The trend of Direct-to-Consumer (DTC) retail is not limited to online-only brands anymore, as traditional retailers are also adopting this approach. The DTC market is predicted to keep growing as more brands move to e-commerce and established players continue to expand their market size. In the US, sales for digitally native brands are estimated to reach $44 billion, while established DTC brands are projected to reach $138 billion by 2023 according to Insider Marketer. Here are some DTC trends which SMEs should pay attention to in 2023.
1. Brick-and-mortar vs. DTC
As digitally native brands expand into physical retail, they encounter new challenges, particularly those that have primarily focused on e-commerce. During the COVID-19 pandemic, online retail experienced a boom, and many DTCs continued to prioritize the e-commerce channel. However, some rapidly growing companies also began expanding their brick-and-mortar presence, to allow their customers to try their products and engage with the brand. At the same time, we also see that some retailers that already have physical stores are reconsidering the necessity of physical stores due to macroeconomic pressures. As a result, several DTCs have closed stores that they had opened in recent years and have reduced staff at these locations such as Everlane and Forma Brands. In such environments, it is crucial to understand your own audience and their expectations to balance e-commerce and brick-and-mortar channels.
2. Traditional brands turns to DTC
While DTC brands may be shifting towards wholesale, some traditional companies are increasingly looking towards DTC channels. For example, Levi’s has focused on selling directly to consumers since its DTC business showed growth in 2019. In June, the brand announced its goal to achieve $10 billion in revenue within five years by investing more in the DTC space, with the aim of generating 55% of its annual net revenue from DTC sales by 2027. Similarly, Nike has also invested in its DTC channel, with plans to open stand-alone Jordan brand stores and reduce its wholesale presence with partners like Macy’s, Urban Outfitters, and Foot Locker.
In 2023, brands may look to diversify their customer touchpoints beyond traditional methods by adopting DTC approach.
3. Increased Popularity of Hybrid DTC-Wholesale Models
To increase customer access and visibility, some brands are looking to establish or expand partnerships with mass retailers, showing a growing interest in wholesale. This shift is notable because many of these brands had traditionally prioritized direct-to-consumer (DTC) e-commerce channels.
In the latter half of 2022, two well-known DTC brands announced their entry into the wholesale market, hoping to drive growth. In July, Glossier revealed that it had struck a wholesale agreement with high-end retailer Sephora, which was set to begin in early 2023. Additionally, home fitness brand Peloton started selling its products on Amazon in August, and Casper which used to be an online-only brand now has 25 retail partners.
Although some mature brands are focusing on DTC channels to drive their sales and currently closing whole channels such as Nike which ended its partnership with Macy’s and Urban Outfitters, it is proven that wholesale channels provide better reach to the customer especially in early stages, and higher margins. We expect that SME businesses will adopt a hybrid DTC-wholesale strategy to drive growth in 2023.
4. Sustainability trend as an opportunity for SMEs
Throughout 2023, retailers will face increasing pressure to address their negative impact on the environment, even as economic challenges continue to loom. Younger consumers, including Gen Z, are placing a growing emphasis on sustainability and become more conscious when making purchase decisions.
However, many big retailers are focused on maintaining margins in the volatile market and are planning minimal or no ESG investments this year. By investing in ESG practices, SMEs can enhance their brand identification, packaging, distribution, and customer communication. This can lead to increased customer loyalty, greater market share, and a positive impact on the environment and society. Therefore, SMEs should prioritize sustainability in their business strategies to not only benefit their bottom line but also contribute to a more sustainable future.
5. Flexible payment options for DTC customers
Many DTC businesses are fighting against increasing cart abandonment rates and one trend addressing a major problem is the availability of flexible and hassle-free payment options. Apple Pay and Google Pay integration has proved to increase sales especially on mobile and Buy Now Pay Later (BNPL) methods to increase purchases for especially more expensive products thanks to fintech startups like Afterpay and Klarna. Based on the product assortment, e-commerce businesses are adopting various payment methods to incentivize customers.
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