Why D2C strategies hold the key to retail’s future

As UK retail stores reopen, questions remain about whether ‘normal’ service will be resumed. With many store closures since March, the pandemic has encouraged a deep introspection on how consumer expectations, purchasing patterns and priorities are speeding up a shift to online-first, direct-to-consumer (D2C) retail strategies. 

In April, the UK’s first full month under lockdown, online sales growth surged to a 10-year high – up an astonishing 23.8% Year-on-Year (YoY), according to the latest IMRG Capgemini Online Retail Index. While e-commerce growth could stabilise as more brick-and-mortar stores reopen, the experience will undoubtedly have a lasting effect on consumer habits. What connects many modern retail brands is their online-first strategies, and a commitment to delighting customers at every stage of the journey, creating new products and experiences to best meet customers’ current expectations. 

But this ability to now go direct to the consumer has changed how retailers operate. Brands are waking up to the fact that customers are open to something deeper, even when it comes to spending in less-discretionary categories, like groceries, everyday household goods and utilities, according to Deloitte. The prominence of ecommerce and social media mean that brands themselves are engaging directly with customers, without the need for a physical location. Naturally, many have then taken the next step and adopted D2C sales channels, sometimes bypassing retail partners altogether. For some, this means being able to offer specialised, niche products, while for others, offering better costs on basic items.

With the pandemic accelerating this D2C shift, the opportunity for retailers is clear. Here are some D2C strategies all retailers should consider.

The online experience should focus on more than convenience 

E-commerce is the foundation of D2C retail and, for most, the primary sales channel. Many of these brands were born in the social media age, so their online experience has needed to be a step above the competition. Websites are both visually appealing and user-friendly, suited to digital natives who expect seamless site navigation, a frictionless checkout experience, photo galleries and detailed product information for every item. Many offer free shipping and returns, which increases conversion and encourages repeat purchases.

Brands that have a presence in physical stores need to tie together the online and offline experiences. After losing access to stores, consumers that prefer the ability to try an item before committing to purchase couldn’t do so. Retailers knew this, so introduced pickup and local delivery for online orders, and easy return processes if the item wasn’t right for them. A number of consumers may have recently tried these online options for the first time, and brands should be speaking to consumers to see if this is a service that they’d like to use again, even when stores reopen.

A true D2C strategy requires brands to learn from each consumer transaction. No longer is the sole purpose of having an online presence about reaching new customers and convenience, but also keeping up to date with current customers’ preferences. By observing their shopping habits and generating insights from customer data, retailers can adapt products and services accordingly in the future. 

For example, when supermarkets closed, and pet owners felt less comfortable making a trip to the shops, D2C pet food brand PetShop.co.uk saw a 300% increase in sales. It achieved this by using tools and technology it already had but was not maximising before, which led to improvements in invoicing, stock management and cashflow forecasting, and also helped to provide a better service. It has also invested more time into social media channels such as Instagram, Snapchat, and others, which weren’t really on its radar before. These channels are helping it to communicate with new and existing customers, learning more about their preferences and gaining valuable insight into how it can provide customers with a better online experience in the future.

Cultivate a loyal community 

One distinct advantage D2C businesses have over traditional brands is their ability to cultivate a loyal customer base. Shoppers today are focused on finding brands with values that align with their own, and they then become engaged, loyal followers of that brand. This is the community that will support initiatives like new product releases or pop-up events, or advocate for brands on their behalf.

Loyal customers are also less likely to abandon the brand during challenging times. They will feel a stronger desire to support this brand because they have a personal relationship and are invested in the business’ success. Most retailers have changed their communication with customers during the last few months, but D2C retailers have used this time to really deepen their relationship with customers. They’ve shown empathy and concern for customers while also being transparent about their own priorities.

After an initial drop, sales began to climb in early April for manufacturer and retailer TOV Furniture. By the middle of the month, sales were up more than 200% year-over-year. Direct-to-consumer sales have led the charge for TOV, and CEO Bruce Krinsky attributes the unexpected spike to people freshening up their homes and addressing new needs as they spend more time inside. While Krinsky doesn’t expect this record demand to last long-term, he believes this “sped up the adoption rate” for e-commerce. 

Run a lean, nimble operation

D2C businesses often do more with less. These brands have a deep understanding of their typical customer profile, including their interests and values, and they know how to speak to them. That allows them to spend advertising budget wisely while leveraging free channels like social media to pull in prospective and existing customers. 

Brands that sell directly to consumers are usually more flexible, too. They often have no stores, or only a handful of them, and a smaller workforce, so there are fewer fixed costs. That’s a key advantage as retail undergoes a sudden shift and faces a less certain future. Other brands must embrace this willingness to change gears quickly as consumer preferences and the overall market continues to fluctuate.

The Koin Club, the dedicated online hub for UK fandom collectors, designs, develops and markets both one-off items and monthly collections under official license with the likes of Disney and Marvel. When the pandemic began, The Koin Club made the decision to instantly switch on 40% budget towards online advertising, and expand to new platforms such as  TikTok and Snapchat, as it recognised an opportunity to engage with younger audiences with more time on their hands that want to connect with the things they are passionate about. In doing so, Koin helped drive sales of its special edition Thank You to Our Key Workers range, which is on the way to providing £100,000 in proceeds to the National Emergencies Trust.

Learning from D2C pioneers 

There is no question that it’s a challenging time for retail. 2019 saw retail sales fall for the first time in 25 years, and that was before coronavirus. But brands can still succeed in the evolving retail landscape by learning from their D2C counterparts. They no longer need to rely solely on others to market and sell their products. Instead, they can look inward and focus on what they can control. D2C offers a tremendous opportunity for retailers that can both drive revenue in the near-term and become critical to their long-term success.

Right now, none of us quite knows how things will pan out over the rest of the year, and what the longer-term effects of the pandemic will be. But the way consumers interact with brands has likely changed for good, and retailers must pursue new ways to reach shoppers if they want to succeed. 

By Nicky Tozer, VP EMEA, Oracle NetSuite

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