More on this: Pandemic-related developments have driven both trends.
-
Supply chain disruptions spurred large brands to find the most productive, profitable means of selling the finite number of products they could produce. For example, pandemic-related factory shutdowns in Vietnam and Indonesia caused Nike to lose three months of production during 2021. With fewer products to sell, Nike sought to conserve profit by halting sales to third-party merchants such as DSW and Foot Locker.
-
Buying behaviors have shifted, leading brands to adjust their product assortment. For instance, 6 million households added a dog to their home last year, which led brands such as Walmart and REI to recently begin selling Bark products.
Analyst take: “Where a brand is in its lifecycle dictates its strategy,” said Suzy Davidkhanian, eMarketer principal analyst at Insider Intelligence. “Well-known brands are looking to cut back on wholesale to increase their margins, provide more control over distribution, and create an element of exclusivity. Meanwhile, digitally native D2C brands need to go wholesale to get more eyeballs on their product.” She adds: “While wholesale margins are tighter than D2C, rising customer-acquisition costs are driving brands to partner with a retailer (either being carried by them or doing pop-ups) to help them get more potential customers and, in some cases, help them figure out if they should launch their own brick-and-mortar store.”
Why it matters: Large brands benefit from years of work building awareness, reach, and customer loyalty. Taking steps to build a D2C business can allow brands to forge deeper relationships with customers, enabling them to gather data that helps with product development.
- However, not all brands—even well-known ones—are strong and resonate enough to successfully make that pivot.
- D2C brands may be able leverage wholesale sales to build brand awareness.
- Successful brands will ultimately find an equilibrium between D2C and wholesale sales.