Direct-to-consumer or “DTC” brands have gained in importance in recent years and have since recorded double-digit growth. As they continue to grow, there are some key challenges DTC brands should face in order to gain competitive advantage in the marketplace. A report.

Direct to Consumer, or “DTC”, is the type of consumer product sales organization that sells a product directly to the end user without any intermediaries such as retailers or wholesalers. It connects, trades and trades with its customers directly via offline and online platforms.

The DTC market has recorded double-digit growth in recent years, and a further increase of 20 percent is expected for 2021 despite the pandemic. A huge benefit is connecting and influencing consumer attention and maximizing decision-making when businesses are in direct contact with their audience.

The top industries in the DTC arena are fashion and clothing with 77 percent and beauty and cosmetics with 19 percent, as reported by Invesp, while more and more product groups are jumping on the DTC bandwagon driven by consumer behavior influenced by the pandemic .

There is no doubt that more brands than DTC will launch in the post-pandemic world as technology platforms and logistics services integration continue to grow and the financial barrier to entry is lowered.

However, while transacting and engaging with customers allows for a laser-focused marketing and sales organization (end) with a more effective cost of customer acquisition, brands should never ignore the roles of supply chain (middle) and product design (beginning) that contribute to the to create the true value of a product and thus the value of a brand. While each brand’s operating models and systems differ in terms of the value they seek to create, the fundamental challenges remain the same for most. For the sake of this paper’s reasoning, we mainly focus on apparel and fashion in our supply chain and product design challenges with quotes from industry leaders as this group of products is considered to be the dominant market share of DTC companies.

Let’s take a look at some of the key challenges DTC brands face, but which ultimately create competitive advantage for businesses when faced with vigilance.

Some of the DTC product design and supply chain challenges can be speculated as follows:

Low minimum order quantity (MOQ):DTC and Digital Native Vertical Brands (DNVBs) usually start out with small sales volumes to test the market and their consumer response. This alone presents a huge challenge in creating new and small product lines quickly. New businesses need manufacturing capabilities with low MOQ, and it is extremely difficult to find factories that will accept it. While some southern Chinese factories were initially accommodating, they are now increasing Freight On Board (FOB) prices for small quantities (25-100 units). Failure to meet the MOQ in fast fashion and clothing can cost you up to 20 percent or more.

Design-to-Value (DTV):Section twenty-two speaks of DTV as “determining which product features are most important to your consumers … understanding how your product compares to the competition … and using those insights and developing possible solutions to optimize the value proposition”. Companies often fall into the trap of rethinking expensive products and manufacturing them with materials that do not meet the customer benefit promise. They over- (and sometimes under-designed) features, embellishments, and materials that end up breaking their customers’ budget or, worse, eating up their planned margins. A team of product engineers, or a design team, or working with a global studio can help you choose your base or hero materials and build your collections while staying between cost parameters. I recommend working with teams like this if you don’t want to hire your own. You can save about 10-15 percent on product costs by adding value with the right materials.

sustainability:It is becoming more and more difficult to understand where the raw materials and products come from across all industries. Subcontractors in producing countries have little public visibility; Companies can never really know where their clothes are coming from. There are now a number of certifications and accreditations in the fashion world. From vegan leather certifications to GRS and Oeko-Tex, a transparent supply chain and cooperation with partners who promote the right accreditation for your product group gives you security. It is our duty to the environment to work with and within organizations that give back, take away from the environment and help our consumers become more aware of every link in the supply chain.

We can also think about a three-pronged approach from a financial and marketing perspective. While the highest standards and traceability are a natural tendency for all brands, there are also costs and lead time so you need to optimize your channels accordingly:

1. Industry and Government Sustainability Requirements: The US is well advanced on sustainability and ethical sourcing, so the minimum requirements for it will still be higher than most other countries these suppliers manufacture products for.

2. Minimum sustainability requirements: What is a “must-have” for our customers? If we don’t have these, they won’t buy from us.

3. Brand value increases sustainability requirements: These initiatives induce customers to pay “premium” prices or to switch their shopping behavior to our brand. Become the sustainable brand of choice.

logistics: Direct sales to consumers have recently expanded directly to the demand for consumer logistics. You can now have factories and direct shipments shipped straight to your consumer’s doorstep. However, this is costly and brands should optimize logistics routes based on their sales and geographic sales channels. Brands should work with suppliers who provide the end customer with optimized logistics, an optimized distribution channel and options for the lowest landing costs. Factory direct shipping compared to home warehousing, where your sales speed is 4 to 6 times your inventory turnover, can make a significant difference in costs. In addition, with a complete cost base analysis and a corresponding improvement in the cost base, you can save up to 30 percent on end-to-end logistics costs instead of looking at the ex-factory or FOB price. Make sure your team can consider multiple logistics and sales scenarios when creating new delivery routes.

innovation:DTC brands are closely linked to the online and offline world. Traditional seasons no longer exist, fast and new are the keys to success. DTC brands need to stay in touch with their suppliers on new raw material developments by yarn manufacturers and fabric mills offering the most innovative materials in order to gain a competitive advantage for their product innovation. Raw material and fabric technology is also advancing at lightning speed. The R&D departments are running at full speed, so it is always beneficial to be in close contact with your suppliers to find out what they are working on.

Agility category:Most brands start with a core product that they care aboutone that represents a specific type of customer and their needs. However, as the brands get bigger, so does the customer base and the opportunity for higher revenue from larger shopping cart sizes. If you’re stuck with a single type of product, you’re limited to making sales in that particular category. Quickly adding a new category that matches the overall brand image and lifestyle category improves your sales portfolio. Imagine a swimwear or beachwear company adding a sarong to its product category. Customers will most likely combine their purchases with it, and that opens up a new channel of revenue. However, the challenge does not arise from the product concept, but from development, raw material procurement and production with new partners. A swimwear manufacturer may not also be able to make a sarong. Development costs and investments in the operational team should be minimized, while new products should be activated very quickly in order to enable a rapid increase in sales. Oberlo reports that customers increase their shopping cart value and contribute 35 percent additional revenue when they purchase additional products in the same visit.

quality control:Roadie reports, in the US only, were $ 351 billion in lost sales last year. This staggering amount is due to a variety of reasons, ranging from size issues to material quality. The earlier you identify production problems and work with your suppliers, the longer your quality improvements will last and the faster you can respond to challenges. By reducing ecommerce returns due to quality issues, you can regain 20 percent of lost revenue. However, you need best-in-class tools and teams to improve product quality and tie the front end of customer issues along the entire supply chain to the manufacturers and every supply chain node along the way.

speed:You don’t have to be fast, but you have to be fast enough. Inventory turns are a company’s lifeline for sales and can range from weekly slumps to 1-2 revolutions per year, from ultra fast fashion companies to high fashion houses. Your marketing strategy, production capacity, payment terms and logistics must fit into this equation, and must be mature and integrated! Knowing your customers’ buying habits will determine the rate of your style drop and your development time and lead times for raw material sourcing. Since raw materials can take up 80 percent of your lead time in clothing production, a virtual warehouse of “hero materials or raw materials” allows you to react much more quickly to changing requirements and to have more flexibility in your development and faster time-to-market plans.

Caroline Gogolak, co-founder of pioneering athleisure company Carbon38, is a fashion guru who understands the importance of the supply chain to a brand’s success. Her youngest company is St Art, a DTC company starting in summer 2021 that is launching fast fashion and sustainability concepts. I met Caroline a few months ago and was immediately overwhelmed by how much she focused on making the St. Art “backend” successful and transparent. We close the article with what she had to say in her recent interview with Glossy.co:

“The biggest risk in starting a fashion brand is inventory. It took me a year to figure out the supply chain, find the right factories and get everything ready. Building a brand today is really about building an efficient supply chain. “

References:

https://www.invespcro.com/

https://www.oberlo.in/

https://www.roadie.com/

https://www.sectiontwentytwo.com/