E-commerce is on the rise, and manufacturers are increasingly choosing to sell direct-to-consumer (DTC). In the latest QAD Precision Report we look at what DTC means for manufacturers, along with the challenges, benefits, and solutions to support this sales model.
The skyrocketing growth of e-commerce has impacted almost every industry. The distance between manufacturers and the end-consumer has shortened, allowing manufacturers greater access to customers but also allowing rivals to flourish. Savvy digital start-ups and international competition can both deplete an established brand’s market share.
E-commerce may yet make up a fraction of all B2C sales, but the trend is only going in one direction — up. Online sales have been growing 20 percent every year for the last ten years. In addition, digital natives are turning to the internet for an increasing range of goods and services. Furthermore, consumers are increasingly making larger, more expensive purchases online.
E-commerce is becoming increasingly important to established, iconic brands. According to Levi Strauss & Co, the economic environment will not affect its denim sales.
The company has a five-year target of annual revenue growth in the range of 6% to 8%. This is an increase from its prior range of 4% to 6%. If achieved, this would bring Levi's total revenue close to $10 billion by 2027. In 2027, Levi's aims to increase its direct-to-consumer business to 55% of total sales, tripling its e-commerce revenue.
In the years before the pandemic, digitally-native brands were seen as the most innovative retailers. Now, traditional retailers and brands are incorporating these valuable lessons into their strategy. They have had to in order to compete for the future of e-commerce.
In order to attract and retain customers, many traditional retailers have begun offering the same experience provided by DTC brands. Nike, for example, began pulling away from department stores and other wholesale outlets a few years prior to the pandemic. According to Forbes, in the first quarter of 2020, Nike’s bet on DTC paid off: Its e-commerce sales skyrocketed 82%.
The success of digital-first companies such as Wayfair, Warby Parker and Dollar Shave Club all attest to the same lesson. Whether it is home furnishings, eyewear or grooming products, consumers are increasingly turning to e-commerce to fulfill their needs.
It would be a mistake to think that e-commerce is best suited to business-to-consumer (B2C) brands only. While consumer brands and B2C e-commerce get the vast majority of media attention, business-to-business (B2B) brands are leveraging e-commerce with significant success too. Last year, Grainger increased its web-only sales by over 18%.
More manufacturers and retailers will make the move to a digital-only, or digital-first model. It's important to keep up with the latest trends in DTC e-commerce. This year, there will be three trends to watch:
Retailers will increasingly use direct-to-consumer selling strategies
To compete with the growing number of digital-first brands, many traditional retailers will begin to offer their products directly to consumers online. This shift will result in a change in the customer experience. Customers will be able to shop without physically visiting a brick-and-mortar location.
DTC brands may seek to extend their product ranges beyond their core categories
The pandemic caused a drop in sales across many brands. However, Covid has also driven up demand for athletic gear and self-care products among consumers working from home. In the future, digital native companies will continue to grow and expand into adjacent categories.
DTC brands will continue to appeal to tech-savvy consumers
Retailers needed an e-commerce platform at the onset of the Covid outbreak, but they received an added incentive to adopt digital sales channels. Nearly two years later, consumers continue to shop online more and less in stores. E-commerce sales were up 45.6% compared to brick-and-mortar sales in Q3 2021.
For DTC companies, the most challenging aspect of selling online is fulfilling sales efficiently and cost-effectively. Selling one pair of jeans to 10,000 individual customers is more challenging than delivering a consignment of 1,000 pairs of jeans to 100 wholesalers. The complexities increase once you sell cross-border.
Companies also have to consider which channels and business models will best support their growth strategy. In addition to dedicated web stores, some manufacturers and retailers will benefit from using online marketplaces as well.
Although there are challenges with DTC selling, there are also a number of compelling reasons to embrace it. As in the case of Levi and Nike, DTC selling can increase gross margins. In addition, e-commerce offers manufacturers direct access to customers — something that cannot be accomplished through conventional channels. This information, including purchase habits and history, can allow brands to offer curated offers, prompting increased sales and customer loyalty.
Furthermore , 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 product range.
However, to leverage DTC effectively, manufacturers will need to consider how to fulfill online orders. For some, partnering with a 3PL may be the best option. Others may prefer — or find it more profitable — to fulfill orders in house.
To do this, companies will need new technological capabilities. This could include a global multi carrier shipping solution, to ensure goods are shipped cost-effectively and efficiently. Companies looking to expand cross-border and global sales will need an export management solution to manage the regulatory requirements and paperwork.
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