E-COMMERCE | RETAIL
Direct to Consumer Is a Disruptive Force
Intermediates will soon be bypassed unless they transform to participate in the DTC world
The business-to-consumer, or B2C concept is an old term, well known in the world of retailing. The final product is sold to consumers by bricks-and-mortar outlets.
Essentially stores buy inventory from other businesses, at a discount, and sell on to consumers with a margin.
This has been the route to market for decades.
Direct-to-consumer, or DTC, bypasses the inter-mediators, selling directly to the end consumer. This is good news for us consumers, as we have direct access to brands. However, DTC presents a huge threat to traditional retailers.
Today we can order online from pretty much any brand, so why do we need to drive to a retail store? What role do high-street retailers or distributors play? Where do they fit today?
For traditional retailers and distributors, it's glaringly obvious that direct-to-consumer is a no-win situation.
This article will discuss why D2C will be replaced by DTC, those not on board are sure to drown.
The Virtual Mall
In the last decade, the shift from B2C to DTC has amplified. Online marketplaces, like eBay.com, Amazon.com, Bol.nl, and alibaba.com have moved the goalposts, disrupting conventional channels to supply products to the consumer.
Global brands like Nike and Apple have embraced this model. Also, let’s not forget about Dell computers, who were pioneers in this channel. Dell has operated a DTC model since the late-90s.
Enablers
The web hasn’t been around that long, about 25 years, a drop in the ocean compared to how long humans have been on earth — over 200,000 years.
Think of 200,000 years as 24-hours, just one day. The eCommerce industry represents just 10 seconds of that day. But in those 10 seconds, the retail world has transformed beyond recognition.
Ecommerce has touched almost every industry, creating an array of new jobs in the process, roles that 20 years ago would be difficult to even comprehend.
- Social media Manager
- eCommerce Manager
- PPC or SEO specialist
- Email or digital marketer
Job creation is just one example of the impact that eCommerce is having on the retail industry.
In the time it takes to type this sentence, 10 seconds, consumers have gone from shopping exclusively in-store to buying anything at the click of a button, from anywhere at any time, 24/7.
If you’re a complete recluse you’d never have to leave home to shop in most parts of the world today.
Ecommerce was the catalyst that triggered this shift. The effects are evident in news reports every day as many large retail stores are going bust, or scaling back a huge proportion of their physical outlets.
New Entrants
Even distributors and suppliers are getting in on the act, selling direct to consumers. In fact, some have even developed their own brand of products, once held by their B2C retail partners.
Going forward, there are two different business models:
- Suppliers selling direct, and
- Vendors and parties developing their own brands
The new vendor, seller, and hybrid models are here. All of which have direct access to marketplaces, like Amazon, the eCommerce juggernaut that owns 44% of all online sales in the U.S. and still growing.
So what will happen to traditional B2B supply chains?
Traditional B2B supply chains are on borrowed time in most industries. Their days are numbered unless they pivot, and soon. It’s too easy, too efficient, and indeed too profitable for brands not to sell directly to the end consumer.
The Seller
An own-brand seller can control pricing, therefore, margin. This is very important for brands. Channels include their own website or a marketplace mentioned above.
Brands retain full control over their inventory range, variation, and depth. They control user-experience and marketing promotions. In this situation, marketplaces are just another channel, similar to other off-site channels as a route to market.
As a seller, you control your consumer's overall experience.
While sellers have better profit margins, they must also “work” their channels. Brands expect significant sales volumes, so they need to employ dedicated teams or agencies to operate effectively. Software and IT systems are necessary too, with many technical nuances. Whereas, on-demand how-to resources can be lacking, expensive, or scarce.
The Vendor
A vendor can leverage off the marketing and incentives of their client to promote its brand online. A product is sold to a ‘Seller’, who then aims to sell it to the consumer as fast as possible.
Also, forward buying guarantees sales (cash) without the effort and cost to promote, which is a nice perk.
Supply chain planning is easier too. Being a Vendor is easier to manage, the most important area is a supply chain, product quality, and development.
Vendors simply ship boxes or pallets to a warehouse to replenish stock.
A vendor operates with lower margins and has less control over final mile business elements, like Marketing. This model means that vendors must sell larger volumes to realize the same level of profitability compared to sellers.
Vendors lack control of discount, promotion, pricing, and the highly-valuable relationship with the end consumers. The risk is that you don’t get to learn from your consumer, which feeds innovation to diversify in the long term.
The Hybrid
Can I do both? Yes, you absolutely can, and should. This hybrid approach is commonplace, and many do it, a finger in each pie as it were.
That said, there’s not a single approach that fits every brand, but a balanced approach is a good strategy, therein lies the crucial word — strategy.
You must have a Strategy.
Don’t jump into bed blindly. Establish clear goals and plans of how you work with each model or risk getting coerced into a difficult relationship.
Adapt to Survive
As human beings, we’re the dominant species on Earth. We’re top of the food chain. We invented cars, buildings, Facebook, 24-hour banking, and fast-food drive-thrus. We’re a creative, innovative, resilient, and adaptable.
We transform our surroundings, innovating to enhance our environment.
Retailers, be they brands, vendors, sellers, or manufacturers, must embrace change as the world of retail shifts online line more each day.
Physical and online retail is changing, adapting technology to ride the wave of rapid growth is everywhere. Technology is influencing consumers too, our desires and expectations. So retail has to adapt to meet those expectations.
Retailers must not fear or fight against the tide of change. While its unwise to flip direction thoughtlessly, or jump on any hot channel or fad in town, just don’t procrastinate. Implement important changes.
Embrace the mentality of continuous adaptation and build your own brand.
It’s unlikely that physical retail stores or traditional distribution supply chains will vanish overnight, but contraction is evident. Many are centralizing too.
Ecommerce will continue to grow at a phenomenal rate. So embrace this new wave and grow with it. Don't fight it.
This might involve a business transformation — structural and cultural changes to a business. A transformation can be hard to plan, manage, and execute. But it’s possible, with the right approach and people onboard.
Some of the biggest success stories are those businesses that embraced what online retail had to offer and adapted accordingly. They brought a plan, let go of the past way of doing things, and had the courage to pivot when required.
Soon businesses will no longer have a choice but to become a DTC player, a seller, a vendor (supplying resellers online), or a hybrid.
Those who don’t will be swept away by the tide of change.
