The current pandemic has highlighted the importance of being able
to reach your customers at a time when most stores are closed. In
this QAD Precision Report we look at the benefits and challenges of
direct-to-consumer (DTC) sales for manufacturers.
The juggernaut that is e-commerce has reshaped almost every industry,
shrinking the distance between manufacturers and consumers and
allowing brands to build loyalty with customers across a number of channels.
Even before the Covid-19 pandemic, many manufacturers understood that
the digital revolution meant that they were no longer competing just
with their traditional rivals, but that digital start-ups — based
anywhere in the world — could target, and win, previously loyal customers.
At the advent of e-commerce, low value items made up the bulk of
online sales — think books, clothing and sports equipment.
Unsurprisingly, as consumers became increasingly familiar with online
shopping, they became more comfortable buying a wider number of
products online. After all, the convenience of shopping for a vast
variety of products from the comfort of your home has distinct
advantages, particularly for busy people or those without easy access
As a result, online sales have grown an average of 20 percent
year-on-year every year for the last ten years. What’s more, digital
natives have turned to the internet for larger, more expensive
purchases, such as household appliances and jewelry — and in the case
of Tesla, cars.
DTC and Covid-19
Governments around the world responded to the Covid-19 pandemic by
issuing stay at home guidelines and ordering retail closures.
Consequently, many consumers turned to online shopping. Research from
Adobe Analytics found that online sales in the US increased
25 percent in March. Companies that operate purely or mostly
online have a distinct advantage under these circumstances.
Nonetheless, this does not mean that DTC sales are a silver bullet.
Although online sales overall experienced a spike in March, what we
were buying changed somewhat. Groceries, over the counter drugs, and
hand sanitizer experienced skyrocketing surges, while clothing —
normally a popular and busy e-commerce category, fell 13 percent.
Having said that, a number of companies with a strong DTC model are
better positioned to ride out the crisis than others.
A Lesson From Nike
Sportswear and athleisure giant Nike has performed well during the
current crisis. This is because Nike has heavily invested in DTC, and
the company has long believed that DTC will become an ever-more
important revenue stream. Analysts suggest that the gross margins on
DTC business are 62 percent — significantly higher than the 38
percent for its wholesale business.
The DTC model has stood the company well. Nike released its fiscal
third-quarter earnings on 24 March. Overall, the company’s
revenues increased 5 percent, with digital growth of 36 percent. This,
along with strong growth across EMEA, Asia Pacific and North America,
helped to offset the impact of the pandemic. Furthermore, during the
early part of the year, digital sales in Greater China spiked more
than 30 percent during a time when the government had closed stores in
Long time Nike competitor, Adidas, recently announced
plans to increase its digital footprint during a time when 70
percent of its stores are shuttered. In late April, during a call with
investors, the German sportswear giant, noted that e-commerce will
become ever more important than ever before, and that it plans to
reallocate resources to e-commerce and IT operations.
If their customers are online, manufacturers and their products need
to be too. This could be through a dedicated e-commerce site or by
leveraging online marketplaces such as Alibaba and Amazon. Depending
on what they sell, and where they sell, it can be a challenge to
ensure that e-commerce operations are profitable. Nevertheless, as
consumers increasingly shop online, companies without a digital
presence risk being left behind. Upstart digital competitors can take
on leading companies — and make inroads into their market share.
When Dollar Shave Club set up in April 2011, nobody expected that the
scrappy start-up could inflict much damage on a venerable company like
Gillette. Established in 1901, Gillette is a world famous brand with a
number of highly regarded products.
In 2011 when Dollar Shave Club started its subscription service,
Gillette had a 72 percent share of the US razor market. But what
difference five years makes. By 2016, Dollar Shave Club had captured
51 percent of the market and Unilever bought the company, reportedly
for $1 billion.
The Challenges of DTC Selling
Digital start-ups can inflict damage on even famous brands. In the
case of Dollar Shave Club, it’s low cost subscription model along with
tongue-in-cheek advertising, helped lure millions of customers away
from more established brands. Nonetheless, larger brands have name
recognition, which is a significant asset when transitioning to DTC
sales. Having said that, there are certainly challenges with DTC selling.
For some manufacturers, DTC sales are, at least in the foreseeable
future, unlikely to be more than a fraction of overall sales. This is
particularly true if products are typically used by end consumers but
not purchased by them. Think of items such as car batteries. Although
DTC aftermarket sales of auto parts has been growing steadily for
years, the vast majority of us still prefer to have repairs done by a
For others, selling DTC means that a manufacturer may be working in
competition with retail and wholesale partners, which could risk
damaging those relationships. Traditionally, manufacturers have relied
on these partners in order to reach customers, but selling DTC may
change these relationships from complementary to competitive. However,
DTC sales can be complemented with other services such as drop
shipping of online orders to retail partners in order to create
different, but still complementary, selling models.
Getting it Right: Technology and DTC Selling
Perhaps the most challenging aspect of DTC selling is efficiently and
cost effectively fulfilling online sales. Delivering a consignment of
1,000 pairs of sneakers to 100 wholesalers across the European Union,
for example, is significantly more straightforward than selling one
pair of sneakers to 10,000 individual customers across 27 different
countries (28 including the UK).
To do this profitably, manufacturers will need to consider a variety
of fulfillment options. This could include partnering with a logistic
provider. Alternatively, manufacturers could reconfigure their
operations to fulfill orders themselves. For companies that sell
globally, a mix of the two might be the best answer.
A manufacturer that decides to sell DTC and use their own
infrastructure to fulfill online orders will need a global transportation
execution solution. Ideally, this should be able to handle any
mode of transport to support both global and domestic shipping.
Furthermore, the solution should include multi
carrier shipping capabilities, along with consolidations, to
ensure products reach consumers efficiently and cost effectively.
For high volume shippers, visibility is not enough. A single portal
exception management solution will allow you to track any and
all shipments, with all carriers, as well as alert you to problem
shipments and capture proof of delivery.
Should you ship cross-border, other technological solutions can
simplify this process. An export
management solution will ensure that export processes are met, the
correct documentation is included, and that paperwork is completed in
the correct language. Ideally, the solution should integrate with the
manufacturer’s system of record and allow for automated
business-specific rules. When shipping internationally, you must
adhere to all regulatory requirements. Therefore, a solution that
integrates shipping and trade
compliance will mitigate the risk of compliance missteps.
The Benefits of DTC Selling
Although there are certainly challenges with DTC selling, there are
also a number of compelling reasons to do so. Firstly, done right,
e-commerce, offers direct access to customers — and as in the case of
Nike has shown, greater gross margins.
In addition, there is a limit to how much stock can be made available
to customers, even in a manufacturer’s own dedicated stores. With DTC
selling, manufacturers can offer customers access to their full
Perhaps most compelling of all, DTC selling gives manufacturers a
wealth of data about consumer purchasing habits. With DTC selling,
manufacturers can easily track, capture and analyse customer data,
offering valuable insights into customer behavior. This direct
engagement with consumers can give a manufacturer insight into demand
before mass production begins. In an increasingly competitive online
world, this data could be the difference between companies that thrive
and those that do not survive.
If you would like to subscribe to the QAD Precision Report, or would
like to receive notifications about QAD Precision events, webinars and
news, please click here.
About QAD Precision – Trusted Global Trade and Transportation Execution
QAD Precision, a division of QAD Inc., provides industry-leading global
trade compliance, and multi carrier transportation
execution solutions from a single, integrated platform. An
ISO-certified company, QAD Precision assists companies to streamline
and transportation operations, optimize deliveries, and increase
logistics ROI. QAD Precision’s scalable and extensible solution easily
integrates with existing ERP and WMS solutions. Industry leaders in
every region of the world rely on QAD Precision’s global support
centers to leverage thousands of carrier services and manage millions
of global trade and shipping transactions every day. For more
information about QAD Precision, visit www.qadprecision.com.