4 Reasons Brands Such as Nike are Focusing More on Direct to Consumer Than Wholesale
By Tricia McKinnon
There was a time when selling your products through a large multi brand retailer was the only game in town. But over the years there has been a shift away from selling goods via wholesale towards selling through direct to consumer channels. Direct to consumer brands are one of the fastest growth areas within eCommerce and even large brands such as Nike are increasingly focusing on their direct to consumer businesses which includes not only eCommerce but bricks and mortar stores. In 2015 Nike declared a goal of reaching $50 billion in sales by 2020 (its sales were $36 billion by the end of 2018) and its direct-to-consumer business was heralded as one of the key ways to get there.
Even luxury brands which have relied on wholesale channels are also moving in this direction. Luxury brands such as Louis Vuitton, Celine, Gucci, Saint Laurent, Cartier and Chloé have significantly increased the amount of sales generated from their own stores and eCommerce sites. This trend is likely to continue and these are the reasons why.
1. More control over the customer experience. According to a study by eMarketer only 18% of consumers believe that brands offer an excellent customer experience. By focusing more on direct to consumer channels brands can take more control over the experience customers are offered. Take for example Nike’s House of Innovation store in NYC. Using their phones customers can scan the barcode on any product in the store and get more information. They can also self checkout using the Nike app. There is also a basketball court in the store where customers can test products. With features such as these customers are treated to a fun and modern shopping experience that is aligned with a brand that is known for high performance and innovation. It would be nearly impossible to provide a similar experience within a multi brand retailer that has a number of competing interests.
2. More control over margins. Margins are higher in direct channels than in wholesale. For example, it is estimated that Nike’s gross margins are 62% in its direct channels vs. 38% in its wholesale business. However by going direct brands have to take on other functions and costs related to fulfillment, stores operations, returns, website development and maintenance.
Tamara Mellon, who co-founded Jimmy Choo now sells her own line of shoes using a direct to consumer model. Speaking about the model she said: “I still work with the Italian factories, so I still pay the same price as all my competitors. The quality is incredible, but I don’t mark my shoes up six times anymore, because I don’t have to have wholesale margin in there. So my shoes are 50% less than what I used to charge.” “The future of retail is the end of wholesale. I built my business in a way so that I could give the customer what she wants, when she wants it,” said Mellon. “There’s a new way: the way some brands are doing in-store pop-ups, or shop-in-shops, which means you manage your own inventory, you stock it, and you give the department store commission. That way, the brand is still in control. Retail is still really important, but what that looks like is going to be very different.”
3. Better customer data. One of the other benefits for brands that use direct to consumer channels is the ability to collect better customer data, data brands wouldn’t normally have access to if they were selling through a traditional wholesale model. Rich customer data can be used, for example, to provide customers with more personalized products and services. When US digital device users were asked what action they were likely to take as a result of personalized brand content the top answer was: make a purchase (51%), followed by become loyal to the brand (49%) and recommend the brand to others (46%) came in third place. Rich customer data that brands can turn into actionable insights can be a game changer.
Digital native beauty brand Glossier is an example of a brand that essentially crowdsourced data about what type of beauty products readers of its popular blog Into the Gloss want and turned that data into the launch of a successful beauty brand. Now Glossier which was launched back in 2014 on the back of wealth of direct to consumer data is valued at over a $1 billion.
4. More control over storytelling and merchandising. Having owned channels also provides brands with the opportunity to tell its story more effectively. There is only so much merchandising direction a brand can give to a retail store and only so much guidance a retailer can be reasonably expected to implement for each brand. While perhaps it may seem like a brand is sweating the small stuff when it comes to details such as the exact products that take up space near its brand in a store, those details are critical for cementing the brand’s image in the customer’s mind.
Speaking about the evolution of retail Alice + Olivia CEO and creative director Stacey Bendet said: “brands today are like media companies.” “Ten or 15 years ago it was really just about making great clothes. Today it is about telling a story, reaching your customer and engaging that customer in more dynamic ways.”
It’s not just story telling that is important but owning the touch points across the buyer’s journey from return policies, to the pace of product drops to delivery fees to product presentation. All of these factors affect a consumers affinity to a brand and the brand’s value proposition. Having greater control of these areas provides the brand with a greater ability to influence each purchase.