Direct-to-Consumer Is Dying. It’s Time for a New Paradigm

In the past Over the past decade, iconic brands like meal replacement Huel and men’s grooming company Harry’s have built multi-billion dollar retail businesses by leveraging social media and digital-first advertising to sell directly to consumers online, without the need for intermediaries. These brands were examples of a new form of retail called direct-to-consumer (DTC).

The global pandemic has only accelerated this trend as many high street stores have been forced to close and continue to increase sales by going direct to shoppers online. Some brands have successfully navigated the transition, like outdoor pizza oven maker Ooni, whose sales have exploded during lockdown, with annual sales going from £13.7m ($167m) in 2019 to £52.7m in 2020 Buyers have also adapted – around 60 percent will be buying from a direct-to-consumer brand at least once in 2021.

As the pandemic slowly recedes, the market is once again rapidly changing. Older, more established brands have now embraced the DTC approach – Nike’s direct-to-consumer sales, for example, grew 30 percent in 2021 to $16.5 billion. On the other hand, shares of some of the largest publicly traded DTC brands — like Warby Parker and Allbirds — have fallen as much as 64 percent in 2022.

There are obvious economic factors behind this underperformance. The rebalancing of the economy with rising inflation and squeezed supply chains is increasing the pressure on retailers. According to a McKinsey report, rising prices are the top concern for two-thirds of UK consumers, with around 70 per cent saying they have recently changed their shopping habits and are more open than ever to buying cheaper brands.

But other factors are at play in the recent crash in DTC tokens. For example, in 2021 Apple introduced a new transparency feature that allowed users to opt out of app tracking, making it more difficult and expensive for these brands to acquire new customers through paid social media advertising.

As a result of these market forces, in 2023 DTC retail will evolve into a new, more resilient iteration that I call Connect-to-Consumer (CTC). This new approach is about taking many paths to reach customers at the same time: from social media to Web3, from online shopping to stationary retail.

To adopt it, brands need to be creative in how they tell their story and grow their communities across these four different platforms. Consider the example of fitness apparel brand Gymshark, which opened a pop-up barber shop in July featuring psychically trained barbers to encourage men to open up about their issues while getting a trim. Meanwhile, men’s makeup brand War Paint is turning abandoned stores into showrooms for online shoppers.

There is also a lot of experimentation with the CTC model on social media platforms. Kylie Jenner, for example, uses TikTok Shopping — a new feature launched in 2022 in partnership with Shopify that allows users to link their TikTok accounts to their online stores — and allows her followers to shop directly from Kylie Cosmetics on the platform . According to Shopify, orders placed on social media channels quadrupled in the first quarter of 2022.

This retail opportunity also extends to YouTube. British YouTube influencer Gabriella, for example, uses her channel to sell stationery to almost 900,000 followers. United Stand, an unofficial Manchester United fan channel with 1.4 million followers, also sells merchandise to its community through YouTube and Shopify.

Web3 also creates new ways for brands to connect with consumers. You may even have a token or NFT in your digital wallet to unlock an exclusive offer online or a VIP high street experience. This is already hitting the mainstream as Starbucks launches a Web3-based rewards program to offer customers exclusive perks.

The retailers who will win in 2023 are the ones that focus on building authentic connections with their customers in all of these ways. These businesses will thrive by becoming channel agnostic: the tools are now in place to have a store anywhere, reaching hundreds on the high street to billions on YouTube and TikTok, as well as niche communities on Web3.

https://www.wired.com/story/direct-to-consumer-business/ Direct-to-Consumer Is Dying. It’s Time for a New Paradigm

Zack Zwiezen

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