Struggling High Street shops, an ever-more competitive eCommerce environment and, in the UK, political chaos are conspiring to make retailing a challenging business. Add consumer shopping habits undergoing constant changed due to mobile, social media and the desire for convenience, and the market can feel more daunting than ever.
These challenges are forcing some retailers and brands to rethink how they sell. A popular new tactic is to go direct to consumer (DTC).
What is Direct to Consumer?
For legacy manufacturers and suppliers of consumer-packaged goods (CPG), the closure of stores, in particular, has been a hard blow. With just 5% of CPG sales taking place online, these brands rely on selling to store chains, which then distribute goods across their footprint and sell them.
But with stores going out of business at an unprecedented rate – an estimated 12,000 retail locations are expected to close in 2019 – brands are having to look to eCommerce to maintain market share resulting in the DTC market seeing a growth of some 40% in the US.
Pet supplies, household care, groceries and health and beauty are all sectors that are seeing phenomenal growth in DTC, with the former predicted to see CAGR over the next three years of nearly 60%.
There is also a raft of new brands filling that void. Already, DTC businesses such as SimplyCook, Birchbox and Dollar Shave Club, which established a new subscription-based model around men’s shaving products, enjoy a conversion rate of over one in every five customers in the UK who have heard of the brand.
In fact, a study in the UK by Rakuten found that 70% of consumers would subscribe to DTC brands for everyday goods, such as cleaning products, cosmetics and healthcare brands.
The DTC model is growing rapidly.
What are the Benefits of Direct to Consumer?
With the changing nature of retail and the shifting sands of competition, there are some obvious necessities to going direct for many brands and retailers, but are there any actual benefits?
Many may look at it and see it merely as a way to cannibalise your own retail sales and to trample all over existing distribution partners, many of whom have been loyal for many years.
However, this is not the case. Sales growth almost invariably must now come from having a Direct to Consumer strategy – often alongside other retail plans too – and it can work well to bolster distributors, as there may well be an opportunity there for them too, as we shall see.
There are also a host of other potential benefits too. Knowing who you are selling to, by selling directly to them, the brand suddenly gains access to your own customers. This means that you can, for starters, garner all the data about who is buying your goods, as well as when, where and why.
This is crucial on a number of fronts. For starters, it drives customer care and customer service – which is rapidly becoming the defining factor of modern retail. It also allows for the creation of better products, as you know quickly and precisely what is and isn’t right about your products.
It also gives brands the data to market in a more personalised way.
According to eMarketer, Direct to Consumer brands have historically relied on performance-based digital advertising strategies. Many leverage Facebook and Instagram to target audiences and direct response podcast ads to drive conversions. Even unconventional business-to-consumer (B2C) tactics like content marketing are being used to go “over the top” of traditional media channels to reach and acquire customers.
Distribution and Delivery
One of the biggest impacts of DTC on brands and CPG companies is going to come in distribution and delivery.
For most brands and CPG businesses, traditional retail has relied on them making the goods and then distributing them their retail distributor(s). In a DTC world, brands are now responsible for much wider distribution – including adding in the last-mile element that takes the goods to the shopper’s door.
This requires a change in the structure of the distribution arm of the business to include localised distribution hubs and the infrastructure to take goods to the customer’s door. And that all has to be done competitively, often offering next, or even same, day delivery.
And many brands and manufacturers simply haven’t designed their supply chain processes to sell an individual package, which significantly hinders a transition to eCommerce. As many lack systems that cater to small batch deliveries, getting products into the hands of consumers can be incredibly expensive. In addition, existing technology platforms may not be capable of supporting connections to sales channels like Amazon, Shopify or eBay, which leads to different disconnects within ordering and delivery practices.
Making it Work
The key to making this tactical shift lies in investment in logistics – a task that puts many brands off taking the leap into DTC, but which really shouldn’t. Third-party logistics firms are there to solve this very problem, being an almost ready-made distribution network and last-mile delivery provider for DTC.
A prime example is Premier Housewares. With 12,000 products and growing at the rate of 100 new ones per month, the company supplies a raft of retail clients, as well as now selling direct to consumer.
Many UK and international retailers operate purely online and so don’t have the ability to source and ship products from their own premises. This is why brands such as Robert Dyas rely on wholesalers including Premier Housewares to source, store and dropship products. Other Premier Housewares partners including Wayfair, Amazon Direct Despatch, Argos and JD Williams who have their own premises but rely on the wholesaler for additional storage to complement their own in-house offerings.
This broad range of requirements, with so many stakeholder expectations to cater for, is why a tailored delivery management solution was a necessity. The manufacturer currently integrates with more than 35 different Direct Despatch customers, downloading their orders through EDI and Codeless Platforms to integrate into the retailer’s backend ERP system.
This is why Premier Housewares uses Parcelhub to help manage the complexity of managing all of their carriers and to integrate with their technical infrastructure and sales channels.
Parcelhub software has increased the visibility of order numbers, postcode and tracking statuses and helps to determine which products should be allocated which delivery services, more accurately and correctly rather than over-costing to be on the safe side – or cutting it short with a downgraded service and suffering negative feedback at the expense of the end-user.
Parcelhub’s Web Despatch platform is used to check the most appropriate shipping service for new items and taken together, this all helps Premier Housewares create the right deliveries through the right delivery channels and with the right delivery providers. This helps to not only get the goods to the right place but to do it at the right time and at the right price for the manufacturer.
Direct to consumer models are going to become ever more prevalent for manufacturers, brands and CPG suppliers as the internet shifts how people buy things. There are some great potential gains to be made for the brands that adopt it, but there are challenges too.
Not least there is the shift in distribution that is needed to move from getting goods out to retailers to getting goods out to consumers’ doorsteps within a matter of hours of orders being placed.
While this has a massive impact on manufacturing and warehousing processes, it is also a delivery challenge – a challenge that increasingly, can only be met by significant investment in extensively redesigning existing processes, or by integrating with third parties.
Third parties can aid in adding delivery and warehousing capacity but can also add the much-needed management of the complexity of running a raft of new ways to store and ship the goods you produce.
It remains a challenge, but the businesses that can tame the beast of distribution are going to be the ones that can fully leverage all the benefits of DTC retail in an age dedicated to better customer service, faster delivery and, of course, a personal service.
This article was contributed by Parcelhub, the leading provider of bespoke and proactive multi-carrier delivery management.