Will brands have to go wholesale to turn a profit?

Recently, we have been seeing in the media many DTC brands partnering with Retailers.

A study from BMO Capital Markets, “DTC’s Not All It’s Cracked Up to Be,” found that although many apparel brands are aggressively shifting towards direct-to-consumer (DTC), underlying profitability may be better selling through wholesale channels.

Examples like Sigma Beauty expanding their select products in Amazon and Sephora and of course Glossier's first ever retail partnership has many wondering what the next frontier may be. Below we will look at some breakdowns.👇

DTC has it's own set of expenses that are absent from wholesale 🛍️💰

According to Tom Ryan from Retail wire, e-commerce, has been driving the DTC push, also “comes with its own set of expenses that are absent from wholesale” including fulfillment, logistics, heavier marketing, technology and heightened returns. These expenses can “quickly erode” any benefits from not operating physical stores....Read more.

Discovery Marketing provided by Retailers🔭

A study from Rolly Sitani from Tata Consultancy Services says experiential product discovery is reshaping retail. From being a discrete activity intended to fulfill a need, shopping has now evolved into a multisensory experience where the ‘product’ itself has become a byproduct of the experience. This is corroborated by how the analog world of retail has evolved into an epicenter of diverse experiences in the places where you least expect them—tea tasting ceremonies in an electronics flagship store, yoga and aromatherapy sessions in a high-end fashion boutique, or a live herbs garden at a big box retail outlet. Read More

Misunderstanding product margin vs gross margin.📈

According to Fan Bi's thread on twitter much of the premise of DTC 1.0 (Bonobos, Warby, Everlane etc) was cutting out the middle man. The belief was instead of having the 4x markup via a retailer, you could run a great business at 2x markup. Having 50% product margin makes operating challenging because you're probably only getting ~30% gross margin after CC fees, fulfillment, shipping, returns, discounts - which just isn't enough to operate profitability and have budget to grow. Read More.

However, the womenswear label AYR sees a future in the old e-commerce model, with some key modifications.🚀

97 percent of AYR's revenue still comes from its own e-commerce site and the company doesn't plan on changing that. This year, AYR expects to hit $60 million in sales and will launch its first menswear line next month. Their top two tips from the Business of Fashion article were "great product, champion your customer, great service, fair prices". Their company mantra is healthy, sustainable growth and staying scrappy. AYR approaches manufacturing with a general cautious attitude, producing in small batches and testing out products first to avoid excess inventory. The bulk of its growth today comes from repeat customers which is a great example for future founders on how to build a company in a sustainable way. Read More.