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08/17/2022

Does D2C Mean the End of ‘Middle’ Retailers?

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D2C relationship with retailers

The COVID-19 pandemic has transformed consumer behavior and disrupted traditional supply chains. 

As brick-and-mortar stores shut down at the start of 2020, consumers switched to e-commerce businesses for all their needs. That, in turn, overwhelmed online stores and resulted in shipping delays.

It compelled consumers to directly purchase from brands via their websites, apps, social media profiles, and other online channels. That has contributed to the remarkable rise of the direct-to-consumer (D2C) business model.

D2C e-commerce sales in the U.S. are projected to reach nearly $175 billion in 2023. That’s a significant growth compared to $76.6 billion in 2019.

D2C brands reap several benefits, including increased profits and customer loyalty. Additionally, it’s turning into the preferred purchase option for millennials and Gen-Z consumers.

But where does that leave supply chain intermediaries, such as distributors and third-party retailers? 

Let’s find out.

D2C: A Closer Look

Direct-to-consumer, or D2C, is a business model where product developers or manufacturers can directly sell their products to consumers. D2C brands reach consumers through various online and offline channels, including company websites, social media platforms, and flagship stores.

This business model helps brands control the customer experience at every touchpoint. Additionally, it helps them earn customer loyalty and drives more revenue. It even provides them with a deeper understanding of their target customers.

It’s the reason why established brands, such as Nike and L’Oreal, have launched their D2C offerings.

For consumers, the biggest benefit of D2C is that it eliminates intermediaries from the supply chain. They get to buy products at lower prices and enjoy other perks, such as free shipping and same-day delivery.

Factors that have accelerated the adoption of D2C include:

  • Increased dependence on online shopping
  • Improved internet penetration
  • Rise of online communication channels, such as social media and email

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Impact of D2C on Retailers

In a traditional supply chain, manufacturers sell their products to distributors who, in turn, resell to third-party retailers. While distributors store products in warehouses and distribution centers, then transport them to other locations, such as retailers. The retailers then sell products to the end-user, the consumers. 

In the age of digital-native D2C brands, the role of third-party retailers seems insignificant. Why would manufacturers approach retailers when they can sell products on their own websites? 

Does the growth of D2C spell doom for brick-and-mortar retailers?

The good news is that traditional retailers can continue to be relevant and generate revenue despite the rise of D2C brands. However, it’s crucial for retailers to pivot and outline new strategies to stay afloat.

Here are a few tactics retailers can use to ride the D2C wave:

Maximize Space Utilization

Here’s the thing — D2C businesses can’t succeed without an omnichannel customer experience. Even the most popular D2C brands, including Warby Parker and Casper, are expanding customer acquisition channels through physical stores. Retailers can use this to their advantage by letting D2C brands use their stores. The space can be converted into a brick-and-mortar flagship outlet or pop-up store.

It’s also worth noting that the D2C model puts manufacturers in charge of the supply chain. They’re responsible for storing and managing inventory, shipping orders, and providing customer support. Brick-and-mortar retailers can step forward by turning their stores into small warehouses. They can even offer to manage inventory and other logistics for D2C brands. However, it’s essential for retailers to use modern tech solutions to maximize efficiency.

Support the Last Mile

D2C brands don’t just need help with inventory management. They often struggle with ensuring frictionless order fulfillment. While third-party logistics partners manage most of the supply chain, they can fall short in the last mile.

It’s particularly crucial considering that fast and convenient delivery is one of the top reasons consumers prefer D2C brands.

Retailers can fill that gap by collaborating with reliable last-mile delivery providers to enhance their warehousing and shipping solutions. It’ll help them carve an integral role in the D2C supply chain.

Retailers should look for a delivery partner that provides a wide array of customer-friendly services, including:

  • White-glove delivery (Including room of choice delivery)
  • Same-day delivery
  • Time-definite delivery
  • Reverse logistics

Additionally, retailers should look into the delivery provider’s tech stack and ensure that they use routing and scheduling software to improve efficiency. Similarly, they should provide brands and consumers with a transparent dashboard to help them track their orders.

Final Thoughts

Brick-and-mortar retailers shouldn’t perceive D2C brands as a threat. Instead, they should devise strategies to identify and address the needs of these brands. It’s a good idea to work with last-mile delivery providers to optimize the D2C supply chain.

—Jay Sackos is a vice president at Dolly. He is an experienced supply chain sales professional dedicated to exchanging value through creative, client-centric solutions.

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