Direct or die: what the direct to consumer trend means for Australian retailers
Tue 16 April 2019 - 12:39 pmEditor's Choice | Expert | Featured | General | Opinion | Retail | Retail | Sales
It’s not a new thing but it’s fast becoming a ‘thing’. Brands around the world have collectively twigged to the benefits of dealing directly with consumers and Australian retailers which make a business out of selling multiple labels will soon be on notice to up their game.
Fail to do so and they risk losing business to the suppliers-turned-competitors now muscling in on what was once their uncontested turf.
We’ve seen this trend begin to come into play in recent times, with a number of international brand owners calling time on their Australian licensing agreements and taking back control of their brands, both on the ground and in the digital sphere. They include PVH Corporation, which in February 2019 launched an offer to acquire Gazal Corporation, the Australian licensee of its Calvin Klein and Tommy Hilfiger brands.
PVH’s chairman and CEO Emanuel Chirico stated the move aligned with the company’s strategic priority “to expand our direct control of businesses operated under the Calvin Klein and Tommy Hilfiger brands worldwide”.
For brand owners, the benefits of building direct relationships with shoppers are compelling. Cut out a middleman or several and costs are reduced, margins improve and there’s scope to pass on a saving to customers and still come out ahead.
Prescription eyewear manufacturer Warby Parker has managed to do just this, with its direct-to-consumer model. The one-time start-up has built a big business bypassing traditional channels and sending glasses to customers to try on at home for free. Yes, the shipping costs are high but they’re more than covered by the cut the company isn’t having to pay to distributors and bricks and mortar retailers to promote its wares.
Nike is pursuing a similar strategy, with its focus on concept outlets offering consumers a rich product immersion – the company’s flagship New York store includes a mini basketball court, treadmills and a soccer area where customers can test out the wares. The focus is on experiences rather than transactions but plenty of the latter occur, both instore and online.
The firsthand feedback a direct relationship typically generates can also be invaluable. Having a better understanding of what makes buyers tick allows product development teams to target new offerings more precisely and marketing folk to upsell and on-sell more effectively.
Brands which have traditionally employed an indirect distribution model may have to develop new skills and capabilities as they move into the direct-to-consumer realm.
Instead of focusing solely on product development, logistics and distribution, they need to become consumer branding specialists and polished purveyors of customer service.
Panic or pushback?
Whither the multi-brand retailer in this rapidly evolving landscape? Potentially in a tricky position. From a shopping perspective, the world is now ‘flat’, thanks to cheaper, faster and better shipping.
Customers are very comfortable with the notion of buying directly from manufacturers which means the value proposition offered by department stores and other brand resellers is considerably less compelling than once it was.
Unless, that is, they have a point of difference that helps them stand out from the pack, online or in store.
Investing in building their own, inhouse brands, rather than merely promoting those of their suppliers is one way multi-brand retailers can do this. Those that make a good fist of it may be able to leverage themselves into a profitable position in the long term.
Some of the online retail sector’s heaviest hitters have pulled it off with aplomb. Take ASOS for example. The British fashion and beauty products retailer began life in 2000 as a keenly priced outlet for brands such as Adidas, Calvin Klein and Esprit. Fast forward two decades and these well-known labels – around 850 of them and counting – are still for sale on the site but so too are ASOS’ own clothing and accessory lines. Introduced once the site had built a sufficiently large and loyal following, the home brand range now accounts for around 50 per cent of all sales.
Ditto Amazon. The online-everything behemoth took a similar tack in the baby nappy space back in 2017. It introduced its own Mama Bear range, after amassing a solid customer base for Kimberley Clark’s premium Huggies range, and rapidly secured a significant slice of the market. Amazon’s other private label collections in the fashion and homewares verticals also generate sales in the tens of millions.
Time to act
The direct to consumer movement shows little sign of slowing and Australian retailers which are not developing strategies to connect more closely with their customers may soon find themselves in the minority. It’s a development which represents both threat and opportunity to multi-brand retailers. Failing to act will likely result in loss of market share, while focusing on building an own-brand value proposition may be the road to increased profits and a brighter long term future.
Based in Sydney, Laura is Director of Moustache Republic and has more than 15 years’ experience in growing and transforming retail business having worked for organisations including eBay and Pitney Bowes.
In her role at Moustache Republic, Laura is responsible for expanding the company’s Australian market footprint and supporting retailers in delivering ecommerce solutions based on great user design and leading edge SaaS technologies.
She joined Moustache Republic earlier this year following several years as General Manager of Digital at Pharmacy 4 Less where she was tasked with driving the organisation’s digital and ecommerce business strategy across the company’s three brands, including Roy Young, Your Chemist Shop and Pharmacy 4 Less.