In the last decade, apparel brands have been selling products with the Direct to Customer (DTC) approach. The rise of digital innovation and social media platforms has greatly aided and made this mode of selling popular. Brands found success in connecting and selling DTC – wiping out all retailers or middlemen on the way.
The DTC approach brought brands closer to consumers and enhanced a shopper’s loyalty by precisely understanding their needs. More to it, the digital era boosted consumers’ feedback and aided fashion brands to quickly adjust the customer needs. On top of it, apparel brands bringing higher profit margins.
But how often it occurs today signifies a key change in retail. For some years, fashion retailers that collected brands under a single umbrella played a crucial role in defining which apparel brands were bought by shoppers or, for that matter, which brands were shoppers interested in – going a long way than to shape their images.
It is not feasible for brands to set up a global network of stores to grasp all potential customers – it is a hard and expensive feat too. The speedy rise of e-commerce and social media changed this difficult prospect.
Various data shows that fashion brands gaining a significant share of their sales back from retailers and wholesale partners – and most prominently to control each point of interaction that a consumer has with their shopping experience.
The COVID-19 pandemic hit 2020 and 2021 have only further improved the digital shopping shift. In the US alone, Direct online sales increased greatly with DTC sales surged by 24.3% in 2020. Europe and Asia witnessed the same trend.
US leading brands Nike’s DTC sales amounted to 33.1% of its 2020 revenues. In recent years, Nike emphasized digital innovation and app downloads to move to e-commerce and DTC sales. Thus, steadily increasing its DTC revenue share over the years.
Sales grew by 96% in Nike’s recently released Q4 2021 results. The full-year revenue increased by 19 percent to US$44.5 billion, while net income was $5.7 billion.
Most notably, the results were yet again driven by robust growth of Nike’s DTC business, surging sales by 32 percent for the whole year, compared to a 12 percent increase in sales to wholesale customers.
Clearly showing that Nike is choosing the trend of eliminating the middle man and selling directly to consumers at the cost of traditional retailers. From its current percentage of 40, Nike now aims for direct sales to represent 60 percent of its business by 2025.
Another European sporting giant brand adidas also introduced a four-year strategy focusing on a DTC-led business model – in addition to remaining with only strategic wholesale partners and investing significantly in digital business. The strategy also includes pumping $1.2 billion into a digital transformation between now and 2025.
adidas plans to capture 8 to 10 percent of market share and increase currency-neutral sales annually between 2021 and 2025.
Germany-based athleticwear manufacturer Puma too saw its DTC business increased by 31.3 percent to € 346.8 million in the first quarter that ended 31 March 2021.
Likewise, Lululemon Athletica also saw its DTC revenue double from $1.14 billion in 2019 to $2.28 billion in 2020. And as per Trefis, the numbers could rise marginally to touch $2.51 billion in 2021. The DTC model has enormous operating margins when compared to the firm’s retail business and with e-commerce growing well.
US sports and casual apparel retailer Under Armour projected that it will be exiting between 2,000 and 3,000 retail doors in 2021.
In the 4th quarter of 2020, Under Armour’s online sales increased by 25%. Which aided the brand to enhance its DTC channel revenue growth. The brand also recorded an 11% growth to touch $655 million.
In 2020 saw the retailer posted a 40 percent growth in online sales, thereby contributing 47 percent to total DTC revenues. Not surprisingly, Under Armour continues to emphasize boosting DTC’s business through store expansion initiatives and enhancement of its e-commerce platform.
It is crystal clear as the world’s biggest fashion retailers moving recklessly towards the DTC business model, the trend is here to stay. Having said that, it is also true that the DTC model is not so easy for multi-brand retailers like Macy’s, Target, Walmart, or Nordstrom that have complex business models operating with a noteworthy number of vendors across multiple product categories.
In fact, for legacy multi-brand retailers DTC poses a layered encounter presenting logistics challenges that require a suite of technologies and partnerships to pull off.
Still, the global apparel industry cannot overlook the fact that the DTC model has been rising strongly in each passing year. As larger brands adopting the model to make it the main channel.
The sudden outburst of online, thus fused DTC’s position in the industry thus providing an ideal opportunity for the retailers to shift their attention to selling directly to consumers.