Coresight Research predicts that the ‘hybrid wholesale, DTC model will be in place within the next three years

Coresight Research predicts that the ‘hybrid wholesale, DTC model will be in place within the next three years

Dive brief:

  • Many established retailers are now turning to DTC as a strategy. Coresight Research’s July report noted that there are many businesses looking to increase direct-to consumer sales. This includes brands like L’Oreal, Unilever, and Nike.
  • Coresight Research found that several brands Coresight studied had double-digit DTC revenue growth in 2020 after a strong year for digital. This included Canada Goose (21.7%) and Levi’s (17.8%), as well as Under Armour (11%).
  • DTC has “become an increasingly important channel for both existing and new brands,” the report stated. Unfortunately, it comes at the cost of many wholesale partners. As DTC grows, Nike and Under Armour have doubled down on their wholesale partners.

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Dive Insight

As traditional DTC brands have become less popular, the interplay between wholesale and DTC has become more complex.Like CasperEstablish partnerships with retailersTarget and Bed Bath & Beyond are selling goods. Well-known brands such as Nike have abandoned their wholesale-focused models to pursue higher margins and better consumer information via DTC.

Coresight Research CEO Deborah Weinswig pointed out in the report that the direct-to consumer model has higher operating and advertising costs but higher margins and better customer understanding. Wholesale by default is more expensive, but it offers a wider customer base and better marketing. Those last two points could be particularly attractive to DTC brands that are hoping to cut down on acquisition costs, which have hampered profitability, though Coresight highlighted the importance of finding wholesale partners that align with their brand positioning.

That has been part of the plan for brands like Nike, which has stressed moving away from “undifferentiated” wholesale partners and only maintaining relationships with those that depict the brand the way it wants to be seen. Coresight recommends that traditional retailers and brands reduce their wholesale partners to increase DTC sales. Coresight also suggests improving website functionality to sell DTC.

As digitally native companies look for other avenues to make money, however, some traditional retailers have managed to establish themselves as go-to wholesale partners, including Nordstrom and even some big-box sellers. For many DTCs, Target has become a partner of choice as it builds out a large merchandise assortment of popular and up-and-coming DTC brands.

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Direct to consumer is growing in popularity among traditional and startup players alike, but it’s not all-DTC or all wholesale.

Weinswig stated in the report that brands will continue to rely upon a hybrid wholesale/DTC model over the next three-years, with growth in DTC exposure and an increase of DTC businesses.