The past year was full of DTC ecommerce operators starting to sell their products via large retailers. This appears at face value to be somewhat of a trend cycling, where we went from many people moving from retail to direct-to-consumer ecommerce, now brands that launched online are moving into large retail.
Just like any other cycles in business, this one feels like it was inevitable and healthy for the ecosystem. It’s happening simply because the economics for retail are worth it again.
10 years ago, when brands started selling online, the thesis was strong. Save money on inventory and the margin that the retailer took, while taking on the cost of acquiring the customer directly. That direct acquisition then enabled significantly cheaper repeat purchase, since you could directly reach out to your customers now that you had the relationship.
The key to this equation was that the tradeoff of taking on the initial customer acquisition cost had to be worth it. Facebook ads made this equation work for the entire 2010s!
However, the thing that at this point has been over discussed is Facebook ad costs have gone up dramatically. Worse still, they are highly volatile.
The equation that led to the migration from selling via retailers has been reversed. Contribution margins for sales via retail are reliable, and often better than what DTC brands can accomplish via ecommerce alone.
So that simple reversal in the math has led to many operators starting to invest into their retail operations yet again.
The thing I wonder as we embark on this current wave of punching sales through retail again, is what can brands do differently given the technology advances since the last cycle?
One of the simplest ideas that I’ve seen many brands implement is to have some sort of website experience for customers who buy via retail. The easiest of these is of course the online warranty registration being a good hook. However, some brands are trying to do things slightly more interestingly. For example, Fly by Jing has a QR code to the brand’s story on the box they built out for Costco. This will incentivize people who purchase Fly by Jing in-store to visit them online, learn more and hopefully convert more sales.
What do you think about the current wave of DTC ecommerce moving to retail?