The retail landscape is shifting. This isn't anything new, but in the last few years we've hit a tipping point that has seen several big box chains go under. That tipping point has confronted many brands with a question: how do we survive, let alone grow, in the midst of this chaos?
We have been fortunate to work with a multitude of different brands - both large and small - and we've seen a lot of different strategies deployed over the past few years. Here's what we've learned – a breakdown of the pros and cons of the three most common sales channels for brands.
Direct to Consumer (D2C / DTC / B2C)
In the direct-to-consumer channel, brands don’t have to share sales profits with other parties. They can sell at MSRP instead of wholesale pricing (typically 50% of retail). With the middleman (the retailer) out of the equation, your brand captures all the profit.
In addition, brands retain marketing control, meaning that your story will come across as you intended. Your message goes straight to the consumer without becoming diluted or confused.
Pricing control is another advantage in the D2C space. Some retailers may choose to ignore minimum advertised pricing (MAP) because they’re big enough or not paying attention.
The major disadvantage for brands selling direct to consumer is that they can’t share costs. (This is the other side of the “don’t have to share profits” coin.) Your brand bears all costs, from customer acquisition (ads, campaigns, etc.) to discounts and promotions to a brand’s marketing budget.
Big Box / Big eComm
When your brand sells to Amazon, it becomes a volume game. The sheer reach of big-box and big e-commerce stores means that your brand can move a lot of product in a short span of time. They buy more because they have so many more stores and sell so much more product.
Your brand will have access to a lot of customers, because these stores have a lot more customer traffic than specialty retail. That established customer base is one that your brand can market and sell to.
One of the downsides of working with big-box stores or big e-comm is they dictate the rules of the relationship — and they’re looking out for Number One. Their size means that they get to decide on and structure the deals. Will the terms be favorable for your brand?
As if that’s not bad enough, your brand will also see smaller margins in this channel. Huge retailers figure that if they’re helping you sell massive amounts of product then they should get a price break from you. This allows them to run more ads and draw more customers in with low (or even the lowest) prices.
Last, big retailers may want “exclusive” products or SMUs from your brand. Costco, Target, Amazon, etc. all want to have exclusivity so they’re able to say “Available only at [retailer]." These are often less expensive products because they are made of lower-quality materials; the result, though, is that they serve to cheapen your brand image.
In specialty retail, your brand has more control. The retailer and the brand are on more of an even footing than in the big-box channel. However, these retailers need the best products and brands in order to attract their customers, who are more demanding than those in other channels.
Brands who sell in this space will gain access to loyal customers who shop at specialty retail stores because the experience isn’t purely transactional. They know they’ll get help selecting the best products based on fit, use, value, and so on. This personal, intimate, buying experience builds loyalty: when these customers “discover” a new brand and have a great experience then they often become advocates for the products and/or brands to their friends and family.
Last, the staff at specialty retailers become experts in your brand and will be able to sell the value of your products.
This sales channel requires “high-touch” relationships. Specialty retailers expect to be given the same kind of attention that they give to their customers; they want an expert who will help them carry the best products and offer the best solutions for the people coming through their doors. This is not necessarily a con, but it does take more effort on both the brands and retailers to execute - especially when you consider specialty retail works best at scale.
Be aware that specialty retailers can be sensitive to how your brand treats players in other sales channels. They may feel cheated when they see the same product they are selling available at a cheaper price from their big-box rivals. Unfortunately, this situation incentivizes consumers who would shop at as specialty store to buy the cheaper option elsewhere.
Specialty retailers are concerned with minimum advertised price (MAP) enforcement; they rely on enforced MAP because they’re competing on service.
A Diversified Approach
As stated at the outset, the smartest brands don’t limit themselves to only one sales channel. You’ll have the most success if you find the right balance for your brand across all of these different channels.
Your brand would be well served by making the discovery and purchase of your product as convenient as possible for your end customer.
And that means selling in a mix of different channels.