands an unprecedented opportunity to make gains in new consumer markets. But the uncertainty still surrounding the return to ‘normal’ presents a chance for D2Cs to consolidate their gains in 2021.
As the vaccine roll-out continues, we can expect to see consumers begin blending original retail habits with those they’ve acquired over the past year. This creates expectations for more dynamic and interesting retail journeys that are likely to span across offline and online channels.
Retailers and D2Cs, take note: As the economy recovers and consumer spending increases, there are going to be winners - and losers. Competition in the marketplace is becoming tighter, and brands need to start thinking about how they can leverage these shifts to improve their brand experience to position themselves for growth.