The “Direct-to-Consumer” Trend: Retail Shift Affects Logistics Operations
Lured by the promise of bigger sales, better access to consumers, and even their ultimate survival, wholesale brands are increasingly looking to circumvent traditional retailers and reach their customers directly—with "direct-to-consumer selling" or DTC. Recently, several prominent apparel and footwear brands have announced plans to expand their own retail stores in the U.S. and globally, including Nike, New Balance, and Under Armour.
The shift in sales channels offers significant opportunities for DTC retailers and wholesale brands to better control their supply chain operations by cutting out the middleman, or retailer. To do so, DTC retailers will need to take note of how these consumers shop, develop their omni-channel strategies, and strengthen their supply chains, including fulfillment, inventory flow, and costly resource-heavy returns processing.
The supply chain must be reshaped to handle more fulfillment locations, increased singles picking for customer orders, and the "click and collect" sales process (which allows customers to check if a product is available, then reserve it to pick up in store), while offering choice and convenience in its own brick and mortar locations.
This also means DTC brands and retailers have to unify their functional teams across the supply chain, using several technology features:
- Greater transparency into their supply chain: Better end-to-end visibility ensures each decision along the system results in long-term success.
- A single end-to-end platform for supply chain teams: This platform should cover sourcing, global trade, import/export, and logistics management. Enterprise-wide information accessibility and collaboration will break down the silos between product development, sourcing, manufacturing, merchandising, and distribution.
- Real-time tracking: Ensure the flow of goods is following the desired timeline—and take the right actions along the way.
- The ability to manage the unexpected: Companies must identify key metrics and create alerts to enhance their management-by-exception capabilities and take immediate corrective action when necessary. With better visibility, DTC retailers can manage out-of-tolerance replenishment criteria for suppliers, reorder points, safety stock levels, and minimum or maximum inventory levels.
- Trading partner collaboration: Global companies must manage a tremendous amount of information to maintain regulatory compliance. Importers must collaborate with extended trading partners (suppliers, brokers, carriers, and freight forwarders) to ensure complete and accurate information accompanies inbound shipments and documents, and that other information is readily available to the parties that need it.
- Landed cost calculation: Brands and retailers must have a clear understanding of landed cost to correctly set prices, make accurate sourcing decisions, and select transportation options. A constantly updated and maintained knowledge base makes it possible to factor the complete spectrum of landed cost components—including global duties, taxes and fees—into the picture.
Greater profitability isn't the only benefit of DTC operations. An overwhelming 72% of brand manufacturers believe that "building a closer relationship directly with the customer" is a critical benefit of DTC, according to a 2015 Forrester report.
Manufacturers can collect data directly from customers and leverage it to provide personalized services and customized products applicable to individual preferences without relying on point-of-sale data being sent back to them.
Even with all these advantages, some industry experts speculate that DTC may alienate retail partners. However, research has found that only 9% of companies reported a negative impact in retailer relationships by executing a DTC business1. For example, Dick's Sporting Goods expanded in-store Under Armour "shops" even as Under Armour opened more of its own stores.
DTC is where the omni-channel strategy becomes truly powerful. A manufacturer can sell from its own stores and website, reduce the cost of logistics for its retail partners, and grow customer relationships.
1 Internet Retailer, 2014. <https://www.internetretailer.com/2014/06/10/when-manufacturers-sell-directly-consumers-online-retailers>