D2C and its impact on retail

The coronavirus pandemic has greatly accelerated developments in many areas of work and commerce. This includes direct-to-customer (D2C) sales. Will this make retail redundant and what is the best way to respond to this phenomenon?

A leading vacuum cleaner manufacturer sums up the new paradigm in its TV commercials with the slogan: “Buy direct from the people who made it”. This slogan subtly suggests that buying directly from the manufacturer is completely different from or better than buying using the standard method.

During the measures put in place to combat the pandemic, quite a few manufacturers were forced to set up distribution channels under their own initiative more or less overnight. This is because companies could no longer access their usual distribution network, as shops were closed. The new direct sales approach was highly successful with customers.

Reality check: what’s the current situation with D2C?

According to a long-standing study by eShopWorld (ESW), more than half of 25- to 34-year-olds increasingly bought online directly from brand manufacturers during the pandemic. Mattresses from Caspar, shoes from Allbirds or spices from Ankerkraut are well-known examples of brands that sell to customers directly. In the meantime, even manufacturers of household appliances can no longer ignore this trend. For example, Bosch offers an app that not only allows users to manage their devices, but also includes a shopping option for accessories, consumables and even new appliances.

Meanwhile, a survey by the bevh association concludes that the D2C sales channel achieved a market share of 3.4 percent in 2021. At first glance, this doesn’t seem like much. However, the small figure should not distract from the fact that D2C has grown faster than digital commerce itself in recent years, with double-digit growth rates. So this is still a very dynamic area.

It is easy to associate D2C distribution exclusively with manufacturers. But that’s just one facet. After all, it is no longer necessary to maintain your own factory or manufacturing facilities in order to develop a strong brand that sells directly to consumers. Especially on online marketplaces like Amazon, there are now a number of companies whose own services consist of brand building and whose brand name is added to goods produced by third parties.

Advantages for brands

The advantage of direct sales from the perspective of manufacturers and brands is obvious:

• Independence from distribution partners: certainly the strongest motivation for manufacturers during the pandemic. This made it possible to continue selling despite the loss of entire distribution channels due to shop closures.
• The brand retains full control over brand experience and message: it is notable that particularly strong D2C brands maintain an impressive presence on networks such as Instagram or Facebook. They can act completely independently and present themselves in a way that best suits the brand.
• Direct customer contact: on the surface, this sounds like a truism. But D2C enables brands and manufacturers to collect data on their customers, from initial contact to sale and through the entire life cycle of a product. This opens up new prospects in marketing and also paves the way for involving customers in further product development. The data does not go to an intermediary, but can be used directly.
• Larger margins: the ability to dispense with intermediate retail increases the margins for the manufacturer. This makes it possible to offer products at lower prices, which in turn leads to competitive advantages.

D2C: no chance for retail?

Double-digit growth rates, many advantages for brands and manufacturers: is retail (in-store and digital) in danger of becoming obsolete? Going by D2C’s current e-commerce market share (even taking into account the dynamic increase), it is definitely far too early to herald the demise of the retail sector.

In fact, many D2C brands reach the limits of their own growth quite quickly. Particularly when companies have an ambitious business plan for their brand, they try to grow their distribution power by cooperating with bricks-and-mortar retailers (Caspar in the USA is a company that pursues this strategy). This can be a win-win situation for both sides. The D2C brand provides greater distribution opportunities. Retailers benefit from a strong brand that may already be promoted intensively by influencers.

For the retail sector, D2C brands provide a blueprint that can be applied to similar projects. While many companies in food retailing, fashion and home & garden already have their own brands, these often have an image as a cheap alternative brand. With the enough courage and creativity, retail companies can learn from D2C brands in order to emulate them.