These traditional brands are shifting to a DTC model. Here’s how.

By Cara Salpini | Retail Dive | November 11, 2021

Department stores used to be the “it” place to buy apparel. But a lot has changed in the past 10 years, and some brands have recognized they can sell clothes just fine on their own. Take Nike for example.

In 2010, DTC made up just 15% of Nike’s total revenue. By 2020, the athletics retailer had grown that number to 35%, as it stepped back from wholesale partners and focused on sales through its own stores and digital channels. At the end of its most recent fiscal year, Nike raked in $44.5 billion on the back of a 40% DTC business, with plans to make $50 billion in 2022.

It’s far from the only brand doing so. Retailers across the spectrum have taken a liking to the higher margins promised by selling directly to the consumer, and the pandemic’s spike to e-commerce last year only accelerated that trend. Those already committed to DTC saw their efforts accelerated by an eager consumer, and for some wholesale-heavy brands, order cancellations from big retailers served as an eye-opener, and an opportunity.

“With those golden handcuffs of the wholesale order coming off of the brand, they then turn to their digital arm to say, ‘OK, guys, we can now start to focus more energy on digital,'” said Noah Gellman, CEO and co-founder of media and research company The Lead. “And they looked at those teams, and those teams were underinvested and they were small, but they did have the seeds of building the direct-to-consumer business model.”

Although shifting more sales to DTC has widely been touted as a positive strategy, it has its drawbacks. A September report from BMO Capital Markets found that wholesale sales come with higher margins before taxes and interest than DTC sales. Companies shifting to DTC could bring in lower sales dollars overall, the analysts found, despite the fact that brands capture more of the sales price for themselves selling DTC.

For most, it’s not an either or situation, according to Cristina Fernández, a senior equity analyst at Telsey Advisory Group.

Read the full article here.

By MIT Sloan CDO