Why DTCs Are Getting Physical
At the core of the direct to consumer (DTC) business model is the reinvention of traditional distribution channels to provide greater value to the consumer. Manufacturers were taught to believe that consumers had to touch, feel and experience their product before purchasing and that physical retail space was a precious commodity. This made it difficult for challenger brands to penetrate retail categories dominated by large incumbents. But when brands like Warby Parker, Allbirds, Casper, etc. challenged the idea that “trial” was a necessary part of the path to purchase they were able to find success. Believing that consumers would be willing to sacrifice experience for greater value, choice and convenience led these innovative brands to ignore “The iron law of distribution” (a term used by Harvard Business Review) reduce their costs, and find a customer base without the need for shelf or showroom space at brick and mortar stores.
However, as some DTCs begin to enter growth mode they are discovering that this model limits them to only a segment of consumers. It is true not all consumers need to touch, try, feel the product before purchase, but many still do. So DTC brands had to challenge their own distribution model if they wanted to reach more consumers. Ironically, this thought process is leading many of them to take a fresh look at traditional brick and mortar. With nearly 20,000 stores closing their doors in 2019 and 2020 and opening up retail real-estate (according to Core Research as published in RetailDive) DTCs saw a unique opportunity to enter the physical retail space. Those that have are seeing many benefits.
Benefits of a Physical Store
Building brand affinity
While many DTCs were successful in penetrating their categories and stealing market share by offering lower prices compared to well-established incumbents, it is difficult to build a positive brand identity on this proposition or a strong relationship with consumers if you are perceived solely as “cheaper.” Store locations create a space for DTC to create associations with their brand that cannot be replicated digitally. A DTC’s brand identity can be manifested in-store through its layout, displays, associates, in-store music, etc. and even the other consumers who are in the store with them.
Improve customer acquisition
As the DTC model proved successful, more and more brands enthusiastically entered the e-commerce market, including large non-digital native brands. All of them borrowed from the same marketing playbook to try and acquire customers. This sudden increase in competition has driven up the prices of popular advertising platforms like Facebook which has increased the costs to acquire customers (CAC) through these channels. DTCs that have launched a physical store presence are seeing it as a new channel to acquire new customers more efficiently over time. This includes not only opening branded retail locations, but also partnering with traditional retailers who are opening up to DTCs. Casper inked partnerships with traditional retailers like Target, Costco, Bed Bath and Beyond to tap into their large in-store customer base.
Engage omni-channel consumer
Consumers that were driven online during the pandemic are emerging as omni-channel shoppers. They learned to purchase items digitally in categories they previously reserved for in-store. But they are also anxious to get back outside and return to the stores. Both channels are now part of their path to purchase. Having a presence at physical stores allows DTCs to address the growing number of consumers who are also demonstrating that they have greater value. According to Allbirds in a CNBC article, shoppers who visited both a physical location and the website spent 1.5-times more money than a customer who only went to a store or shopped online alone.
DTCs Need To Remain Nimble
Key to DTC’s growth strategy has been their ability to adapt and evolve. Their business allows them the flexibility to respond quickly to changes in the market or consumer behavior and adopt new strategies to take advantage of new opportunities. At my company, Zeenk, we believe in this same approach. We believe that every DTC’s business is unique and that they all compete in a market that is dynamic. This is why we built Zeenk, a new type of e-commerce analytics platform made for DTC brands. Our customers configure their analytics and reporting to fit their changing business needs, and they can interactively add and pivot on any data set to adapt to market changes and take advantage of the opportunities they see today and the new ones that might arise tomorrow.