The pace of changing consumer behavior is forcing footwear brands to rethink ways in which they interact with their customers. To better understand and respond, brands are increasingly focused on building a direct and enduring relationship with the consumer. Adidas, Capri, and Nike are three companies that – despite their origins as wholesalers – have grown their top lines over the past five years almost entirely through their direct-to-consumer (DTC) channels (Figure 1).
Their evolution is a prominent example in a larger convergence taking place between roles that had traditionally been cleanly divided between brands and retailers. In fashion, apparel brands arguably led the way. It’s only been more recently that footwear convergence has accelerated, fueled further by the pandemic shifting more sales online. Their success – along with the rise of online brands like Allbirds - has given other brands a possible roadmap to move more firmly into the DTC channel as well.
What should brands do in this new era of customer connection?
The objectives of brands and retailers can often diverge to the point where the former needs to find a better pathway to the customer. While changing retail partners is never easy, taking the DTC route is a challenge that should not be underestimated. Very few brands have demonstrated long-term success in this channel, nor do they have extensive internal experience. While margins should, in theory, improve by eliminating the intermediary, the true cost of building DTC capabilities can more than offset that operational margin benefit. This is particularly true in the absence of scale, which is likely in the short to medium term as there are fewer points of sale available to the consumer. Having a plan that factors in the potential for both increased costs and lower revenues upfront is essential for success in the long run.
Any brand looking to build a DTC channel should invest heavily in customer analytics and use the collected insights to deliver an improved customer experience, boost marketing effectiveness, achieve greater latitude with pricing, and build better products. They also need to evaluate (or re-evaluate) the role of physical stores in their customer journey and where necessary re-tool for an integrated omni-channel future.
While most brands have some leeway to build DTC capabilities, they should build on concept pilots with infrastructure that can be scaled in the future. But most important, before ever attempting to go it alone, brands must honestly consider which wholesale retail customers may not follow them to the new model and build alternatives pathways in case Plan A does not work out.
Customer loyalty is hard to earn. In an AlixPartners consumer footwear survey, more than three quarters of respondents said that a promotion or sale alone would be sufficient to induce them to switch from one shoe retailer to another (Figure 2).
And brands themselves are vulnerable to the limitations of consumer loyalty. Almost two-thirds of respondents said they would switch brands for a similar shoe style if it were on sale (Figure 3).
Meanwhile, retailers that have been left behind by brands choosing to go direct to consumer now face both a challenge and an opportunity. How should they respond?
Leverage stores for what consumers value most: Our survey shows that 60% of consumers want to return to the store to buy shoes as the pandemic continues to recede. The two main drivers for this are the ability to try shoes on before buying and to avoid the hassle of returns (Figure 4). Retailers should also take advantage of the ability to tailor store inventory to local market needs. They can also leverage their forward-deployed inventory to offer services that pureplay ecommerce providers cannot, such as same-day pickup.
Cultivate existing customer relationships: Retailers should focus on better understanding their customer through advanced information management, offering targeted loyalty benefits as well as product and marketing customization to retain and grow their existing customer base and prevent attrition to brands that have turned into competitors.
Let your product shine: Develop proprietary brands and branded exclusives that give customers a reason to come to you over less attractive alternatives. Deepen mutually beneficial selling relationships with new brands for customers who may be looking for a replacement for a brand that has left. Proactively position new brands to win with your existing and future customers.
The growth in online sales penetration because of the pandemic has also accelerated brands’ intent to reach their customers directly. And while changing consumer priorities are the main driver, there are other reasons why brands and retailers alike can better understand and win customers today, including significant advances in technology infrastructure, supply chain efficiency gains through end-to-end connectivity, and the ability to automate decisions by analyzing big data.
This is a dramatically changed dynamic in an industry where retailers and manufacturers have long existed in a symbiotic relationship, particularly in footwear. While few brands have the market strength and loyalty to consider such a bold move, its success has given brands and retailers alike pause to ponder their own potential future in such a consumer-direct world. In this new era of convergence, there is a battle being waged for the hearts and minds of the customer. Are you positioned to win?
