Behind the rise of direct-to-consumer retail

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.”