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Is direct-to-consumer the death of wholesale?

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As more and more wholesale brands sell direct to the consumer, independent retailers have been left wondering if they have a viable future.

If there is one topic guaranteed to stir up an emotional response among independent fashion retailers, it is the decision by a growing number of wholesale brands to start selling direct to the consumer. 

More brands than ever are bypassing retail partners and exploring the opportunities that come with a direct-to-consumer model, among them bigger profit margins and the chance to build stronger relationships with their customers.

The shift has been spurred by the fast rate of growth in online sales, which provide brands with a lower-risk direct route to market, as well as the ability to reach a wider pool of potential consumers via social media.

Direct-to-consumer is not a passing trend – it is an evolution in the retail industry that puts the customer at the centre of business decisions

Derek O’Carroll, CEO of Brightpearl

Research carried out by retail software firm Brightpearl last September found 87% of retail brands in the UK and US plan to launch a direct-to-consumer channel at some point in the future, and 23% aim to do so within the next 12 months. Direct-to-consumer is also being widely embraced by shoppers – 82% of consumers in these two markets have bought directly from a brand in the last year.

VF Corporation, Canada Goose, Converse, Douglas & Grahame, Rixo and James Lakeland are among those with direct-to-consumer strategies. In 2017, Nike revealed it plans to grow its direct-to-consumer business by 250% by 2022.

“Direct-to-consumer is not a passing trend – it is an evolution in the retail industry that puts the customer at the centre of business decisions,” says Derek O’Carroll, CEO of Brightpearl.

No filter

For brands, the advantages are clear.

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Canada Goose autumn 18

“Our direct-to-consumer business allows us to have direct relationships with our customers, showcasing the breadth and stories of our brand, unfiltered,” explains Dani Reiss, chief executive of Canada Goose, where direct-to-consumer now accounts for 41% of sales.

He argues that the two channels play “important and complementary roles” within the brand’s long-term business strategy: “Wholesale offers the brand unique opportunities and benefits, including building brand awareness, and access to influential accounts in new and mature markets.

“Our stores serve as a gathering place for our fans around the world and give Canada Goose the opportunity to create immersive and unique brand experiences, [and] ecommerce gives us ability to serve customers where and when they want.”

Wholesale offers the brand unique opportunities and benefits, including building brand awareness 

Dani Reiss, chief executive of Canada Goose

Donald Finlay, managing director of men’s and boys’ wear brand house Douglas & Grahame, says the traditional definition of a “wholesaler” has changed over the past 10 years. Although its primary focus is firmly on supplying independent retailers and department stores, Douglas & Grahame’s flagship menswear brand, Remus Uomo, also sells directly to consumers via its website, six full-price stores and one outlet.

“We consider ourselves a brand house, offering a range of brands and services to the trade and this means both servicing the trade and communicating directly with the consumer,” Finlay explains. “Today’s naturally curious, digitally empowered consumer expects to be able to research their choice of brand instantly and they demand a much richer experience of and relationship with those brands before and after they make a purchase. We have therefore evolved to become an omnichannel brand house, which we believe is essential for any brand looking to the future.”

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James Lakeland spring 19

Similarly, James Lakeland says awareness of his eponymous womenswear brand had been growing thanks to social media, effectively outstripping its network of stockist. He now creates separate collections for wholesale and the brand’s own retail channels, which include its website and seven stores. Direct sales represent 65% of the business and this is steadily growing.

“Some people can’t find the collection locally, but they want to buy the product as they see it on our social media and on celebrities,” he explains. “Selling direct to consumer [also] allows the consumer to buy into our outerwear, as most independents do not buy into this part if our range, even though it has a very high sell-through.”

Bad blood

When brands decide to focus their energies on selling direct to consumers, stockists can be left counting the cost. If handled badly, it can feel like a massive breach of trust and lead to bad blood on both sides.

“It’s very frustrating,” says Deryane Tadd, owner of womenswear independent The Dressing Room in St Albans. “We purposefully take on brands that are quite small and up and coming, and help to build them. It gives people a reason to shop with us over big businesses such as Net-a-Porter. And then some brands say, ‘We’re not wholesaling to independents any more,’ and they come out on the last buying day of the season. I think that’s disgraceful. It can leave a real hole in your budgets.

“Indies are owner-run businesses – something like that can make a big difference.”

David Turner, owner of outerwear and skiwear independent Turners in Marlow, has stocked Canada Goose since 2010, but this will be his last season with the brand after he was sent a termination letter last autumn. He argues that, when brands sell direct to consumers online, it makes life much harder for their bricks-and-mortar stockists.

There’s nothing you can do other than get back to the drawing board and find new brands 

Deryane Tadd, owner, The Dressing Room in St Albans

“In the past the independent could order in for its customers, but with direct to consumer the brand will not offer the piece wholesale: its ROI [return on investment] is much better direct. The customer finds this difficult to understand: ‘I can see Canada Goose has the parka on its website, but you can’t order it.’ This is where the independent model is becoming unworkable.”

This is made worse when brands discount their product online.

“Over the years we have seen extensive and frequent Sale periods from brands – some more than others – that have clearly undermined the brand/retailer partnership as the retailer finds it increasingly difficult to compete, especially when it comes to their online sales,” attests Darren Hoggett, owner of J&B Menswear in Norwich.

“Brands will still expect healthy pre-orders, yet the retail partner gets more and more undermined to the point that carrying the brand becomes unviable as ‘full price selling periods’ are woefully short.”

Industry impasse

With independents worried that their business model is becoming untenable, and brands finding it increasingly hard to resist the pull of retailing, it seems the industry is at an impasse. For many independents, the solution has simply been to find new brands.

“Fortunately, there are enough good brands out there that do believe in genuine relationships and are not discounting every five minutes on their own channels,” says Hoggett. 

“You can see which way the wind is blowing. If you have a brand that you believe has an ulterior motive and feels you are not part of their longer-term plans, then you have to judge how important that brand is to your overall business and what hoops you are prepared to jump through before the inevitable happens.”

Tadd agrees: “There’s nothing you can do other than get back to the drawing board and find new brands. Last season was great for us even though we dropped a couple of bigger brands, because we worked harder to find great new product. We made up the turnover through three to four different brands.”

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Remus Uomo in Dublin

All together now

However, Douglas & Grahame’s Finlay thinks a collaborative approach between brands and retailers is the way forward: “Our strategy for growth in the wholesale channel is to work more and more closely with our trade customers promoting and supporting our brands in their stores.

“Where we are seeking growth in direct-to-consumer channels, that is part of a partnership strategy with our independent retail customers and we are actively looking for franchisees across the UK and Ireland.”

We are actively looking for franchisees across the UK and Ireland 

Donald Finlay, managing director, Douglas & Grahame, owner of Remus Uomo

While some brands mishandle the transition to direct-to-consumer selling, the vast majority recognise that multi-brand retailers offer them access to a wider customer base, complementary brand adjacencies and an in-store experience that is difficult to replicate across a chain of single-brand stores.

If retailers can create an unparalleled experience, and do not rely too heavily on one or two brands to generate sales, they will continue to give customers a reason to shop there instead of – or as well as – directly with the brand.

As Tadd puts it: “People want a great experience in store and online – that’s where indies will thrive in the future.”

 

 

 

 

 

 

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