Will Direct-to-Consumer brands emerge stronger from the pandemic?
At the end of 2019, purchases made on the UK high-street outstripped those made online 4 to 5 times over. Likewise eCommerce sales in the US represented just 16% of total retail sales. In this case the traditional retailer was often king. Consumers would often choose to shop at retailers offering multiple brands such as House of Fraser, Next, John Lewis, TK Maxx, and Debenhams for the convenience and range of choice in store. There is only a certain number of shops that can be feasibly visited in a shopping trip, so it makes more practical sense to visit multi-brand stores.
It’s far from easy street on the high-street
For new brands trying to establish themselves, it is not simple to set up shop on the high-street. Whilst well-established brands such as Primark and H&M have had huge success selling just their own clothing, it is that very success which makes it more difficult for new retailers. The funding and brand reputation needed to compete against those names now would be astronomical. The barriers to enter the high-street for up-and-coming fashion brands do not stop there. From rent, business rates, employee wages and pensions, security, store equipment, and more, the cost to set up a brick-and-mortar store is vast. There is also no guarantee that you will get the required footfall or secure a store in the location that best suits your target audience, a harsh reality driven home during the pandemic. It is simply far easier, and less risky, for a manufacturer to sell their apparel through a multi-brand retailer.
The EY Future Consumer Index found that for those still committed to shopping at physical stores, “59% will look to consolidate shopping trips into less frequent but larger spends in the future”. This gives more evidence of the difficulties that manufacturers will face setting up their own stores. They will need to battle multi-brand stores for attention and foot-traffic whilst consumers are taking far less trips to the high-street. So, selling B2B may still be the best option for getting your brand in physical stores.
D2C brands get more powerful with every online purchase
Whilst not exactly the supervillains to traditional brick-and-mortar retailers, D2C brands do look set to benefit most from the rising eCommerce levels. The next big change ZigZag expects to see emerge as part of the new normal post-COVID-19 is an increase in appetite for direct-to-consumer business. In March of 2020, eMarketer forecasted that “D2C sales will account for $17.75 billion of total eCommerce sales in 2020, up 24.3% from the previous year…while overall sector growth remains strong and outpaces total US eCommerce gains”. This shows brands were already adopting D2C business models before COVID-19. A lot has change since March and we think D2C retailers will start to take centre stage.
20% of consumers saying they won’t return to physical stores again (according to a recent Meepl survey) and a further 70% of Brits feel uncomfortable in stores (Charged Retail). The shift online looks permanent. The unease of consumers to head back to crowded stores spells trouble for traditional retailers and entrenches the idea for brands to sell their goods directly to their customer base online. Permanent store closures, furloughed staff, unpaid rent, and huge profit slumps have been a feature of the pandemic for traditional retailers. Primark took a £1.5bn hit over lockdown, Next recorded a 54% fall in sales, and John Lewis closed 8 stores with more likely to follow, whilst Debenhams, Cath Kidston and Monsoon Accessorize are set to be casualties of lockdown.
Over the last year, D2C brands with a smaller or non-existent store presence have naturally not taken as bigger financial hit as their traditional retailer counterparts. There are far less barriers to enter online for D2C brands. So much so that selling through a traditional retailer is not as much of a necessity. Clever use of online advertising, social media influencers, promotions, and (if fortunate enough) viral campaigns, will allow D2C brands to quickly build reputation online without the countless costs of setting up on the highstreets. D2C brands look set to pounce on the permanent-looking shift online.
If the high-street were to completely recover?
In the event consumers do shake off safety concerns and return the high-street back to its former glory, D2C brands do still have an innovative answer to compete with traditional retailers. Pop Up shops. The UK already has a big Pop Up Shop scene, with companies such as Appear Here advertising 1000s of rentable spaces across London, in addition to further afield in New York and Paris. Storefront claims temporary retail could soon be boasting annual revenues exceeding £60million. Pop Up shops are a perfect way for D2C brands to easily enter and exit the high street. They offer Direct-to-consumer retailers the opportunity to optimise stock levels, target areas where consumer confidence is less affected by the pandemic and save on social distancing set up costs.
In the more likely event that the high eCommerce levels are here to stay, Pop Up Shops will nevertheless help bring some excitement and intrigue back to the high-streets. They are more agile and able to change to fit emerging trends and popular demands. Pop Up Shops can test new processes and technology to improve the customer experience before disbanding and reappearing elsewhere with a new look and approach.
Taking back control of their product and messaging
Research from Astound Commerce found that 59% of consumers use the brand manufacturer’s website for researching products, usually ending in a purchase there as well. Ultra Commerce commented that consumers have learnt to be savvier in lockdown and will continued to make more informed purchasing decisions after. The increase in online shopping allows consumers to carefully budget, ignore impulse purchases, scroll through tabs open from various retailers for the best price, and even calculate and compare delivery costs. With consumers more willing to research and scour the net before purchasing, the power of big traditional retailers will fade. Selling directly to consumers becomes slightly easier and worthwhile.
Stuart Gordan of iAdvize stated on IMRG Customer Acquisition and Retention webinar that “consumers are watching businesses closely to see if they put customers first”. Customers are likely to base more purchasing behaviours on their feelings towards companies. Social justice issues, environmental issues, and the need to feel safe in stores have pushed CSR to the forefront of consumer minds. Retailers need to be able to prove they are getting this right, or they risk losing customers (Harvard Business Review). Brands solely relying on a few big traditional retailer channels put themselves at their mercy. D2C brands can control the CSR message and reap the benefits of a successful one.
Which brands are doing D2C well?
The British apparel brand, primarily selling gym and sportswear as the name might suggest, is one of the fastest growing retailers in the UK and one of D2C’s biggest success stories. Like most D2C brands, they begin with a high-quality but often smaller selection of products that target a specific audience, in this case young gym-goers. Gymshark’s success can largely be attributed to the company’s use of social media influencers to get their products directly in front of their client base. With no physical stores, Gymshark’s entrepreneurial founders utilised the growing eCommerce adoption within their target audience and dropshipping to reach their customers directly.
A little harder to work out from the name alone compared to Gymshark, but the US retailer has perfectly adopted the D2C model to solve a simple frustration felt by men shopping in traditional stores worldwide. Selling razors and other men’s personal care products, Harry’s realised the process of buying razors in physical stores was unnecessarily complex. Razors in particular have too many options and are still often locked in security cases. Harry’s uses a subscription model to sell its products solely online, directly to the consumer.
ZigZag client and ethical clothing brand Everlane is another fantastic example. By embracing the D2C model, Everlane was able to control the way their customers see and experience their brand. The retailer is driven by transparent pricing and sustainable sourcing. If they were to sell through traditional retailers, it is likely their inspiring commitment to sustainability and ethical retail would likely be lost in the noise. Unlike the previous success stories, Everlane has expanded on to the high-street.
How do returns fit in?
A D2C model brings brands closer to their customers. It gives retailers the opportunity to closely monitor and influence customer experience. Returns are quickly becoming an integral part of that customer experience. In fact, 59% of consumers will never shop again with a retailer if they have a bad returns experience. The second biggest complaint to customer services is also “Where’s my refund?” highlighting the importance of a speedy and communicative returns process.
For brands looking to move away from traditional retailers and sell directly to their consumers, returns in the past posed a huge headache. The emergence of returns management solutions, such as ZigZag Global, have removed that barrier to entry for brands considering a D2C model. Retailers can quickly integrate with a SaaS provider like ZigZag who will expertly take care of the returns process, delivering a user-friendly customer experience whilst dramatically reducing the cost, friction, waste associated with returns for the retailers.