Part 1: How D2C strategies get retailers and customers to cozy up

Part 1 of the 5 year series on customer centricity - How D2C strategies get retailers and customers to cozy up.

D2C now and then

In Part 1 of this series on customer centricity, we look at the state of D2C and traditional retailers in 2014 and just how far they have both come until now.

Just five years ago, D2C brands started sprouting up everywhere, especially between the cracks in customer experience left by traditional retailers. 

Newer, smaller, more agile brands were quick to snatch up marketspace in a new age in which customers were calling for a personalized and authentic experience and ecommerce was lowering barriers to entry.

What lessons have established traditional brands learned over the last year, and how are they applying their own D2C strategies to meet customer experience demands?

2014: D2C brands gobble up market space 

Skeptical shoppers vote with their dollars

Toward the end of the global economic slowdown that began in 2008, shoppers were left skeptical and selective when it came to what they were willing to spend their money on. But what they lacked in confidence, they made up for in influence. 

Thanks to the proliferation of mobile devices, increasing internet speeds (from 3G to 4G), and the impact of social media, shoppers could not only vote with their money, they could also publicly evangelize or rebuke brands with the click of a button or a swipe, immediately influencing the purchasing decisions of others. 

The high stakes of reputation management, the struggle to remain relevant, and thinning margins made retailing risky business for those who historically benefitted from scale by being a one-stop-shop for all purchases.   

D2C brands gain trust and loyalty

The same digital technologies that put the power into the hands of customers also lowered the barrier of entry for direct-to-consumer (D2C) brands, and now frequently referred to as digitally native vertical brands (DNVBs). 

D2C brand map from 2014
A selection of D2C brands in the apparel and accessories space from 2016 | CB Insights

These smaller brands were also financed, designed, produced, marketed, distributed, and sold without the help of the middleman. And as their names imply, D2C brands were able to reach customers in a way that others couldn’t, by forming a personalized and direct relationship with customers.

By connecting directly with customers, D2C brands saw benefits such as full control over their brand, engage with customers through a steady stream of communication and feedback, and access to a granular data on their customers.

In other words, they were completely customer-centric.

2019: D2C brands and strategies are here to stay

Not so little anymore: D2C brands have a growth spurt

Over the last five years, D2C brands in retail have experienced an estimated CAGR of 200% on average. This quick growth demonstrates the race to occupy market space and how successful their customer-centric approach is. 

D2C brands proliferate in 2019
D2C brand Lumascape 2019 – Clothing & apparel | And that’s just in the US!

D2C brands were disruptors created from disruption. Since then, several of the D2C brands founded in around this time have become major players in apparel and beauty, such as Allbirds, Outdoor Voices, and Glossier.

And it’s not like time has been standing still for customers either. Millennials, and the more frequently discussed Gen Zers, are five years older too, and are starting to spend more money. More than 60% of Gen Z customers are attracted to brands that they perceive to be smaller, more fun, transparent, and approachable. Those that meet them on their level.

Without a long-standing brand name and reputation to rely on – not always a bad thing – smaller brands have to go right to the source to provide products and styles that customers will be willing to purchase. D2C footwear retailer Allbirds, coincidentally founded in 2014, has built an empire by building an incredibly strong brand based almost entirely on the desires and demands of customers. 

Since the D2C brand is able to maintain a continuous feedback loop with customers due to their direct approach, Allbirds is able to know exactly what customers want and base decisions directly on that. The company claims to have made over 35 changes to their original 2016 design which were almost entirely a result of customer concerns and experiences. 

Allbirds shoes
D2C footwear brand, Allbirds, now worth $1.4 billion

Giving customers a voice, and listening to it, seems to be serving Allbirds well. Not only has it achieved major brand loyalty thanks to their customer-centric designs, improvements, and experience, the company has also seen the effects on its valuation: Allbirds is now worth over $1.4 billion.

For full omnichannel reach, we’ve seen some D2C brands like Allbirds, Everlane, Bonobos, and Warby Parker go physical as well as long-standing brands take on new D2C strategies to catch up and regain relevance and marketspace.

Traditional retailers get in on the D2C game too

Five years later, traditional retailers have not collapsed under their own weight. In fact, we’re seeing examples of even huge retailers who have tapped into D2C strategies that have shortened the distance between themselves and customers.

Often, this means shedding wholesale agreements and distributing directly through proprietary brick and mortar locations or by beefing up their ecommerce sites. 

Nike is a great example of a brand that has shifted from a wholesaler to a more direct retailer. The footwear and athletic apparel giant has been investing D2C strategies, headed by its Nike Direct D2C business line. These initiatives are estimated to lead to sales of up to $16 billion by 2020, up from $6.6 billion it generated through D2C in 2015. 

Nike shoeboxes
Nike – from wholesaler to direct retailer

A clear example of the brand’s shift away from wholesale is the recent announcement that Nike will stop supplying some independent retailers altogether by 2021. Doing so will allow Nike to bolster sales, avoid stock misalignments, and strengthen its control over the brand. 

While Nike continues to sell its products over Amazon, it has tight control over its brand image. Amazon provided Nike with it own dedicated space and continually monitors and blocks third parties that try to sell Nike products – likely the only reason Nike agreed to partner with Amazon. (Update: Nike pulls products from Amazon).

That’s about as D2C as one can get, and by “D2C” we really mean “customer-centric”.

Coming up…

In Part 2, we’ll examine how retailers have gone from a multi-channel to a true omnichannel approach to increase their ability to meet customers on their path to purchase no matter where that might be.

Click here to find out how Nextail is helping fashion retailers predict localized demand and ultimately bring them closer to their customers.

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