Do brands know what they’re doing to retailers by selling directly to consumers? Andrew Atkins, Managing Director of Resonant, investigates…
This issue, I’m going to throw some light on how suppliers, whether brands or distributors, are trying to approach the tricky subject of the online side of direct-to-consumer (D2C) sales and what this means for retailers.
As some of you know, I have access to a wide array of metrics about the online activities of big retailers and brands. However, I’ve also talked to them directly about their plans at ISPO and the Outdoor Trade Show (OTS). In addition, I had a bit of a busman’s holiday in Scotland in June and spoke to retail owners and managers, from North West Outdoors in Ullapool, through Aviemore and down to Tiso Outdoor World in Perth, to get their view on D2C’s current and future impact.
It’s well-known that some major brands now have 20 to 40 percent of their revenues coming from D2C and they are aggressively growing this, whilst using their brand equity and strong product portfolios to retain their importance to retailers big and small (but mostly big…). Others, such as Proagencies on the distributor front and Mountain Equipment on the brand front, are trying hard to resist the momentum by focusing on supporting their retail channel, although a lack of understanding of retailers’ own online activities can sometimes lead to confusion. Most, however, are somewhere in the middle and adopt either an opportunistic approach or a policy of ‘we need to do this, but let’s not be first’.
Why are suppliers undermining retailers by going D2C?
So, why do they feel the need to address D2C, apart from the obvious incentive of potentially higher margins when, frankly, they know it’s likely to disrupt their existing channels? By the way, let’s remember that ‘potentially’ is an important word in D2C, as the significant investments required can soon erode much of the gross margin gain.
Most fundamentally, the rise of the internet has driven two very disruptive trends: first, the fragmenting of traditional consumer goods distribution and the emergence of new structures e.g. marketplaces and social shopping; second, the shift of authority and product knowledge from brands and retailers towards forums, blog authors and reviews.
The result is that, because a supplier has to satisfy a customers’ needs where the customer is likely to transact (nothing new there), they have to be present in all those places, unless their existing channels already do it effectively. Likewise, with marketing communications; if Amazon reviews, UKClimbing posts and shoppable Instagram images are influencing purchase decisions, the supplier has to be there.
There’s also the issue of brand equity and control of intellectual property (IPR). One of the biggest drivers for many suppliers to ‘go direct’ in trading or marketing is to prevent misuse of IPR or misrepresentation of brands or products. This comes up repeatedly in many of the projects I work on.
Where does Amazon fit in?
IPR is often a key reason for brands and distributors to start working with Amazon (and other marketplaces). For brands that sell to Amazon through Vendor, it’s a ‘national account’ wholesale customer but, for suppliers that operate FBA or Seller Central, it’s effectively D2C, as the supplier controls the pricing, content, etc.
In either case, the incentive is that the often-messy representation of products created by third-party sellers, including UK outdoors retailers, can be cleaned-up through having Brand Registry access and control of the listed stock keeping units (SKUs).
I know of at least one major UK outdoors brand that works with Amazon for that reason alone, whilst using tactics to limit sales in an attempt to protect its retailer channel.
Giving retailers a chance…
In the end, most suppliers are deeply committed to supporting the 80 to 90 percent of their consumer sales that currently come via their retailers, although their solutions vary enormously.
For example, Chris Dunn at Scott explained how customers on their website can specify a retailer near them and, whether the customer collects in store or has the goods sent direct, the retailer gets a substantial commission on that sale.
As an alternative, Mountain Equipment don’t sell direct, but offers two options: firstly, the fairly common ‘find your nearest stockist’; secondly, a more unusual connector linking to product pages on Ellis Brigham’s website (ME’s ‘online partner’). However, this second option applies to select products, creating an odd user experience.
Far more suppliers still appear to be in ‘wait and see’ mode, allowing their retailers to communicate and sell in online channels and marketplaces, but appearances can be deceptive, and I know of very few suppliers that aren’t including D2C in their future channel management plans.
What can retailers do?
In simple terms, it’s about staying relevant for suppliers. Sometimes, D2C may not be an issue because a retailer has a strong tourism-based business, is focused on a market niche such as paddleboarding or has a strong experiential element like a climbing wall and/or café. For most, however, getting the best from a supplier relationship in future is about alignment. That means making sure, as a retailer, that you’re involved in the supplier’s key programmes, whether that’s merchandising, training or online, whilst ensuring that they’re reminded of the need to support you in being more than just a ‘free showroom’ for their products.
Right now, I’d suggest that retailers and suppliers tend to be trying to work all this out for themselves and often only talk when there’s conflict. As there’s no one right answer to the evolving nature of how consumers buy outdoors products, we should accept that D2C is growing; that there will be new entrants selling outdoors products; and that specialist retailers need to offer far more, both instore and online than just nicely merchandised products. Conversely, brands and distributors have to build retail support programmes that cover instore and online in a way that responds to consumers who now put value and ‘involvement’ high on their list of priorities.