How Brands are Using the Direct-to-Consumer Approach to Drive Sales
Some brands are finding it pays to go direct to the consumer (or DTC). While manufacturers opening their own stores and bolstering their e-commerce presence is certainly nothing new, the pandemic has forced companies of all sizes to rethink how they engage with consumers and with technological advancements, it has become easier than ever to sell direct.
This strategy allows the manufacturers to set the branding narrative, get products to market faster, gain better market intelligence by interfacing directly with consumers, and theoretically widen margins by cutting out the middle-man. Here are some leading brands whose products are sold directly to consumers.
Duluth Holdings Inc (Tii:DLTH)
Founded in 1989 with a single product, Duluth Holdings is a growing lifestyle brand of casual wear, workwear and accessories for men and women sold exclusively through its website, catalogs, and company-owned retail locations. The company’s distinctive products and branding helped it succeed when other brands were struggling. Duluth weathered the pandemic fairly well, with net sales increasing 3.8% to $638.8 million for its fiscal year ended January 31, 2021. However, net income declined to $13.6 million, compared to $18.9 million in the prior year. In the face of the pandemic and subdued in-store traffic, Duluth Holdings ramped up digital marketing and promotions to draw current and new customers to its website. Overall, direct sales closed the retail gap and ended the year, accounting for 72% of total sales.
Tesla, Inc (Tii:TSLA)
With a mission to accelerate the world’s transition to sustainable energy, Tesla is the electric vehicle (EV) industry market leader. Its business model always involved selling directly to consumers, contending that maintaining its own sales channel allows for a better, seamless buying experience. The automaker, which delivered nearly 500,000 vehicles in 2020 and a further 184,800 in its 2021 first quarter, also manufactures scalable clean energy generation and storage products. It remains one of the leading automotive brands (electric or otherwise) in terms of customer loyalty. While off significantly from its 52-week high of $900, Tesla shares are up more than 300% over the last 12 months ended April 12, 2021.
Dollar Shave Club - Unilever PLC (Tii:UL)
Based in Venice, California, Dollar Shave Club was founded in 2011 with a simple concept – a monthly subscription model for inexpensive razors shipped directly to consumers. This low-cost, consumer-direct strategy helped the company successfully siphon market share from industry giants like Procter & Gamble’s (Tii:PG) Gillette product line. Acquired by Unilever in 2016 for $1 billion, Dollar Shave Club now has a full suite of personal grooming products, more than 4 million monthly subscribers and generated some $263 million in revenues last year.
Blue Apron Holdings Inc (Tii:APRN)
Everyone loves a home-cooked meal, but not everyone has the time to plan and source dinner every night of the week. Enter Blue Apron, which sends branded menu plans, recipes and ingredients to home chefs in weekly curated boxes. Launched in 2012, Blue Apron was a pioneer in the home meal box space. Simple recipes and distinctive branding helped them establish themselves. The company reported net revenue of $115.5 million for its fourth quarter, an increase of 22% year-over-year. Blue Apron cited increased demand during the COVID-19 pandemic contributing to growth in key customer metrics such as orders per customer and average order value, and average revenue per customer.
Apple Inc. (Tii:AAPL)
This company has long used a hybrid model to get its products to consumers, who can purchase iPhones through cell phone carriers, Apple laptops through third-party retailers, and directly from the company. The first Apple Stores opened in May 2001. Within three years, brick-and-mortar sales reached $1 billion annually. Now, there are 499 stores across 22 countries. The Apple stores are part of what has allowed Apple to distinguish itself as a lifestyle brand rather than just a tech company. In its most recent earnings report, the tech giant reported double-digit year-over-year growth in every product category. Total revenue for its fiscal 2021 first quarter ended December 26, 2020, totaled $111.4 billion, a 21% increase over the same quarter last year. Apple is set to report fiscal second-quarter results on April 28, 2021.
It looks like direct-to-consumer may be the way more companies generate revenues and engage with the public. Nike Inc. (Tii:NKE), which generates more than one-third of its sales DTC, reportedly will no longer sell its products to certain large retailers. Levi Strauss & Co. (Tii:LEVI) earned about 40% of its sales by way of direct-to-consumer transactions last year. Expect other brands to adopt a hybrid approach, increasingly incorporating DTC strategies along with traditional third-party retailers.