Why are legacy brands turning to DTC sales?

In the past ten years, a new generation of start-up brands has conquered the market by selling direct to consumers (DTC). But now, even established luxury and legacy brands are getting in on the act. What motivates brands like Levi’s and Nike to go DTC – and what does it mean for e-commerce?

Why are legacy brands turning to DTC?

First, let’s think about the benefits of DTC e-commerce. Selling directly gives brands a closer relationship to their customers. They can own the customer experience from beginning to end. DTC also offers higher margins, without a retail middleman – but at the cost of higher overheads for advertising and operating.

Some legacy brands have decided that’s a bargain worth making. DTC revenue at household-name brands such as Levi’s, Under Armour and Canada Goose grew between 10 and 20% in 2020.

According to some analysts, this is a sign that brands have grown as much as they can by selling wholesale to retailers. They’ve tapped out that part of the market, and now they’re turning directly to consumers.

But there’s a bit more to it than that. Let’s take Levi’s as an example. During the pandemic, the famous denim brand had to pivot very quickly to digital. They took the opportunity to overhaul the business more generally: making stores part of their delivery supply chain, accepting new forms of payment like PayPal and Venmo in store, building their social media presence, and focusing on customer engagement and experience.

So the shift to DTC wasn’t just about outgrowing wholesale. It’s an integral part of Levi’s strategy for the new century, catching up to the latest tech and reaching customers where they are.

Nike has taken a similar path. While the sportswear brand reports that retail sales have dropped over 50% in the past four years, direct digital sales now account for more than a quarter of Nike’s total revenue. The brand is reducing its wholesale presence and leaning heavily on sales via Nike Direct.

So, to sum up: established, global brands are starting to turn away from the wholesale retail model and connect with customers directly, especially through e-commerce.

But here’s where it gets really interesting. The original DTC start-up brands are starting to move in the opposite direction… towards brick-and-mortar and wholesale retail.

What are DTC-first brands doing?

At first sight, there are two contradictory trends here. Legacy brands are embracing DTC and focusing on the e-commerce experience. DTC-first brands are opening brick-and-mortar stores and expanding offline.

Are they changing places? Not quite. These trends are two sides of the same coin. Both types of brands want to engage their customers more closely. For legacy brands, that means cutting out the middleman. For DTC brands, it means creating real-world experiences.

DTC brands started out with the goal of owning the customer experience, from advertising to sales to delivery. Now they’re seeing the value of owning the experience in-store, too.

“We think it really improves the customer experience when you see us 360”, explained co-CEO of Aurate, Sophie Kahn, in a recent interview with Retail Dive. Other brands have found that for some products, there’s no substitute for trying items in store. For example, although lingerie brand ThirdLove has pioneered online fittings, they’ve discovered that an in-store fitting makes a big difference for some customers – especially for that all-important first purchase.

Some DTC brands have also found that customer acquisition costs are lower in store than online. However, that doesn’t mean they’re fully embracing the wholesale retail model.

Many start by testing their own pop-up stores, where they can still own customer data and the customer experience. The few that have explored wholesale retail either view it as a temporary tool for scaling, or are working with retail start-ups which promise shorter rentals, more access to customer data, and in-store events.

The power of knowing your customers

Both legacy brands and DTC start-ups are driven by the same motivation: they want to stay close to their customers. And whether they’re recruiting new app users (like Nike) or building new stores (like ThirdLove), their needs are similar: instant access to supply chain information, tools for understanding customer behavior, and making the most of every touchpoint throughout the buyer’s journey. Whatever you’re selling in 2022, it seems that operations experience management is the key to success.