DTC-First: Why More Brands are Using the Direct-to-Consumer Model

dtcillustration

Unless you’ve avoided the internet for the better part of five years, you’ll likely have noticed a growing trend: direct-to-consumer commerce. It’s the process of selling directly to the end consumer, cutting marketplaces, retailers, and wholesalers out of the customer sales journey.

The growth of the DTC industry isn’t set to die down anytime soon. Data compiled in The Direct-to-Consumer Guide shows ecommerce is expected to account for 6.6% of all consumer packaged good (CPG) sales. The DTC movement accounts for 40% of the sales growth in the sector.

Two out of every five Americans have made a purchase directly from a brand or manufacturer, bypassing marketplaces like Amazon and Walmart. The result? By 2022, the number of DTC ecommerce customers will hit an all-time high of 103 million.

More than half of consumer brand manufacturers are shifting their traditional retail strategies to offer products directly to a consumer. They’re cutting out the wholesales and retail store middlemen, instead selling directly to the end customer. Here’s how you can do the same.

Table of contents:

Why do brands choose the direct-to-consumer model?

Control over distribution channels 

Traditional retailers need to ship products to a wholesaler, who goes on to deliver them to the end consumer. The longer your supply chain, the more exposed you are to problems. One bump in the road causes delays for everyone next in line. 

DTC retailers leave less risk exposed in their supply chain. That’s more important than ever, with COVID-19 wreaking havoc on global supply chains. Take the Molson Coors Beverage Company, for example. The pandemic disrupted the company’s traditional distribution channels. It went DTC via its online store and grew sales by 188% month over month.

“Whilst we considered retailers as a brand awareness and acquisition strategy, we found the effort it takes to manage these different distribution channels outweighed the benefits. 

“With one main distribution channel, it allows us to focus on efficient scaling, and without a lot of the overheads that building a traditional drink brand would entail.” —Paul Wyber, founder of Gerry’s

Retail stores are in complete control over where they place your products in their store, too. What might sound like a small difference can have huge impacts on revenue. In one study, the same product saw a 25% dip in sales when continually placed on shelf two. The same item on shelves at eye-level height—three and five—sold better.

Profit margins 

Direct-to-consumer companies don’t have to make cuts to their profit margins. There’s no retailer, wholesaler, or marketplace claiming their fair share of a product’s retail price. 

Because of this extra profitability baked into each item, DTC brands choose to sell their products at a lower cost through their owned channels. Lower prices was the leading reason for choosing a D2C brand over a traditional retailer. Almost half said they’re going direct to get products at lower prices (48%). Fast and free shipping followed shortly behind.

Develop and iterate faster

Selling directly to the consumer means you have eyes all over the customer journey, from start to finish. You’ll understand why they’re purchasing (and how)—insight that would’ve gotten lost if those products were sold through traditional retail strategies. 

Take Molson Coors, for example. After pivoting its business to sell DTC online, it made some optimizations based on data it had collected. That included:

  • Catering to consumers’ requests for a wider range of products.
  • Optimizing its site visuals for mobile, since mobile traffic accounted for half of all store visits.
  • Running A/B tests on landing pages and creative messaging to see which its consumers responded to best.

Having this oversight into a consumer’s experience with your product means you’ll develop and iterate faster. You’ll know the stumbling blocks and demands from customers without having to battle each retailer for access to customer data. 

“I’ve always been a big believer that owning the relationship with your customers is the most powerful thing you can do, and by being DTC only, this allows us to control the customer experience from start to finish. 

“In order for us to provide the best experience for our customers, we need to understand them as best we can, and by using traditional retailers and marketplaces, we lose those vital insights.”—Paul Wyber, founder of Gerry’s

What sparked the direct-to-consumer trend?

The coronavirus pandemic

Worldwide lockdowns meant traditional brick-and-mortar stores had to shut down for months. Because of this, 84% of consumers shopped online since the start of the pandemic. For almost 150 million of them, it was the first time they’d ever shopped virtually.

The result? 10 years of ecommerce growth happened in just 90 days at the height of the pandemic.

Source: McKinsey
Source: McKinsey

During the pandemic, direct-to-consumer brands with thriving ecommerce experiences were able to very quickly and easily pivot their marketing and messaging, their energy. They didn’t have to fundamentally rethink their business model. They could focus on very different things because they were at a significant advantage.

—Hana Abaza, Shopify Plus’ Global Director of Marketing

Soda brand Olipop was one of the retailers forced to try its hand at ecommerce. Despite all of the odds stacked against it, Olipop has seen a tenfold increase in DTC sales over the past year.

Tobi Lütke, CEO of Shopify, believes the pandemic brought 2030 to 2020. Some of the world’s largest legacy brands are scaling down their traditional retail strategies—and launching DTC initiatives instead. 

Funding and investors

Before the coronavirus pandemic, more than 9,300 retail locations closed in 2019. The so-called retail apocalypse triggered more CPG companies into investing in their DTC efforts.

That investment doesn’t just come from the brands themselves. Venture capital firms are ploughing cash into DTC brands more quickly than ever. Between 2015 and 2019, almost 60% of all money invested ($3.3 billion) was put into direct-to-consumer brands. 

Amongst the most notable was Glossier, which received a $100M Series D investment in 2019, bringing its total funding amount north of $186 million

The sudden growth of DTC companies has worried big-box retailers, causing them to claim major stakes in digitally native brands. Target bought a stake in DTC mattress retailer Casper for $80 million

Walmart acquired Bonobos for $310 million in 2017. Unilever also acquired legendary DTC brand Dollar Shave Club for $1 billion the year before. 

Investors see the value in cutting the middleman out of traditional retail channels. They don’t have to compete on price when dealing with wholesalers and big-box stores. The higher profit margins up for grabs when selling directly to consumers is appealing. 

DTC growth in non-ecommerce sectors

The DTC trend isn’t just impacting ecommerce. It’s driving growth for publishers, too.

Some of the largest publishers are digitally native. The New York Times, for example, was historically a printed newspaper sold in convenience stores. The decline of print media meant it was forced to reprioritize. Online and international expansion became a bigger priority.

Now, it’s generated $155.3 million from online subscriptions—a rise of 34%. Print subscriptions, however, shrunk by 3.8% to $145.7 million.

4 direct-to-consumer brands to learn from

Allbirds

Footwear brand Allbirds is a prime example of how DTC brands can still have a physical presence in major cities without relying on big-box retailers stocking their products. Allbirds’ website generates a decent chunk of its sales. Yet it also has brick-and-mortar stores all over the world to reach customers who still prefer to try on shoes and get help from in-store assistants. 

Allbirds co-founder Joey Zwilinger adds that this direct relationship with customers has a knock-on effect on the quality of the brand’s products:

“We believe that the feedback loop between us and our customers is critical. The improvements we make to our product as a result resonate with our customers. For example, we’ve made over 35 changes to our original Wool Runner since it initially launched in 2016, almost all based on the concerns and experiences of our customers.”

This continual dedication to building customer relationships has resulted in a $1.4B private evaluation, generating $100M in annual revenue. Not bad for a company starting out in a competitive industry just six years ago.

Bombas

Bombas is a classic example of a DTC brand succeeding when it focuses on one core product. Originally a sock company that was featured on Shark Tank, the retailer does 97% of its business online—with big-box retailer or marketplace partnerships nowhere in sight.

It’s this DTC model that attracted investor Daymond John

“They were selling socks, but they weren’t selling in traditional retail stores. They were selling them direct to the customer.”

Bombas generated $17.2 million in sales after migrating to a new ecommerce platform (300% year-over-year growth). It has now expanded into new product lines—like shirts and slippers—after building and mastering its original core market.   

Chubbies

Another apparel brand that’s seen success through the DTC business model is Chubbies

Specializing in one thing—shorts—and building an appealing brand personality, lead it to grow an email list of 1.5 Chubster Nation members. That’s alongside an expanding social media audience of almost 2.3 million across Facebook, Twitter, and Instagram.

Retailers only selling through marketplaces can only dream of having the loyal, engaged community that Chubbies has built by selling directly to its consumers. It’s a business model that’s netted 50% year-over-year sales growth to date.

Gymshark

Despite only launching his business in 2012, when he was 19 years old, Ben Francis has managed to grow startup company Gymshark into one of the fastest-growing global fitness and apparel brands. His trick? The DTC business model.

You’ll only find Gymshark products available to buy on its website. (A website that sells to customers in 180 countries and in 13 different languages.)

Contributing to Gymshark’s impressive growth is its marketing strategy. It’s built a community around its gym wear, partnering with influencers and hosting live events on its Facebook page. It’s managed to amass an audience of over five million by tapping into Instagram’s fitness culture. Another 217,000 follow Ben’s founder journey on YouTube.

Because there’s no need to pay a cut toward retailers and stockists, Gymshark made a profit of £18.6 million on sales of £176.2 million in 2019. It’s no wonder Gymshark was named the UK’s newest £1 billion valued unicorn.

9 consumer product brands that have gone DTC 

Nike 

One legendary brand making the move toward DTC is sneaker brand Nike. 

Nike has openly admitted that online sales are more profitable than deals made with wholesalers. So, in late 2020, it stepped back from selling on Amazon. 

A spokesperson revealed both moves derive from its consumer direct acceleration strategy:

“We are doubling down on our approach with Nike Digital and our owned stores, as well as a smaller number of strategic partners who share our vision to create a consistent, connected, and modern shopping experience.”

Nike set a goal to have 30% of its ecommerce sales derive from digital by 2023. While it hasn’t revealed the exact figure, sales made through Nike’s online store already exceeded that during Q3 of 2020. It makes almost $9 billion by selling items directly to the consumer. 

Knix

Knix originally used the traditional business model of selling to wholesalers. 

Back in 2016, Knix’s founder, Joanna Griffiths, made the decision to pull the plug on the 700 retail locations Knix products were stocked in. It transitioned to being a digitally native brand, selling directly to its consumers online. 

It’s a move that cut revenue in half—but later triggered a 4,000% growth in the three years after it made the decision to sell directly to customers. 

Kraft Heinz

Kraft Heinz was a traditional manufacturer that only sold items through wholesalers and distributors (namely grocery stores). Around the same time COVID-19 forced those grocery stores to shut, Heinz launched its first-ever direct-to-consumer initiative: Heinz to Home.

Heinz to Home bundles the brand’s top-selling products and ships them directly to customers all over the UK. It’s a move that caught the attention of news publications like the Daily Mail

“This platform was created in the context of COVID-19 with a purpose to support consumers that could not access our brands. In the future, this channel will be incredibly powerful to get closer to our consumers, get insight, and take learnings to the rest of our business.” —Jean-Phillipe Nier, Head of Ecommerce, Kraft Heinz UK&I

Heinz’s move to DTC was so successful that it’s already planning new bundles. One of those is a delivery bundle geared toward a subsection of its customer base: vegans.

Learn more: Food and Beverage Industry Trends 2021

K-Swiss

K-Swiss built a name for itself by selling tennis shoes. You’d traditionally find its products in retail stores like Footaction, Foot Locker, and Champs Sports. They broke that legacy with their first DTC sneaker. 

DTCGuide_KSwiss

K-Swiss partnered with entrepreneur/influencer Gary Vaynerchuck to create a line of products for entrepreneurs. Borrowing Vaynerchuck’s audience—and selling through its own website, not retail partners—was K-Swiss’ first move away from traditional retail channels and towards selling directly to the consumer. 

In just five weeks, it launched three websites in multiple languages and currencies.  

Nestlé

Nestlé has an arsenal of CPG brands under its umbrella. It traditionally sold coffee products in grocery stores and supermarkets. However, Nestlé refocused to reach millennial customers; those using social media to discover new products.

Nestlé launched a DTC campaign that gave away 21,000 coffee samples over a year. Customers could only claim the samples by going directly to Nestlé’s website. Just a few hours after launch, it met 90% of its goal and had to be shut down early. Many campaign samplers are now loyal Nescafé customers.

Maille Mustard (Unilever)

Since 1747, Maille Mustard has been selling through distributors to its loyal customers. Its parent company, Unilever, now sells premium and unconventional mustards directly to consumers via its own branded website

The premium products have a big impact on margins and offer the customer a price point that may not be appropriate for retail partners. The company is in a position to offer 15% coupon codes to people visiting its website; an offer that likely wouldn’t be financially (nor logistically) sensible for products sold through retailers.

DTC also allows the company to pursue partnership opportunities that typically don’t happen via retailers.

CoverGirl

Historically, beauty and cosmetics brand CoverGirl has only been sold at big-box distributors and online marketplaces. By leveraging existing celebrity endorsements, CoverGirl was able to experiment with DTC quickly. With the help of One Rockwell, the company launched its ecommerce website in just four weeks.

DTCGuide_covergirl

Interestingly, Covergirl has no intention of cancelling its retail partnerships in favor of selling exclusively to consumers via its website. Its Chief Marketing Officer, Ukonwa Ojo, had this to say about the decision: 

“We actually see it as a great place for learning, to make the traditional retail work harder. Now, we can go to our retail partners with insights, and say: ‘these are the products that are doing particularly well’ or ‘here's some technologies that you can bring into your store to elevate the shopping experience’.”

PepsiCo

Parent company to many CPG brands, PepsiCo, launched two DTC initiatives after the pandemic shifted the way people bought groceries. 

They created Snacks.com, a place for consumers to buy Frito-Lay products like Cheetos and Lay’s when most convenience stores were ordered to shut down. PantryShop.com also came into the mix; a site where shoppers order specialized bundles of popular PepsiCo products, including Gatorade, Tropicana, and Quaker. 

DTCGuide_Pepsico

Both DTC sites went from idea to launch in just 30 days. Gibu Thomas, head of ecommerce at PepsiCo, said: “Ultimately, our goal is we want to give the consumer as many choices as possible to shop for our products whenever, wherever, however they want to shop.”

Lindt

For Swiss chocolate company Lindt, Easter is the second-largest period for sales. Unfortunately, COVID-19 hit just three weeks before that period in 2020. Lindt was forced to close 56 stores across Canada—a move that could have potentially caused the company to lose out on millions in revenue.  

“Going into this was a major hit. Easter is our second-largest season, and although we had planned to launch ecommerce in 2021, we suddenly had to get online—fast. We thought, ‘How do we deal with this?’” —Kairen Wu, Vice President of Marketing, Lindt Canada

Instead of dealing with the closure of its stores, Lindt managed to launch its first DTC initiative in just five days. It allowed customers to shop directly through its website, delivering products to shoppers across the country. 

“We had fantastic feedback from our customers, many of them telling us that we helped save Easter. In this crisis, every day can seem to run into the next. But our customers told us that we gave them a way to come together and celebrate and feel a bit special and closer to normal.” — Kairen Wu

Are there any pitfalls to the DTC model?

Your reputation is everything

While selling directly to the consumer does have its benefits, retailers need to know that their reputation is everything. Traditional CPG companies have the luxury of marketplaces and big-box retailers dealing with the customer purchasing experience.

“DTC brands need to ensure their customers have the best possible purchasing experience from start to finish. This includes things like ensuring the website all the way down to the goods the consumer receives in the mail are all without issues, as it is your brand reputation on the line throughout this whole process. 

“Brands need to ensure they have processes in place when their customer experiences fall short of expectations, or if things go wrong, because they can and will.” —Paul Wyber, founder of Gerry’s

You can’t use a marketplace or retailer’s existing audience

It’s no secret that Amazon is a growing ecommerce machine. By choosing to skip selling your products through its marketplace, you’re missing out on capturing the 63% of shoppers who head to Amazon at the start of their product search.

Image via MarketingCharts

Because of this, D2C companies’ investment in marketing increased by 30%. Brands selling directly to the consumer need to splash the cash on digital channels in a bid for Amazon customers’ attention.

Severing ties with retailers

Choosing between wholesale and direct-to-consumer strategies isn’t black and white. Some retailers, including Nike, have a combination of both. The downside to this is that sometimes, wholesale and retail customers are upset when one of their brands moves to DTC. 

Heinz is a fine example. Its Heinz to Home DTC move reportedly worried many wholesalers—with one saying the bundles were undercutting retailers’ with their discounted pricing. 

As a result, Heinz issued a statement explaining the decision to ease its retail partners’ concerns:

“We are offering free delivery and priority shipment for them. We also recognize that others who are vulnerable and self-isolated may struggle to get access to our brands. Since it is very difficult for us to identify this group, the online shop is open to everyone, but with the cost of packaging and delivery on top.”

How to sell directly to the consumer 

1. Prioritize customer experiences

Digitally native brands that sell directly to consumers understand customer experiences. After all, they’re competing with brands using marketplaces like Amazon or eBay, which have the luxury of free (sometimes same day) delivery.

The truth is: only 38% of the largest companies are capable of competing on customer experience. Marketplaces and big-box retailers aren’t set-up to cope with delivering fantastic experiences for customers. That’s where DTC brands swoop in. 

Virtual shopping experiences

Personable shopping experiences haven’t shut down since COVID forced retailers online. Direct-to-consumer brands like Rebecca Minkoff are using 3D modelling and augmented reality (AR) to deliver real-life shopping experiences online.

“At a time when the savvy fashion shopper wants to be able to connect with a brand's persona, understand the texture and structure of every bag, and envision how they'd feel wearing each piece in a collection, we're excited to host video and 3D within our Shopify ecommerce site to bring shoppers that much closer to Rebecca Minkoff designs." —Uri Minkoff, CEO of Rebecca Minkoff

Since implementing this new technology, the DTC brand found that visitors who interacted with a 3D model were 44% more likely to add an item to their online shopping cart. Plus, when visitors viewed a product in AR, they were 65% more likely to make a purchase—proving the need for personalized shopping experiences.  

Legendary DTC brand Warby Parker saw similar results. Its in-store eyeglasses measurement service needed to pivot online. 

Its co-founder and co-CEO, Dave Gilboa, explains:

“Over the last few weeks, our team has also rebuilt all the technology that’s used to serve customers in the store. We’ve created contactless payments, contactless measurement devices, digital intake forms. 

“Instead of our team using a pupilometer, which looks like a pair of binoculars to get your pupillary distance measurement, we’re able to take that measurement using an iPad or iPhone camera—and even do so remotely.

“And instead of filling out any paper forms, we’ve created digital intake forms that we can email or text to you that you can fill out on your own device. 

“So our team has really rapidly adapted to this new environment to ensure that we’re able to serve customers effectively but do so safely and with as little contact as possible between customers and our team, and customers with one another.”

Multi-channel retail

Long gone are the days of customers going to a big-box retailer armed with a shopping list of things to buy. These days, consumers are ready to make purchases outside of traditional shopping destinations. 

Multi-channel retailing targets those people where they are. It reaches 48% of internet users who’ve made a purchase through social media. Platforms like Instagram Shops and TikTok, and niche streaming sites like Twitch are essential to DTC success.

Offline experiences make their way into the mix for successful DTC brands, too—including M.Gemi. Its co-founder, Cheryl Kaplan, explains: 

“We started with influencers, and we eventually moved off of that onto micro-influencers. We started in the retail space and then launched a mobile truck that travels around. Instagram Live is something new that we’ve been doing. 

We’re constantly looking for new ways to pop up wherever our clients are to make sure that it’s relevant to them and it doesn’t just get lost in the shuffle: changing up creative constantly, and making it new and different.”

2. Build brand loyalty

Research shows that 65% of a company’s business comes from existing customers. Almost 60% of the typical DTC company’s revenue comes from customers who’ve bought previously.

For DTC companies, brand loyalty is everything. Instead of acquiring new customers, doubling down on retention means profitable, long-term customer relationships. You’ll get loyal customers returning to you repeatedly—instead of back to marketplaces like Amazon once they’ve made their first sale.

Create a community

Online communities are niche groups of people with a shared interest. It’s not just subreddits powering the bulk of online communities, though. DTC brands are building their own communities to increase brand loyalty. 

Gymshark, for example, put out a call for personal trainers to do Facebook Live workouts when gyms closed. While the strategy wasn’t directly product-related, its founder and chief marketing officer, Ben Francis, said these streams “have the two-pronged effect of supporting the community by staying mentally and physically fit, but also supporting PTs financially, as well.”

When asked how DTC brand Rothys managed to achieve rapid growth, its co-founder, Roth Martin, said the key was community-building:

“The product just has this overwhelming affinity with our customers. They’re evangelical about the product. Word of mouth is the largest source of new customers. People wear the shoes constantly. They want to talk about them. They stop you. They want to have a conversation. The product—that’s the biggest win here.” 

Loyalty programs

Direct-to-consumer brands manage to rack-up an incredible retention rate of 25.9%. Part of that boils down to loyalty programs. 

DTC company Perry Ellis, for example, has a rewards program. All members get free shipping and earn points to redeem on future purchases. Members sign up to different tiers: gold members earn double the amount of points as those in the silver tier. It’s a system that incentivises customers to spend more—and more often.  

Haus, the first-ever DTC company in the liquor space, offers a monthly membership too. Members get 10% off all orders, free shipping, access to members-only events, and two bottles of core flavors per month. Helena Price Hambrecht, co-founder of Haus, says those members-only events foster a sense of community and loyalty:

“You can make that same kind of experience happen online. You’re not going to be physically sharing a drink face to face, but in terms of getting to know your customers, having a dialogue, showing them how much you appreciate them, treating them like normal humans instead of some data point.” 

Support good causes

To catch the attention of savvy shoppers when selling directly to them, your brand needs to match their values. 

Consumers increasingly want companies to act as good people; those who ethically source their goods, treat workers well, and have green manufacturing practices. They’re willing to pay a premium for products that tick all three:

Image via: eMarketer

One success story in the DTC space is Bombas. Granted, its comfortable socks were the foundation of its business. Yet its promise to donate a pair of socks to someone in need for every pair sold was a huge selling point for charitable customers. 

Bombas grew from $300,000 in revenue in 2013 to $17.2 million in its first full year after replatforming. To date, it’s donated 46 million pairs of socks to people in need. This is  a strong pull: 67% of the brand’s customers buy from the DTC brand because of its charitable mission.

Alongside Allbirds, Bombas is one of 3,500 Certified B Corporations. These are companies that meet the highest standards of environmental performance, legal accountability, and public transparency.

3. Subscriptions

One in five US consumers purchased a subscription box to have products on-hand during the first few months of the pandemic. The trend maps over to direct-to-consumer businesses—it’s estimated that three-quarters of DTC brands will offer subscription services by 2023.

The popularity of subscriptions boils down to convenience. Consumers use subscriptions to “set it and forget it.” They’re automatically billed and shipped the items they buy frequently without making mental reminders to shop. 

Shoppers who sign up for a subscription are essentially committing to buying from you over a given period of time. That reliable, consistent income is a saving grace for many DTC companies—especially those who rely on huge marketing and advertising budgets to generate revenue.

“Everyone focuses on the compounding revenue that comes with subscriptions, and that’s certainly a big reason to pursue the strategy. Yet, subscriptions go much deeper into the very essence of what you’re trying to do: build a relationship with your customer.

“Subscriptions bake the relationship directly into how you drive revenue. Instead of having to convince your customer to come back, they’re already there and it’s your job to keep them around and expand their relationship. I’d take that dynamic any day of the week than something transactional, especially in a market that's noisey.” —Patrick Campbell, co-founder and CEO, ProfitWell

Capitalize on this growth by offering subscription models alongside the standalone products you’re selling directly to customers. Options include:

  1. Replenish. Allows customers to set-up repeat orders for frequently bought items, similar to Amazon’s Subscribe and Save. DTC brands like Dollar Shave Club, Pact Coffee, and The Honest Company use this model. 
  2. Access. Charge a monthly or annual fee in return for accessing specific products or services. StitchFix and Rent the Runway use this subscription model.
  3. Curation. Curate your top-selling products into one bundle and charge customers a monthly fee to get them delivered. HelloFresh and Barkbox are two DTC companies succeeding with this subscription model.

“Italic is a brand that focuses on giving you access to high-quality goods at cost, if you're a member. Think of it like Costco, but for premium clothing and home goods. They’ve been able to use the membership to not only drive revenue, but to increase their retention considerably, because their customers think something like, “Why would I shop somewhere else when I’m already a member here?” —Patrick Campbell

You don’t have to be DTC only

There’s no doubt that selling directly to the consumer has its advantages. You’re not paying a huge cut to big-box retailers, nor sacrificing profit margins by selling to wholesalers. 

However, don’t feel like your choices are DTC or nothing. Legacy brands like Nike and Lindt have demonstrated how to dip your toe into the DTC world without sacrificing retail partnerships. More brands are going DTC-first…not DTC-only.

Test the waters by creating digitally native sectors of your brand. Own your customer experience—and convince them to purchase from your owned channels repeatedly. 

About the author

Elise Dopson

Elise Dopson is a freelance writer for leading B2B SaaS companies. She teaches everything she knows through Peak Freelance.