DTC (Direct-to-Consumer) retail is no longer limited to digitally native brands. Traditional retailers are also adopting the same strategies, especially as they strive to compete in a post-pandemic world.
Nike, a brand that once sold extensively in department stores and wholesale outlets, has begun pulling out from these channels to focus on their e-commerce store. They’ve started creating neighborhood stores, dubbed “Nike Live” which serve as pickup hubs for online orders. Nike has reported an 82% increase in digital revenues in 2020.
Lululemon, another brand that sells workout apparel, also saw its digital business explode by 157% during the 2nd quarter of 2020. It is one of the few apparel brands that remain optimistic about opening new physical locations even as its e-commerce presence grows.
In this article, you’ll learn more about Direct-to-Consumer retail and the DTC trends to look into this year.
16 Direct-to-Consumer (DTC) Trends in 2022:
- 1. DTC for traditional retailers
- 2. Influencer-owned DTC Brands
- 3. DTC brands going public
- 4. Subscription pricing
- 5. Flexible payment options
- 6. Lesser dependence on paid advertising
- 7. Offline experiences
- 8. First-party data
- 9. NFTs as loyalty rewards
- 10. Branded mobile apps
- 11. Expansion to new categories
- 12. Balance between wholesale and DTC channels
- 13. Customer-Centric Product Returns Policies and Processes
- 14. Clean and accessible UX design
- 15. Improvements in chatbot support
- 16. Social Media Shopping
- Frequently Asked Questions
What is a Direct-to-Consumer Model?
DTC existed even before the pandemic, but it experienced a major boom when the pandemic caused a major shift in consumer buying behavior.
Direct-to-consumer simply refers to the retail strategy where brand manufacturers sell their goods straight to customers instead of going through middlemen like department store chains or online retailers.
It sounds simple, but it compels brands to understand their customers on a deeper level. It involves navigating the waters of order fulfillment, last-mile deliveries, product returns, and customer service. For big and established brands, it entailed added resources and more work versus simply managing retail partners.
And yet despite the challenges, more and more brands are going the DTC route and many are succeeding.
Top 16 Direct-to-Consumer Trends in 2022
Here are the top trends seen across the DTC segment this year.
1. DTC for traditional retailers
Despite the pandemic easing out and customers starting to flock to physical stores, the convenience of online shopping will remain imprinted in the minds of many. With more customers becoming digitally savvy, expect that e-commerce will continue to rise.
Traditional retailers will want a piece of the action and will continue to adopt the same methods and strategies that helped digitally native brands thrive.
DTC allows brands to control their messaging and how their products are presented to consumers. L’Oreal has leveraged DTC to launch their Technology Incubator, which allows consumers to personalize products and the brand to be perceived as innovative.
2. Influencer-owned DTC Brands
Digitally native brands enjoyed huge sales in part due to influencers. By using influencer marketing, they built brand credibility quickly and reached their target customers faster.
Influencer marketing is getting expensive, and influencers are becoming selective of the brands they work with. Successful influencers are also leaning towards creating and launching their own DTC brands.
Kylie Jenner, a famous celebrity and influencer, has created her own cosmetics line, “Kylie Cosmetics”. Initially selling cosmetics, it now has skincare and a baby care line. Kylie used her social media influence to grow her business and solidify her brand.
She’s not the only influencer to bank on her popularity. Brands like Truvani and Laird Superfood, both plant-based food supplement companies were founded by health-conscious influencers.
Truvani was launched by Vani Hari, a food blogger, and Derek Helpern, a business blogger. Using their existing audiences, they were able to get their DTC supplement off the ground and running.
Laird Hamilton, an influential pro surfer, is the brain behind Laird Superfood, another plant-based supplement. Using his existing audience and network, he was able to successfully launch his food supplement business.
Brand launches in a competitive industry, such as cosmetics and food supplements, would be difficult if not for existing loyal audiences. Influencers will continue to capitalize on this trend this year.
3. DTC brands going public
In 2021, DTC brands were among the many retailers that went public via IPOs (initial public offerings), direct listings, or de-SPAC transactions. Brands like Casper, a DTC mattress brand, and Billie, a DTC razor brand were acquired by bigger companies and equity firms.
This signaled the huge investment potential for DTC brands. It was also a great exit strategy for many DTC founders who went on to join the acquiring company as chief executives.
However, as these brands entered the public domain, their financial statements were heavily scrutinized. Despite huge sales, many of these DTC brands reported net losses showing their struggles with profitability. Famous DTC brands, like Rent the Runway, Lulu’s, and Casper, all showed signs of struggle.
This was not true for all companies though. Some, like Solo Brands, reported promising net revenues. Still, this closer scrutiny will lead DTC brands to re-examine their operations and ensure their profitability.
4. Subscription pricing
One major move to safeguard profitability is to have a solid pricing strategy. The e-commerce space is rife with deals and discounts, and competing in this arena can harm product margins.
One solution DTC brands are adopting is subscription pricing. This involves a monthly recurring fee in exchange for replenishment of commonly used goods. It works well with products that renew regularly, such as bath essentials, pantry supplies, and even pet food.
DTC food brand, the Butcher Box, implements a “monthly box” subscription service. Customers can choose from pre-selected boxes or customize their own box. They further incentivize customers with free products for staying on their subscription.
5. Flexible payment options
One trend that’s helping improve this number is the availability of flexible payment options. Aside from enabling the use of Apple Pay and Google Pay, DTC sites are also offering “buy now, pay later” (BNPL) schemes which work well for expensive products.
Consumers are loving this type of payment scheme because they can receive their orders by initially paying a fraction of the cost. In some cases, no upfront fees are collected. Interests are minimal or non-existent, making this type of consumer financing better than using banks and credit cards.
Schemes like these are made possible by fintech startups like Afterpay, Affirm, and Klarna. DTC brands are turning to these financial payment solutions to draw customers to their websites. It helps that these startups also advertise brands that offer the BNPL scheme in their own apps.
6. Lesser dependence on paid advertising
Launching a DTC brand used to be easy. Simply set up a Shopify site, place your products, run Facebook ads, and work with a fulfillment center. The ability to easily and quickly run ads on Facebook and Instagram was a key to the growth of many DTC brands.
However, that came crashing down with the most recent iOS update. Apple users now can control how third-party apps, like Facebook, access and track their data. This makes it harder for advertisers who rely on third-party data to accurately target their consumers. It’s also harder for brands to gauge the return on their ad investments.
Paid advertising is only as effective as having a strong brand to begin with. Brands that have built a strong image through differentiation and storytelling are the ones succeeding in the face of paid ads’ limitations.
Moving forward, DTC brands will have to go back to the basics of building a strong brand foundation that is not reliant on pixel data for customer acquisition.
Marketing teams are forced to explore other creative marketing channels such as SMS, email, print, and even offline locations to get consumers to shop from their online stores.
7. Offline experiences
Digitally native brands, that launched and grew online, are now seeing the need to have a brick-and-mortar presence.
Physical stores serve as venues for customers to test products and engage with the brand. Even if customers will purchase online, having a physical store serves as an added advertisement and marketing channel. Since advertising exclusively online has become expensive, having an on-site advertising channel helps alleviate huge ads cost as well as improve profitability.
Some DTC brands like AllBirds and Knix opened their own physical outlets. AllBirds has been expanding its store footprint by opening stores in Denver, Atlanta, Los Angeles, Chicago, and other areas. Knix is opening stores in areas like California where it has a high concentration of digital customers. Both brands have the same goal of complimenting their digital sales with in-person retail centers.
Other DTC brands are partnering with major retailers like Walmart, Nordstrom, and Target. By introducing their products in these channels, DTC brands expand their retail footprint. Large retailers, on the other hand, can tap younger markets who are fans of these digitally native brands.
E-commerce is becoming highly saturated and more competitive. DTC brands need to rely on other traditional methods, like brick-and-mortar stores, to stand out.
8. First-party data
It started with the iOS update. Soon, consumers will be more mindful of how much data they share with advertisers. Third-party data is becoming unreliable and expensive. DTC brands must find a way to acquire first-party data.
First-party data is information customers willingly share with brands and that the latter can use for ad targeting purposes. For some, merely asking for this data is sufficient. But for other brands, putting in a little creativity wouldn’t hurt.
DTC makeup brand, Ipsy, has a creative way of asking customers to share personal data. Using personalization quizzes, the brand can gather relevant customer information that they use to recommend appropriate products.
9. NFTs as loyalty rewards
NFTs are the rage these days and if your target market appreciates this new technology, rewarding them with it will work wonders for customer retention.
DTC nutrition company Athletic Greens has moved to Web3 and announced that loyal customers will be rewarded with NFTs.
If you go this route, consider also using NFT-based communities as venues for beta tests and feedback groups.
10. Branded mobile apps
DTC brands with their own mobile shopping apps directly control their relationships with consumers. Shein, a giant DTC fast fashion brand, uses its mobile app to take over the fast fashion market. The app not only provides exclusive deals, but it also has styling tips, daily games, and 10,000+ new fashion daily.
It’s the second most downloaded app and has managed to quietly overtake Amazon as the Number 1 shopping app in 2021.
11. Expansion to new categories
DTC brands are launching in novel categories we’ve never imagined will ever be sold online. Tacklife Tools sells power tools that are normally heavy, bulky, and hard to ship. These are products you’d imagine consumers would first want to try at a physical store. But as Tacklife proves, customers are willing to purchase power tools online.
goPuff is disrupting the convenience store category. By offering same-day delivery, they’re able to convince people to purchase online items like snacks, cold drinks, and cleaning supplies. These are goods you’d normally purchase in a brick-and-mortar store.
Other DTC categories that will likely continue to expand are the fitness category and the food and beverage category.
As new categories emerge, existing categories will experience increased competition.
This increase in competition is encouraged by the low barriers to entry in setting up a DTC brand. E-commerce sites like Shopify make setting up websites easy. Fulfillment companies, like Floship, take care of shipping, logistics, and product returns. A wide array of eCommerce helps analyze data, retain customers, build brand loyalty, improve store layout, launch email campaigns, and many more.
When DTC emerged, selling mattresses online was unthinkable. Now, there are several DTC mattress companies.
If you find the opportunity, be a first mover in your category. Having a first-mover advantage cushions the impact fierce competition may bring in the future. We’re sure it won’t be long before we see several online stores selling power tools and categories novel today that would become commonplace tomorrow.
12. Balance between wholesale and DTC channels
Traditional brands like Nike, Adidas, and Under Armour are capitalizing on the growth of athletics wear via the DTC model. Nike projects its DTC arm to be responsible for 60% of its total revenue by 2025. In 2010, DTC sales only made up 10% of Nike’s overall revenue. In the past several years, Nike has transitioned to DTC and closed many of its wholesale retailers like Macy’s, Urban Outfitters, and Zappos.
However, business analyst BMO Capital Market questioned the profitability of relying on DTC sales over maintaining wholesale retailers. This came after seeing how wholesale sales provided higher margins despite brands getting more sales from DTC.
On the other hand, once exclusively DTC brands like Casper have been increasing their retail footprint by partnering with major retailers like Costco, Target, Sam’s Club, and Nordstrom. The brand now has 25 retail partners across 72 retail stores.
Coresight Research predicts that more brands will continue to adopt a hybrid DTC-wholesale model as the need to strike a balance between the two retail strategies becomes more evident.
13. Customer-Centric Product Returns Policies and Processes
Product returns are often seen as a “boring but necessary” part of e-commerce operations. However, a 2021 Forrester survey found fear of returns has discouraged respondents from purchasing online. The survey showed that 3 out of 5 respondents (from the US, UK, and France) preferred free return shipping with 2 out of 5 preferring refunds via the original payment method.
Product returns policy and processes will be a major game-changer for DTC brands. It will be the main differentiator for customers in deciding which brand to purchase from. Brands need to rethink their returns strategy and consider improving their internal returns processes, refund insurance, and return locations. Furthermore, brands should improve their products and how they present them to avoid returns in the first place.
DTC brands that are customer-focused will strive to understand what their customers want and stand out in a sea of highly competitive offers.
14. Clean and accessible UX design
The Americans with Disabilities Act (ADA) has highlighted the need for brands to have accessible websites that could cater to persons with disabilities. In 2021, 73% of lawsuits filed for ADA digital violations were against e-commerce brands.
Globally, WHO estimates that 2.2 billion people have visual impairments. This means DTC brands should ensure their websites are easy to navigate by screen readers. Landing pages must contain alt-text for images and captions for videos. Color schemes must have enough black and white to help color-blind users.
Apart from having a visually stunning website, accessibility will be a major consideration for e-commerce brands, not just to be compliant but to be preferred by consumers.
15. Improvements in chatbot support
Chatbots have been increasingly used in the past year by e-commerce sites and this trend will continue. Brands who’ve used them to streamline customer service attest to how much chatbots reduce valuable customer service time. AI chatbots have claimed to reduce as much as 92% of customer service tickets.
As AI technology evolves, and as customers become increasingly comfortable dealing with chatbots, we can expect to see more of these automated tools answering our product questions, dealing with order concerns, handling product returns, and giving out general information.
DTC organic chocolate brand, Feastables, by YouTube influencer Mr. Beast, relies on its customized on-brand AI chatbot. Dubbed FeastyBot, the chatbot handles everything from helping customers place orders, providing shipping updates, handling payments, expounding product info, and even running sweepstakes contests.
16. Social Media Shopping
In the past, brands will encourage social media followers to purchase from the link in the bio or the link in the caption. This is rapidly changing, as social media sites find ways to integrate online shops directly into their platform.
Online shopping right from within a social media post has become increasingly popular with Gen Z and millennials. With social shopping or social commerce, consumers can now directly purchase items straight from a social media post without going through the whole checkout funnel of the usual e-commerce website.
This trend will continue, as social media platforms invest in creative ways to keep consumers on their platforms for longer periods. And since they get a cut of the action, it’s also in their best interest to improve their social commerce tools.
Direct-to-Consumer (DTC or D2C) is here to stay. Even as the pandemic wanes and consumers frequent brick-and-mortar stores again, the convenience they’ve experienced from shopping online will remain.
Despite setbacks from supply chain issues, labor shortages, and advertising restrictions, DTC brands continue to flourish. And as the lines blur between traditional retail and direct-to-consumer retail, we can anticipate better innovation and more customer-focused initiatives that will elevate e-commerce to new heights.
Frequently Asked Questions
Are DTC brands a fad?
The proliferation of DTC brands proves that they are far from being a fad. With the Covid-19 pandemic boosting e-commerce further, even traditional retailers are seeing the advantages of the DTC retail model.
The DTC space used to be occupied solely by digitally native brands. These are brands that are sold exclusively online. But lines have since blurred as we witness traditional retailers adopt the DTC model and digitally native brands open physical stores.
DTC brands in the US, on average, have a GMV (gross margin value) between USD1M to USD5M. This proves that these brands are far from being a fad and will be here in the long run.
How can we increase DTC sales?
Here are proven ways to increase DTC sales:
- Understand your target customer’s pain points and position your product as a solution.
- Invest in content marketing. It’s a proven marketing strategy where you reap the benefits in the long run.
- Offer easy, no-frills product returns.
- Review your pricing strategy and consider subscription pricing.
- Work with influencers whose images align with your brand.
- Ensure your website is accessible and has a streamlined UX design.
What is a DTC strategy?
Direct-to-consumer (DTC or D2C) is a retail distribution strategy where manufacturers directly sell their products to consumers instead of going through a distribution network composed of wholesalers, distributors, and retailers.
DTC brands have proliferated due to the growth of e-commerce and the ease of setting up an online store. The Covid-19 pandemic further boosted the industry because consumers were restricted from visiting physical stores and had to resort to purchasing online.
Armed with digital advertising channels, DTC brands can reach their target audience and drive traffic to their online stores.
Today, we see traditional brands adopting a DTC strategy as well as previously online-exclusive brands (digitally native brands) entering traditional distribution networks.