Digitally native direct-to-consumer (DTC) brands have made an undeniable cultural imprint on retail. While DTC business success has ranged from achieving unicorn status to being forced to make a quick pivot or, in some cases, closing shop, there are many things these brands have done right. Through a simplified path to purchase and a single-minded focus on putting the customer front and center of their strategy, these relatively new names have made an outsized impact on both consumer behavior and how retailers now need to think about consumers and their buying journey.
The DTC approach is not just about selling directly online. These brands anticipate unfulfilled consumer needs and find gaps in traditional product lines to develop a simplified slate of quality products. To reach the consumer without an intermediary, they create compelling stories and activate aggressive and targeted digital marketing. These tactics have helped these brands quickly earn a loyal userbase and, even more significantly, a growing share of ecommerce dollars.
Over the last few years, digital natives – even with Amazon and the eBay marketplace removed from the equation – have been accounting for an increased share of total retail sales (Figure 1). In 2019, two in five Americans are said to have made a purchase from a direct-to-consumer brand, with the number predicted to grow by another 50% over the next five years.
Adopting this “DTC” mindset isn’t easy for large, established retailers. For many DTC companies, their underlying ecommerce technology platforms (for example, Shopify) are often integrated from Day 1, so they have better end-to-end data visibility and may not face as many data integration challenges as traditional retailers. For traditional retailers, the solution does not lie in merely adopting new technologies. They must instead focus on the desired outcome by understanding the needs of their customers and then determine the most favorable path forward that will likely balance reusing existing assets with deploying new platforms. This includes optimizing existing platforms to their fullest capabilities before trying to fully replace the underlying ecosystem. Synchronizing and sharing existing data among teams such as merchandising, finance, fulfillment, and ecommerce often gets little attention and can be an easy first step. There are ways to use technology to streamline operations and provide new operational capabilities that won’t demand wholesale changes. Here are some things to keep in mind in order to do that:
Don’t build from scratch but buy wisely: The hype around technology such as radio-frequency identification, artificial intelligence, and Blockchain is not entirely without reason. Tools that use these technologies can help streamline the design process, handle inventory tracking, and assist in customer service, as examples. But do not let technology fever lead you into competing with Google and Amazon through custom-built solutions. Building from scratch requires infrastructure, discipline, and continued investment. Many vendors offer plug-and-play, analytics-based frontends with significant abilities that are perfectly suitable to retail’s current needs.
"For retailers looking to become a truly channel-agnostic operation, one of the most critical functions to tackle is more accurate inventory tracking."
Focus on solving the problem: For retailers looking to become a truly channel-agnostic operation, one of the most critical functions to tackle is more accurate inventory tracking. Issues such as items showing up unavailable on the website for buy-online-pickup-in-store despite in-store availability are still very much a reality for retailers. Any potential advantage traditional retailers have in omni-fulfillment is too often compromised by data quality issues and failure to properly analyze existing data. The other aspect of this problem is not being able to accurately balance availability to sell online with the desire to remain in-stock in the store. Analyzing sales against forecasts on a more frequent basis and adjusting online availability quickly can enable additional sales and deliver immediate results.
Test frequently and analyze results: A/B testing is a great way to find a solution that works for the problem, but testing is done best in conjunction with healthy internal debate. Improve forecasting by slowly bringing more data into the environment but be sure to understand the accuracy and applicability of the data to the forecast being developed. Use the right data for the right analysis. Always establish proof-of-concept pilots to measure results when introducing a new tool or system.
While adding new tools and data systems can improve business functions and eventually margins, jumping too fast into too many technology changes can cause more problems than it solves and limit retailers’ ability to drive expected growth. Ultimately, it’s the digital native mindset of customer centricity and storytelling coupled with an efficient use of available data to make decisions that will drive real change.