Behind the rise of direct-to-consumer retail
The lockdown restrictions on high-street retail have obliged many manufacturers to start selling directly to consumers. The new channel has been proving valuable to them in some unexpected ways
One of the main effects of the Covid crisis has been the way it’s separated people, yet many manufacturers have treated this existential threat as an opportunity to get closer to consumers and understand their changing preferences. Who knew that some families preferred holding perfume parties to playing board games last Christmas, for instance, or that the humble pencil case has become hot property among schoolchildren?
Manufacturers have gained such insights by cutting out middlemen such as retailers and adopting a direct-to-consumer (D2C) business model. This is based mainly on ecommerce but can also include telephone sales and even standalone stores, from pop-up shops to less temporary outlets. Some brands, such as sportswear group Nike, are generating a third of their sales income through its D2C channels.
Fragrance maker Pairfum London started selling its own products online after the government’s lockdown restrictions forced its 100 high-street retail partners in the UK to close their doors.
“The main benefit has been the direct contact it’s given us with our customers,” reports Huib Maat, the firm’s founder and perfumer. “We’re no longer just a bottle on a retailer’s shelf. We’ve had people calling us up and telling us how our perfumes are affecting their lives. They feel closer to us.”
Callers have included the couple who told a bemused Maat how much they loved his “dance perfume”. They explained that this was the nickname they had for a particular fragrance they would always put on before going out to their dancing classes.
“We’ve even heard from people who told us that they had swapped playing their usual family board games at Christmas in 2021 for spraying perfumes from our gift boxes on each other’s wrists,” he says. “Such insights will inform our development of future products.”
Stationery manufacturer Pukka Pads reports that its creation last year of a D2C website aimed at British consumers – after two decades of selling exclusively through intermediaries – has strengthened its ties with customers and even the retailers it has started to circumvent.
“By putting our whole catalogue online, we have given customers the pick of everything we have to offer,” says Pukka’s procurement director, Darryl Corbin-Jones. “We’ve been seeing particular demand for our pencil cases from schoolchildren – they hadn’t been aware that we’d sold these before. The country’s move to remote working has helped us too. Retailers are also getting in touch with us to say that they’ve seen something new on our site that they want to display in their stores.”
Barclays Corporate Banking has predicted that UK manufacturers’ total D2C sales income will increase from £96bn in 2020 to £120bn in 2023. It’s found that consumers are becoming more inclined to buy directly from manufacturers where this is an option, in the expectation of finding better prices.
Chris Dunn, an independent business consultant, notes that consumers using the D2C channel have a better chance of finding what they want in stock than they would if they went to a retailer. They’re also likely to receive more knowledgeable after-sales service, given the manufacturer’s expertise in the workings of its own products.
Adopting a D2C model requires a significant outlay. In 2020, Barclays estimated that the average investment required to set up such a channel was £288,000.
Pukka had to set up its ecommerce function from scratch, says Corbin-Jones, noting that “our products used to market themselves to retailers. We’ve had to hire both internal and external teams to run the website and now we pick individual items in the warehouse. This has been a big investment with no savings as yet. But it’s a long-term strategy.”
Dunn would advise any manufacturer considering the D2C route to examine the likely costs, benefits and risks in great detail beforehand. One key advantage of the model, he adds, is that it enables producers to put new items on the market more quickly, as it frees them from retailers’ standard purchasing cycles and costs such as slotting fees.
Maat reports that selling directly to consumers has improved his firm’s cash flow. All sales it makes this way are sales for which it won’t have to wait three months to see the money after invoicing a retailer. Cash freed up this way can then be reinvested in D2C-focused activities such as social media marketing.
Despite this, both Pukka and Pairfum view maintaining a mix of D2C and retail as their best long-term channel strategy.
“We’re looking to expand our website to cover the whole of Europe, but we have no plans to use fewer retailers,” says Jess Stott, online account manager at Pukka. “We don’t want to become reliant on one route to market.”
Maat says that he would miss interacting with customers and getting to know them better if Pairfum were ever to abandon its D2C channel. “We used to receive infrequent calls from our retail partners,” he says. “Nowadays, our phones are lighting up, but the conversations we’re having are much more beautiful.”
How Kidvelo is steering its own path
Kidvelo, a manufacturer of lightweight no-pedal bikes to help children learn to cycle, was launched last year by two couples: Karen and Gary Wood, based in the UK, and Nicole and Anthony Kotarac, based in Australia. They chose to sell D2C to give them full control of the process that brings products from the factory in Asia to their customer base, which includes cycling instructors and schools as well as parents of young children.
“We can deliver them into the hands of riders quickly and in perfect condition,” says Karen Wood. “With no middlemen, we have a direct line to our customers and can get to know them. If they have a query, they’ll get answers from us much more quickly than they would if they had to ask a retailer’s shop assistant.”
Wood adds that the cost savings her firm has achieved through bypassing wholesalers and retailers have been passed directly on to the customers. “This has made us more competitive and flexible with our offers.”
She reports that finding affordable space to store stock has been one of the main challenges that Kidvelo has had to deal with in the UK.
“We’re less able to move quantity in bulk to, say, a retailer to reduce the amount of warehousing space we require. This obviously means high costs, but our approach is ultimately still cheaper than going through retailers,” Wood says. “Nobody has more passion for your own product than you do. Nearly everyone remembers learning to ride a bike – and we can help to share that feeling.”