The sudden spike in online shopping in the early days of the pandemic has some experts maintaining that eCommerce’s penetration of usage was propelled ten years into the future in a matter of a mere three months. (McKinsey). People who had never shopped on digital platforms had no choice but to purchase online as stores, restaurants, and warehouses shut down. In the first year of the pandemic, e-commerce sales rose by 43% - $571.2 billion in 2019 to $815.4 billion in 2020 - according to the U.S. Census report. It’s clear that perceptions about online shopping have shifted dramatically across all generations as more people are now open to it than ever before.
This shift in purchasing behavior was great news for direct-to-consumer, or DTC, brands that were already having a big moment before the pandemic. These brands already didn’t rely on larger retailers to sell their products, there were already set up for consumers to buy directly from their websites, making them steps ahead of the game in the early days of the shutdown. Brands that were building a stronger eCommerce presence didn’t have to deal with a period of disruption that those who depended on wholesale markets did. Nike was one of these brands - famously announcing in 2019 that they would be ending many of the wholesale partnerships and moving more of their business to the DTC model. In 2010, DTC made up just 15% of Nike’s total revenue but by 2020, they had grown that number to 35%. In 2021, Nike report $44.5 billion in sales on the back of a 40% DTC business, projecting $50 billion in 2022. (RetailDive)
Interestingly though, while almost 80% of consumers made a purchase from a DTC brand in 2020, that number dropped to about 60% in 2021. (RetailDive) As the seriousness of the pandemic lessoned, consumers were happy to get back out and shop in person. While the preference for shopping online hasn’t necessarily decreased, some people see shopping as an experience and prefer to visit traditional retailers, especially when shopping for certain goods that they like to touch and feel before purchasing. Many shoppers report that they are back to shopping at larger retailers because they can find better offers and prices on their favorite brands. And some shoppers are just happy to return to their favorite retailers and find their tried and true brands on the shelf again.
Another disadvantage for smaller DTC-only brands is their dependence on social media advertising to grow awareness. These companies are now faced with rising ad prices coupled with the IOS privacy changes that leave them struggling to optimize based on performance. Throw in supply chain issues and an increase in shipping costs - the DTC market is underperforming and collectively down in sales in 2022.
For some, the answer has been to extend into brick and mortar stores and add offline experiences. Companies like AllBirds and Warby Parker now have their own physical storefronts where consumers can test and engage with products. Some, like Bombas, Harry’s, Casper, and Quip, have had favorable outcomes by selling directly to consumers while partnering with select retailers - sometimes incentivizing innovative retailers to push repeat purchasers online for a deeper selection of products or savings on subscription offers.
Should your DTC brand include an offline strategy? Should your typically sold-in-store brand focus more on selling direct to consumers?
It depends. These days, DTC success seems to depend on how much awareness your brand already has in the marketplace. Nike benefits from high awareness so transitioning to sell more directly to consumers worked for them as they didn’t need to grow in that area. Smaller brands will build awareness by moving offline or by partnering with larger retailers that can help them grow. The answer may be that there is a need to balance both in order to win.
To make the right decisions that drive growth, companies need the right insights at the right time. Learn more about where and how your customers like to discover, engage with and purchase brands by partnering with Vennli.
