The evolution from direct-to-consumer (D2C) to conventional wholesale distribution is not a surprising one. The pandemic-driven D2C trend may have carried brands throughout the extended lockdown period, but it is unlikely to serve them the same way in the post-pandemic retail landscape.
Consumers’ return to offline retail and the doubling of cost per acquisition due to Apple’s App Transparency Tracking and Google’s approaching deadline for cookieless targeting have pushed D2C brands to partner with traditional wholesale retailers as a solution to offset increased marketing costs and reach more consumers – but how will it change D2C brands’ marketing?
An Opportunistic Move Toward Wholesale Retail
Take, disruptive D2C mattress company Casper as an example. Known for its heavy advertising spend, the company revealed in its 2020 S-1 filing that it spent about 20 percent more on marketing than it made from sales, or roughly $1.20 to $1.00. A far shot away from a reasonable ratio, Casper shifted to third-party retailers in addition to its independent site – and it’s not the only D2C brand to make this transition. High-end brands, ranging from Parachute to Acne Studios, found associating themselves with high-end retailers like Nordstrom and Saks Fifth Avenue not only created a reliable marketing sales channel to combat rising online acquisition costs, but also allowed for greater credibility by aligning with the aura of over a century of buyers scouting only the best products.
Wholesale Distribution = Wholesale Marketing
A primary advantage of brick-and-mortar stores? Foot traffic. The appeal of storefronts has boomed with the doubling of marketing costs between April 2021 to April 2022, resulting in a negative return on marketing investment for business-to-consumer (B2C) companies with predominantly online presences. Instead of digital ads to increase exposure and drive conversions, brands benefit from shelved product placement with a reliable distribution channel. As consumers amble through stores, they not only physically interact with these “new” products, but also with a human customer associate. The human correspondence, compared to an online chatbot, creates a brand presence and represents the culture of these once “online only” brands.
Most retailers have online marketing programs, and some can leverage on their own platforms and create opportunities for D2C brands who need more reach per dollar. Retailers look for new, exciting millennial and Gen-Z engaging brands, and the brands benefit from both the retailer’s expertise in the distribution game and the freight-hedging to lower their own costs. Brands do have to pay the retailers to advertise with them, but the multiplier effect is higher when the retailer does the marketing and allows for lower costs per action (CPA) to make space for stronger brand exposure.
Making Offline Retail About Experiences, Not Sales
Brands need to meet their customers where they are – and right now, this is traditional offline retail. Taking a page from the luxury industry, brands have begun focusing on customer experience as a core function of their physical stores. For example, Gen Z cosmetics brand Glossier has opened four permanent storefronts in Los Angeles, Miami, London, and Seattle with plans for expansion to focus on customer service and creating personalized experiences for customers.
For major retailers such as Nordstrom and Target, mini metro locations. While many stores abandoned mall retail spaces even pre-pandemic, metro locations like Nordstrom Local — first released in 2017 — are a fraction of the size of their larger stores and focus on the experience of Nordstrom rather than the products. Costing significantly less than their larger counterparts, the company experiences drastic savings on brick-and-mortar upkeep, allowing for a push into funding more diverse marketing. The offering of the metro footprints is 100 percent of the catalog, but the convenience of pickup and customer service conversation is the primary attraction.
Like all things vintage, wholesale is back.