It is well documented that the retail sector is in the midst of a crisis but what receives less media attention is the impact this has on manufacturers.
The traditional retail sales distribution route to market for suppliers has historically been manufacturing > wholesale/distributor > retail shops and latterly online.
However, neither retailers nor manufacturers can survive the ever-decreasing profit margin, negatively impacted by selling price discounting, higher supply costs and ever-increasing costs of premises & logistics.
Manufacturers have realised that they can sell direct-to-consumers by adopting a D2C strategy & tactics and redistribute the retail margin to their own gain.
Change almost never fails because it’s too early. It almost always fails because it’s too late.
NIKE has been working on their D2C Strategy for over 5 years and in that time has seen revenues from their direct sales channel rise to $16bn from $6.6bn in 2015. Recent announcements make it clear that their Direct strategy is here to stay, and accelerate.
At current levels, direct sales equate to almost half of total global revenues, helping NIKE to deliver 45% gross margins - pretty impressive for a brand manufacturer.
Leveraging the power of digital, Nike will drive growth by accelerating innovation and product creation, moving even closer to the consumer through Key Cities, and deepening one-to-one connections.
There is a wide range of benefits to consumer brands, like NIKE, to adopt this D2C approach but the impact on retailers of more brands adopting D2C strategies is of course devastating.
Why Brands Are Going Direct?
The COVID-19 crisis has accelerated many companies' digital ambitions and caused others to rethink their business propositions.
In recent months, over 85,000 companies have launched online in the UK alone, many of which are brands implementing the first phase of their D2C Strategy.
A recent Barclays survey highlighted that companies adopting a D2C strategy stand to gain £13bn in revenue by 2025.
- Three-quarters (73%) of companies have already adopted D2C as part of their business strategy
- Seven in ten (72%) believe selling direct is good news for consumers
- D2C now accounts for 16% of all manufacturing sales in the UK
Benefits of a D2C Strategy
Brands moving to a D2C strategy benefit in a number of ways;
- Customer Experience: Brands are more able to deliver their own brands values than retailers.
- Brand Relationships: A direct relationship with consumers builds much greater emotional connections that just marketing to them.
- Customer Data: Owning customer data is incredibly powerful and allows brands to shape their marketing, product strategy and shopping experiences to match the demands of their customers.
- Brand Dilution: Selling direct avoids brand dilution by giving customers 100% exposure to the brand, both online and in dedicated retail stores. NIKE & Apple are experts at this.
- Customer Footfall: As high streets become a shadow of their former self, brands must find alternative sources of revenue and selling direct allows them to capitalise on this.
- Increased Sales: Being in direct control of the consumer relationship allows brands selling opportunities that they would not have with traditional sales channels.
- Improved Margins: Cutting out the middleman of retail distribution adds significant gross margin to brands' top line.
- Speed to Market: A to B is much quicker than A to Distribution to Retailer to B.
- Full Product Range Presented: Even the largest retail partner cannot accommodate a brands' full range but having dedicated retail space, online or on the High St gives brands the customer exposure they want.
- Price Management: Having direct control over selling prices gives brands the opportunity to manage margins legally and in line with their commercial strategy.
Retail is changing at a fast pace, with brands now going direct and adopting D2C strategy & tactics that sees retailers impacted yet again. What will retailers do to combat this?
Mark Taylor is a Retail Consultant at Retail Solutions, experts in digital strategy, eCommerce trading and digital marketing.