Derek O’Carroll, CEO, Brightpearl examines the highs and lows of the direct-to-consumer supply chain.
The following guest article has been written for InternetRetailing by Derek O’Carroll, CEO, Brightpearl. Brightpearl is a retail operations platform for retailers and wholesalers with a clear mission to automate the back office so merchants can spend their time and money growing the business. Brightpearl’s complete back office solution includes financial management, inventory and sales order management, purchasing and supplier management, CRM, fulfilment, warehouse management and logistics.
The race is on. In a bid to capture increased wallet spend, brands around the globe – over 57% of them in fact – are racing to launch direct-to-consumer (DTC) channels. This explosion marks a shift in the way products are sold, disrupting established industries and causing a fundamental change in brands’ relationships with consumers.
But perhaps the single most important reason behind the growing popularity of the DTC approach is the direct response to recent shifts in consumer online buying behaviour, which indicate that shoppers – as many as 81% of them – want to buy products from brands directly.
Direct-to-consumer brands have unfiltered insight into customer behaviour, direct control over their relationships, and highly competitive price points. Many such brands have built up a global cult following in less than ten years. Success stories include $1bn-valued firms such as Dollar Shave Club, Gym Shark and beauty brand Glossier.
The rise of prominent DTC players has made this channel increasingly attractive to me-too brands which also want their share of the market. But, as a business model, it doesn’t come without its challenges; particularly within the supply chain. Some brands have stumbled, some have hit bumps in the road, while others have completely fallen over whilst trying to make their DTC model a success.
While most brands are aware of everything they need to do on the front-end, in the race to attract direct sales, few seek to address the operational complexities that lie beyond the buy button. In fact, many brands switching to a DTC model quickly learn that managing all operations in the supply chain can be extremely difficult to coordinate.
That’s because once a DTC brand bypasses a retailer, they become directly responsible for every single touchpoint in the buying journey, including pre- and post-purchase experiences, such as delivery and returns, inventory management and customer communications.
Once brands have captivated customers enough to capture a sale, this is where the real “work” truly begins. With brands in charge of every step of a customer’s purchase journey, brands must recognise that at any moment, they risk getting things wrong, which can cause real backlash from their customers.
Glossier initially had problems keeping its products in stock. Glossier staff still refer to “The Great Inventory Stock Out” – when the company had major issues keeping up with demand for its products and ran out of stock on several items. As the company grew so quickly, it simply didn’t have the inventory to keep up.
This isn’t an isolated challenge. Some 25% of shoppers have experienced items being listed out of stock after purchase in the last year – with a similar number citing it as their biggest point of frustration when shopping online.
To ensure the issue didn’t occur again, Glossier hired operational experts and worked to be more on top of inventory planning to fix the issue. “It was very much a hard lesson learned,” said Glossier president and COO, Henry Davis.
Inventory challenges aren’t just a problem for emerging DTC brands either. Adidas recently told investors that supply chain shortages would prevent the brand from fulfilling orders for mid-priced apparel in the first half of 2019, reducing growth this year by up to 2% and leaving the field wide open for its competitors like Nike, for example, which reported DTC revenues up 12% to ($10.4bn) in its 2018 financial year.
So, what does this mean for growing brands and those considering a shift towards DTC? It means there’s a real risk in not having a solid infrastructure in place to support demand. 75% of UK brands agree that if you get your DTC approach wrong, it does far more harm than good.
When Waldo ran out of stock in the UK last December, the contact lenses provider had to be upfront with customers and explain that they had not expected demand to grow so rapidly.
Brands that are considering the DTC space have to understand that this channel is going to expand past what they previously had. When you’re operating in different markets and you’re scaling quickly, you have to have the right retail operations in place to respond effectively.
Without those mechanics, for example, to handle inventory management, shipping, and logistics across channel, or for more customer-facing support, the business is quickly going to run into problems.
When talking about the importance of operations to successful DTC models, for me, Eve Mattress Co-Founder Kuba Wieczorek puts it best: “That whole back end is so mega important that if you don’t get it right you’re screwed.”
Wieczorek argues that brands must ensure the supply chain is as good as it can possibly be before they launch into the DTC arena, “Not just go ‘let’s just launch this and see what happens’, which is what I think a lot of young brands are guilty of doing”.
Wieczorek’s point is reinforced by the fact that a whopping 61% of consumers have told us they’ve experienced issues buying from brands online within the past 12 months alone. For a DTC company with fresh ideas about how to serve customers better – to then let them down because you can’t keep up operationally is extremely disappointing. And, what’s worse, 69% of shoppers say that if their experience is poor, they’re unlikely to shop with the same brand again; which means future sales are being put at risk because of mismanagement in the supply chain.
The DTC opportunity is ready to be capitalised on but this shouldn’t be at the expense of a brand’s operations. Post-purchase experiences, from delivery to returns, will influence a customer’s loyalty – and collectively, each of these scenarios should be recognised as equally important as those on the front end.
There’s now a clear need for DTC business models to be more customer-centric. In my view, that’s the only way to true DTC success. In order to do that, you must have a full picture of your customer, ideally through data-driven insights that only exist in specialist retail operations and CRM software.
Operating ‘blind’ in the DTC space is only going to get you eaten for breakfast by more capable competitors, like the Gymsharks, Dollar Shave Clubs and Caspers of the world.
The real secret of the DTC model though relies on understanding that ownership of the total customer experience is more important than the product itself. When you’re a DTC brand, shipping, returns and incredible response times all become part and parcel of the proposition.
This means DTC is more than simply a channel – it requires thinking about the feelings you want to create for customers every step along the way and using intelligent retail technology to remove any potential bottlenecks in your operations.
This will not only enable you to compete, differentiate and thrive in this new retail landscape but ideally help you to avoid the same fate as businesses that have tried to build a consumer-focused strategy on top of unstable foundations.