ESW: the rise of D2C and why brands need to act now

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In a well-ordered world of intermediaries where everyone is making a reasonable margin, brands might never have considered going direct to consumer (DTC), but the old order is crumbling, making DTC a business imperative, and the fastest and most effective way to start is through partnership, says Martim Avillez Oliveira, chief commercial officer – EMEA and APAC at ESW.

Avillez Oliveira: acceleration in D2C

Covid brought many bad things, but it also created a once in a lifetime opportunity for brands as traditional channels were curtailed and, in many cases, cut off altogether, resulting in a dramatic acceleration into the online channel, and more specifically, into DTC.

This trend was already underway pre-pandemic. Frustrated by a lack of control over their growth and limited access to their customers, and an over-dependence on marketplaces, the activities of grey marketers, and poor performance of the retail channel during the pandemic, many notable brands have recognised that DTC offers the opportunity to build long-term, sustainably profitable customer relationships that support (rather than dilute) brand-building efforts.

Proof abounds; Santander’s research in mid-2020 found that online sales had risen 52.7% year-on-year in August compared to an 11.6% rise in the same month in 2019. In 2021 in consumer packaged goods alone, ecommerce will be 6.6% of the sector and DTC will account for 40% of the sales growth.

In 2020, Nike changed the market overnight by announcing that it would come off Amazon and make its own way direct and through its own stores. While Nike’s decision may have been strategic, recognising the value of going direct, other brands such as Birkenstock made a decision to protect their IP by removing their products from marketplaces, due to what they saw as a reticence by the big players to tackle counterfeiting. As a result of these types of public moves to the owned channel, both traditional and new brands are redoubling their efforts to find greater independence from marketplaces and the threat of private label brands that are emerging from the data-led insights that are jealously guarded by those same marketplaces.

Brands that understand the evolution of traditional retailing see the importance of blending DTC with their existing channel structure. Stores of the future will be experiential meccas, where brands will espouse and reinforce the brand personas and experiences they are building on social media. But the transactional engine for future growth has undoubtedly accelerated into digital channels, and it seems unlikely that trend will ever reverse.

The DTC channel is the natural home for brands to double-down on their brand building initiatives, with its closed feedback loops and actionable insights on behaviour and preferences. With DTC, brands get control of a range of benefits that were once beyond their control or only partially within it. Direct, they can control reach, prices, merchandising, assortment, allocation, and speed to market. And the economics of selling direct compare favourably to traditional channels, and the high cost of selling on marketplaces.

By being in control of their own data, brands going DTC are able to better understand consumers, enabling rapid launch of new products to meet evolving trends and changing demand, building and reinforcement of their customer relationships, and reductions in distribution costs, all while maintaining control over their reputations by controlling the brand experience. But ecommerce, and consumer expectations are fast moving. For many brands, the best way to accelerate into the DTC channel is through partnerships with third parties that can provide the resources, expertise and infrastructure they lack.

While most brands will have experience of selling online domestically, the complexity and challenges of delivering great, consistent customer experiences internationally through the DTC channel are significant. This applies to the entire DTC value chain, from demand generation to customer retention, and every step in between – merchandising, localisation, checkout, payments, delivery and returns – to mention just a few. Investments made in differentiating a brand can be quickly lost if the customer experience is lacking. The beautiful brand promise made up front must be delivered efficiently and authentically, regardless of where the shopper is located around the world.

The ideal solution is one where the brand works with a third party, like ESW, that has not only the skills and resources, but also the local experience to help them navigate the minefield of local fiscal and regulatory laws and guidelines that vary dramatically from country to country. This enables brands to outsource the work that is not a core competence, leaving them free to build customer loyalty using data that they now own, enabling a direct connection with customers and the opportunity to personalise. The bottom line is around 40% of shoppers spend more on brands that personalise the customer experience.

In terms of timing, that time is now. There have been suggestions that brands will have to return to their usual channels to market post pandemic, but there is no evidence of this. The leap in ecommerce is now the new baseline. The brands that embrace DTC and all the emerging trends, technologies and partners available to them – whether that be on-site live-streaming, proprietary apps or global DTC specialists like ourselves at ESW – are the brands that will grow to dominate the channel.