These traditional brands are shifting to a DTC model. Here's how.
A new article on Marketing Dive reports that athletics retailers are in some ways leading this shift, but brands across the industry are doubling down on the model to grow margins.
Department stores used to be the "it" place to buy apparel. But a lot has changed in the past 10 years, and some brands have recognized they can sell clothes just fine on their own. Although shifting more sales to DTC has widely been touted as a positive strategy, it has its drawbacks. A September report from BMO Capital Markets found that wholesale sales come with higher margins before taxes and interest than DTC sales. Companies shifting to DTC could bring in lower sales dollars overall, the analysts found, despite the fact that brands capture more of the sales price for themselves selling DTC. Below are some of the players making a dedicated shift to DTC, and why the strategy doesn't work for everyone.
Department stores used to be the "it" place to buy apparel. But a lot has changed in the past 10 years, and some brands have recognized they can sell clothes just fine on their own. Although shifting more sales to DTC has widely been touted as a positive strategy, it has its drawbacks. A September report from BMO Capital Markets found that wholesale sales come with higher margins before taxes and interest than DTC sales. Companies shifting to DTC could bring in lower sales dollars overall, the analysts found, despite the fact that brands capture more of the sales price for themselves selling DTC. Below are some of the players making a dedicated shift to DTC, and why the strategy doesn't work for everyone.
- Nike: DTC at Nike is expected to be 60% of the business by 2025. Nike is probably one of the brands most cited for shifting to a more DTC-reliant model. As of its most recent fiscal year, DTC is nearly 40% of the business and is projected to reach 60% by 2025. Side by side with its pursuit of DTC sales is an emphasis on digital. The company expects to be a 50% digital business, through both its own channels and its wholesale partners, by 2025. That's up from nearly 35% at the end of its most recent fiscal year.
- Adidas: Adidas plans to reach a 50% DTC business by 2025. In March this year, Adidas announced plans to reach a 50% DTC business by 2025, about 10 percentage points behind where Nike aims to be by that time. In 2019, Adidas had a 30% DTC business and grew that to 40% in 2020 (on par with Nike). Like Nike, the retailer is betting big on e-commerce, hoping to double its digital sales during the same time frame to between 8 billion euros ($9.6 billion at the time of the announcement) and 9 billion euros.
- Under Armour: Under Armour is in the process of exiting up to 3,000 wholesale doors. The last of the big three in the athletics space, Under Armour, in October last year, announced it would exit between 2,000 and 3,000 wholesale doors, a two- to three-year journey that was set to start in the back half of this year. In Q4 of 2020, DTC grew 11% thanks to a 25% rise in e-commerce, and the momentum has continued since then.
- Wilson: Wilson opened its first stores this year after a long history as a wholesaler. Well known as a sporting goods manufacturer sold through specialists like Dick's, Wilson in spring this year decided to capitalize on its brand and try to form a more direct connection with customers. The company launched an apparel line to complement its assortment of sports equipment and in July opened its first physical store. Wilson has experimented with pop-ups for "decades," according to the company, but a store in its hometown of Chicago was the first permanent brick-and-mortar space dedicated to Wilson products. At the time, the company also outlined plans for stores in New York, Beijing and Shanghai, and called it the beginning of a "direct-to-consumer expansion." Since then, Wilson has also opened a pop-up tied to the U.S. Open to highlight its tennis-related products and long history in the sport.
- Crocs: Crocs' generally 50-50 business has been trending toward DTC lately, with a focus on digital. Crocs in 2014 made nearly 56% of its revenue through wholesale. Over the past few years, the tide has been turning toward DTC, with wholesale mostly declining. In 2020, wholesale made up 50% of revenue on the nose, while its own website and stores made up the other half. Crocs is digging in even further on that strategy, aiming for digital to make up half of its revenue by 2026. The company has said it's seeking a "digital-led route to market," with continued double-digit growth in its DTC channel. In Q2, DTC made up over half of its revenue, at 52%.
