Why are DTC brands so eager to get into wholesale?
New brands are swiftly making their way into stores, but selling directly to consumers still gives you information and feedback from customers that you can’t find on shelves.
It seems like DTC brands are expanding into wholesale more quickly these days.
During the COVID-19 pandemic, when customers couldn’t go to big stores and instead bought things online, direct-to-consumer retail did quite well. Some organisations who have always relied on their wholesale partners have even started to focus more on their direct-to-consumer channels. Over the past few years, Nike has been shifting to a direct-to-consumer (DTC) approach, spending more in stand-alone stores and reducing its presence at locations like Foot Locker. (though, Foot Locker executives this week said that the company was working to revitalize its partnership with Nike). In 2019, Levi’s CEO indicated that 30% of its business came from wholesale sales, which was down from 50% in 2011. More recently, the store has been trying to make direct-to-consumer sales make up 60% of all sales.
But as soon as stores reopened, a lot of new and digitally-born businesses raced onto the shelves of big box stores.
The health drink firm Gorgie opened its first Whole Foods Market location in New York City in January. At the same time, it also opened a website for direct sales to consumers. Loops, a brand of face masks, started selling all throughout the country at Target in February, while Futurewise, a brand of skin care products, started selling there just a few months after it started.
Is DTC then dead? Not at all, say some experts and owners of brands in the field.
DTC channels still support businesses in important ways, and they can help a wholesale approach be more effective. But as e-commerce has changed and more products are added to each category, the migration to wholesale may happen sooner than it did before.
“Investors are interested in wholesale”
Brands like Dollar Shave Club, Casper, and Warby Parker were among the first to shake up the direct-to-consumer (DTC) market.
All of these companies were started about 10 years ago, and a lot has changed since then.
Alex Song, founder and CEO of Proxima AI, says that when these firms were being popular online, it was cheap to get new customers on sites like Facebook, so they could grow quickly.
Back then, there was more opportunity on these platforms, and the economics made it easy for the first group of firms to get clients quickly.
Even though many direct-to-consumer companies have built up a solid presence by selling through their own channels, many brands will need to resort to wholesale for expansion, which is something that newer companies are being pushed to do sooner than they used to.
“You don’t have to go all in, but you should start looking into that sooner,” Song added. “If you look at the more recent brands, you’ll see that they all use wholesale much more quickly.”
Song says that only the finest businesses will be able to get space on shop shelves as platforms like Facebook and Shopify have a lot of area for marketing. If you can secure space in stores, investors may be more likely to give you money.
According to Song, “Investors look at relationships between wholesalers and retailers as evidence that they want to support a brand.”
Andrea Hippeau, a partner at the venture capital firm Lerer Hippeau, says that businesses need to already have relationships with retailers if they want to be considered for funding.
Hippeau told Retail Dive in January, “I think that we’re really looking for distribution unlocks, either in retail or in other ways.”
How input from DTC helps wholesale
Having a wholesale plan doesn’t imply giving up DTC. The two channels can work well together since DTC data can help brands figure out how to approach wholesale better.
When iOS 14.5 came out in 2021, Direct-to-Consumer (DTC) brands had to deal with the fact that Apple gave customers more privacy options that limited the data that could be gathered from their online behaviour.
Even while this may have caused havoc for businesses at the time, new brands like Fishwife now regard data and direct feedback as one of the best components of keeping and building a direct-to-consumer (DTC) channel.
Fishwife founder and CEO Becca Millstein wrote in an email to Retail Dive, “We do a lot of regular, in-depth surveys of our customers, and each one of them told us that anchovies, the first product we brought into Whole Foods, would knock it out of the park.” “When a customer tells you they can’t wait to buy something from you, nothing makes you feel more confident.”
Loops CEO also told Retail Dive in January that the firm opted to work with Target because of customer surveys the brand did through its direct-to-consumer (DTC) channels. These polls helped the brand make sure it could reach customers wherever they shopped. Grove Collaborative, a company that makes home goods, also put together a group of 100 customers from the brand’s private Facebook page and polled them to help with its new health hub.
Millstein remarked, “I have to agree that DTC is the best way to collect first-party data, at least for Fishwife in 2023.” “The DTC experience gives you so much custom data through your website, email, and SMS.”
Millstein also said that creating a solid community through direct-to-consumer sales (DTC) first helps it get ready for retail shelves, where the stakes are higher for a brand its size.
Instead of retailers going to DTC, it could be the other way around. Retailers may go to DTC to learn more about the brand and the customers.
Fly By Jing, a food business that just raised $12 million and is known for its Sichuan chilli crisp, was able to get direct-to-consumer (DTC) traction online, which helped it get into one of the largest grocery store chains in the country.
“We began four years ago with solely direct-to-consumer sales. Fly By Jing’s CEO and founder, Jing Gao, told Retail Dive that the company has been able to develop a very strong online community brand presence. “And the point is, after we worked hard to make our brand known, a lot of stores actually came to us. So we started with Whole Foods, a buyer who was just a big admirer.”
Even though wholesale is now roughly half of the company’s sales, Gao is still putting money into increasing the direct-to-consumer audience because he thinks the company’s website is a good way to keep loyal clients.
“As we grow in retail, I think the online site will become less and less like the first place a customer goes to get the brand,” Gao said. “Then, as time goes on, the DTC site becomes more of a way to keep customers coming back. It may also be where we release limited-edition partnerships or other exciting products that we may not be ready to sell in stores yet.”