Out with the old and in with the new is pretty much the standard of modern day capitalist consumerism, but what happens when the new isn’t all it’s cracked up to be?
There was a time when the direct to consumer business model, known as D2C, was considered The New. From BarkBox to Bonobos, we saw a wave of brands ditch the racks of retail completely and adopt a strict D2C business model.
The earth kept spinning, consumers were seemingly satisfied, and all was well in the world… until the fateful day we saw Dollar Shave Club gel at the local grocery store. (Dun, dun, DUN!) Just when we were convinced to rid ourselves of retail, we found a trailblazing D2C brand sitting on the shelves of aisle three.
Dollar Shave Club isn’t the first D2C brand to make this move and they definitely won’t be the last, but it does make us wonder – what makes a D2C brand rewind to retail? How does the D2C business model differ from brick and mortar distribution, and which brands have (successfully) jumped ship to create a hybrid of the two? Let’s find out.
What’s the Difference Between D2C and Traditional Retail?
Picture this: it’s 2009, and you’re blasting I Gotta Feeling by the Black Eyed Peas as you drive to your annual eye doctor appointment. (Don’t worry, we forgive you for your Black Eyed Peas phase. We’ve all been there.)
You get to the eye doctor, take your exam, and now it’s time to redefine your style with a brand new pair of glasses. You head to LensCrafters with a prescription and a dream, excited to try on a myriad of frame shapes and styles by Ray-Ban, Oakley, and more.
What you just experienced at LensCrafters is a traditional retail model, where brands distribute their product to a retailer and that retailer sells them to you.
Even in the midst of a pandemic, this model remains strong, with 80% of all shopping still happening in stores. Additionally, despite the popularity of eCommerce, the number of retail establishments across the U.S. has increased by 70% over the last three years.
Now, let’s say a year has passed since your eye exam. It’s 2010. We won’t throw stones over your music choices, but we’re guessing you were feeling Fly Like a G6. It’s once again time to have those peepers checked and get some new frames to go around them.
Instead of paying another visit to LensCrafters, though, you check out this cool new eyewear brand called Warby Parker. The brand is completely online, and they send you glasses directly to try on and buy. And they’re 3-5x cheaper than LensCrafters; what a deal!
This experience is the direct to consumer model, where brands bypass a retail store – or “middleman” – and sell directly to you, the consumer.
Warby Parker was onto something. Flash forward several years and direct to consumer sales in the U.S. rose from $6.85 billion to $17.75 billion between 2017 and 2020. That success doesn’t appear to be slowing down, either: more than half of online shoppers are in favor of cutting the middleman out.
OK…so like, if there’s such a strong trend toward D2C, why even venture to pursue traditional retail distribution channels like grocery and retail stores? WELL…
D2C vs Retail: Pros and Cons
When it comes to D2C vs. brick and mortar, there’s no standard “right” or “wrong” – there’s only what’s right for your business. However, there are pros and cons to consider when deciding to go strictly in one direction or the other.
Full control: One of the biggest benefits of a D2C sales model is complete control. You have full say on how your product is displayed, talked about, packaged, and more. (Not to mention that the budget for all of that will be decided, almost wholly, by you.) Additionally, you have unfettered access to every customer’s data footprint to keep marketing efforts creative and consistent.
Less competition: Looking back at your hypothetical LensCrafters visit, there were multiple eyewear brands you could choose from at one retail store. When you have your own space to share only your products, consumers don’t have a flood of choices from other brands. (Which not only keeps them focused on your products alone, but also can cut down on the Paradox of Choice that can so often send customers running for the hills.)
No middleman: Eliminating retailers not only provides a direct line of contact to consumers (which, if executed correctly, means a greater likelihood of strong customer relationships), but also cuts costs and increases profit margins, since those middlemen need to make their money somehow.
More to manage: There is much more to juggle on the business end of things when you choose to cut out the middleman and do it all yourself. You don’t just need to worry about managing the supply chain, but also customer care, shipments, returns, and other liabilities.
Increasing saturation: As we mentioned earlier, D2C sales rose roughly 38% in the span of three years, proving there’s definitely a market – but while that may look like an opportunity to get in while the getting’s good, D2C’s been around long enough that there are probably a bunch of other D2C merchants in your product category – with more to come.
Volume: Sales volume can be tough to achieve (and expensive, with rising CAC) without a wholesale channel.
The in-store experience: Although there are many ways to mirror it, there’s just nothing quite like the interactive person-to-person connection you get at a brick and mortar shop.
However, it is interesting to note that this appears to become less significant as time goes on. According to a consumer behavior report, 57.5% of consumers over the age of 35 prefer to shop at physical locations, while just 45% of consumers ages 18-34 share that preference. (Insert something or another about Gen Z’s growing buying power here.)
Fewer logistics to manage: All you have to focus on is building the brand, advertising, and processing/shipping out wholesale orders – no need to process individual orders, deal with returns, etc.
More competition: Retailers stock products from hundreds of brands and manufacturers, leading to increased competition between brands.
Lower profit margins: Goods sold to retailers and distributors are sold at a wholesale price, which is always less than the retail price or what you might be able to capture on a D2C site. You might be able to make this up with volume, though. (If you want to take a deeper dive into the mechanics of wholesale and retail pricing, check out this comprehensive primer from Shopify.)
Why DTC Brands Have Begun Embracing Both
As with many things in life, the pendulum has swung from one side to another – and appears to be settling in the middle.
Excited by the new opportunities afforded by the eComm landscape, brands shifted to D2C; but, because there are merits on both sides of the spectrum, an armload of savvy companies are leveraging a hybrid business model.
According to the National Retail Foundation, consumers are using a mix of digital and in-person channels to build their own shopping experiences – and more than one third of Gen Z primarily opt for this hybrid mode of shopping. (Yep, it’s definitely time to start paying attention to Gen Z’s buying habits.)
Skyrocketing customer acquisition costs could be one reason we’re seeing this shift to a hybrid shopping experience, but – in reality – many brands are simply realizing the importance of experiential retail, a strong brand image, and building community.
Using brick and mortar stores alongside a direct to consumer business model provides an opportunity to leverage the ease and novelty of eCommerce to boost sales, and the inherent reach and popularity of traditional retail stores. (Remember that stat from earlier: 80% of shopping is still happening in stores.).
So which brands are making the shift – and which ones are doing it right? Let’s take a look at DTC brands that are returning to traditional retail roots.
Billie is a D2C, body-positive shaving brand founded in 2017. They’re most well known for the disruptive Project Body Hair, which consists of a series of videos that “daringly” (eyeroll) have the nerve to show women with body hair. Instead of making women feel ashamed about their fuzzies, Billie reinforces – to acclaim – the idea that shaving is a personal choice.
Beginning this month, the D2C brand will be moving into Walmart marking their first brick and mortar retail sales experience. By the end of February 2022, Billie will be sold in over 4,000 Walmart locations.
According to the brand’s co-founder Georgina Gooley, the return to retail “will make us inherently more accessible to customers, allowing people to buy wherever they please, whether it’s online or offline”, and move the brand toward their goal of becoming a household name.
Billie Razors exemplifies how moving to a hybrid business model is perfect for those looking to scale sales and brand awareness through retail accessibility.
Toothbrushes aren’t exactly an inconvenience to acquire. Walk into any grocer, drug store, or supermarket and less than 5 minutes later, you’ll have found a new one! That being the case, it’s hard to imagine a direct to consumer oral care brand finding much success. Enter: Quip, which has spent the last 7 years making waves in the dental industry with slick, Millennial-approved branding, the promise of even more convenience, and – here’s a kicker – a rewards program that incentivizes consistently healthy brushing habits.
As a DTC subscription brand, Quip allows customers to buy a base model and opt (or not) to receive new brush heads and batteries every three months.
Just three years after its founding, the brand began making their way into major retailers, including Walmart and Target. While heightened brand awareness was a major benefit of moving to retail stores, Quip’s main goal was to drive their website subscription sales. By selling only the toothbrush base at retail stores, customers were forced to visit Quip’s website to order additional brush heads. According to the brand, nearly 100% of people who purchase a Quip toothbrush will subscribe for refills.
Increased brand awareness and lower customer acquisition costs are great, but Quip shows us that retail stores can also be a medium by which to actually drive DTC sales.
Reformation was founded as a DTC brand in 2009, taking a major stance on sustainability in the fashion industry. When the women’s premium clothing brand announced their mission to bring sustainable fashion to everyone, they meant retail shoppers too!
After spending nearly ten years building their community as a DTC brand, the eco-friendly apparel retailer began selling their products though Nordstrom in 2018. Chief Executive Yael Aflalo said the move was intended to broaden their reach and further contribute to their sustainability efforts.
Looks like it worked! Four years later, Reformation is alive and well, continuing to sell their apparel through Nordstrom and showing us the impact that retail stores have on reaching new audiences.
Still want to know if a hybrid business model is right for you?
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