In the past few years, direct-to-consumer (DTC) brands have grown by double digits. This article addresses the key challenges and approaches that DTC brands can use to gain a competitive edge in the market.
In the past few years, direct-to-consumer (DTC) brands have grown by double digits. DTC brands continue to grow, but there are some key challenges they should face to gain a competitive edge in the market. A report.
Direct to Consumer (DTC) is a type of consumer products sales organization that sells directly to consumers without the involvement of a third-party retailer or wholesaler. It now deals and transacts with its customers through online and offline platforms.
The DTC market is expected to grow by 20 percent in 2021, despite the pandemic. Directly addressing their audience is a great way to influence and connect with them.
Invesp reported that fashion and apparel accounted for 77 percent of the DTC market, followed by beauty and cosmetics with 19 percent. More product groups are now jumping aboard the DTC bandwagon due to the impact the pandemic has had on consumer behavior.
In the post-pandemic era, there is no doubt about the fact that as technology platforms and logistic services integration continue to expand and as the financial entry barriers are lowered, many more brands will begin as DTCs.
Brands should not ignore the importance of the supply chain and the product design, which are key to creating the real value of any product and, therefore, the brand value. Although the operating systems and models of each brand will differ in terms of the value that they can create, the basic challenges are the same. We will use quotes from industry leaders to illustrate the challenges of product design and supply chain in this paper. This is because apparel and fashion are the most dominant product groups for DTC companies.
We will examine a few key challenges that DTC brands face, but which can ultimately lead to competitive advantages if met with vigilance.
Below are some of the challenges that DTC products and the supply chain face.
Low minimum order quantity (MOQ). DTC brands and digitally-native vertical brands (DNVBs) usually start with small sales in bursts to test the market. It is a challenge to create new products and small batches in a timely manner. It is difficult to find factories that will accept low MOQs. After initially being accommodating, some factories in South China are now increasing their Freight on Board (FOB) prices for small amounts (25-100 pieces). You can lose up to 20% if you don’t meet the MOQ for fast fashion or apparel.
Design for Value (DTV). In section twenty-two, DTV is described as “determining which product attributes are most important to your customers… understanding how you compare to the competition… and using these insights to come up with possible solutions in order to optimize the value proposition.” Often, companies fall into the trap of creating expensive products and materials that do not match the value proposition of the customer. Over- and under-designing features, trims, materials, etc., can lead to a budget that is out of reach for the customer or, even worse, eating up planned margins. A team of product designers or engineers, or partnering up with a global design studio, can help you select the materials that will make your collection stand out while still staying within your budget parameters. If you don’t want to hire your team, I suggest partnering with one. If you use the right materials and design your product to maximize value, you can save up to 10-15% on the cost of your products.
Sustainability: It’s becoming more difficult to track the origins of raw materials and finished products across industries. Subcontractors located in countries of production are not visible to the general public. Companies may never know exactly where their clothing comes from. In the fashion industry, there are many certifications and accreditations. You can have peace of mind with a transparent supply chain and partners who promote the appropriate accreditations for your product groups. We owe it to the planet to work in and with organizations that are committed to giving back to the earth rather than taking from it. And make sure our customers become more informed about every link of the supply chain.
We can also consider a three-pronged strategy from a marketing and financial perspective. All brands strive to have the highest quality and traceability, but this comes at a cost and lead time. It would be best if you optimized your channels accordingly.
1. Sustainability requirements of industry and government: Since the US is a leader in sustainability and ethical sourcing practices, the minimum requirements for these suppliers to produce products will be higher than those for most other countries.
2. What are the bare minimum sustainability requirements for our customers? They won’t shop with us if we don’t meet these requirements.
3. Brand value is a requirement for sustainability. These initiatives encourage customers to pay “premium prices” or change their shopping habits. Be the sustainable brand that customers choose.
Logistics: Direct-to-consumer sales have recently fueled the demand for direct-to-consumer logistics. Now, you can have drop-shipping and factories sent directly to the consumer’s doorstep. This is expensive, so brands should optimize their logistics routes based on the sales and geographic sales channels. Brands should partner with suppliers that can provide a logistics and distribution network optimized from the factory to the end customer, allowing for options at the lowest cost. The cost difference between factory direct shipment and holding inventory in your home country, where you have a 4x-6x turnover of inventory, can be significant. By comparing the costs of logistics from end-to-end, instead of just looking at ex-factory prices or FOB, you could save up to 30%. When creating new supply routes, make sure that your team is able to consider multiple scenarios in terms of logistics and distribution.
Innovation: DTC Brands are extremely connected to both the online and offline worlds. Fast and new is the key to success. Traditional seasons no longer exist. DTC brands must keep in close contact with their suppliers to stay abreast of new developments, such as the latest raw materials. This includes yarn producers and fabric manufacturers that provide the most innovative material. The technology of raw materials and fabrics is also progressing at a lightning pace. R&D departments work at full capacity, so it’s always a good idea to stay in touch with your suppliers and find out what their R&D department is working on.
Category agility Most brands begin with a core product they love, one that represents their ideal customer and their specific needs. As brands grow, their customer base grows, and so do the opportunities for increased revenue. You would only be able to earn income from a specific product if you were stuck with it. Your revenue portfolio can be improved quickly by adding a category that fits the brand’s image and lifestyle. Imagine that a beachwear or swimwear company adds a sarong as a new product category. Customers are likely to pair it with their purchase, which opens a new revenue stream. The challenge is not in the idea of the product but rather in the development, sourcing of raw materials, and production with new partners. A manufacturer of swimwear may not be able to produce a sarong. The development costs and investments in the operational team should be minimized, while new product activation must be done very quickly to allow for a rapid sales increase. Oberlo says that customers can increase their basket values and generate an additional 35 percent of revenue when they purchase other products during the same visit.
Quality assurance According to Roadie, in just the US alone, last year, lost sales amounted to 351 billion dollars. This astounding amount is due to a variety of factors, ranging from material quality to size issues. You’ll have a longer-lasting quality improvement if you work with your suppliers to detect problems early. You can recoup 20 percent of lost revenue by reducing returns from e-commerce due to issues with quality. You would require best-in-class tools and teams in order to improve the product quality. This includes tying the front-end of customer complaints all the way to the manufacturers and all nodes within the supply chain.
Speed: You do not have to have a fast speed, but it is important to have a fast enough speed. Inventory turnover is the lifeline of a business. It can be weekly or 1-2 times a year for high fashion houses and ultra-fast fashion companies. This equation is a complex and integrated one that includes your marketing strategy, manufacturing capability, payment terms, and logistics. Your style drop speed, your timeline for development, and the lead time to source raw materials will be determined by your understanding of your customers’ buying habits. Basic materials can account for up to 80% of the lead time required in garment production. Keeping a virtual inventory of “hero fabric or raw materials” will allow you to respond much more quickly to changes in demand and give you greater flexibility and speed in your development schedules.
Caroline Gogolak, co-founder of Carbon38, a trendsetting athleisure brand, is a fashion expert who understands the role of supply chains in a successful brand. Her latest company, St. Art, is a DTC that will launch in the summer of 2021 and tackle fast fashion concepts as well as sustainability. Caroline was astonished when I first met her a few months ago. She is devoted to making St Art transparent and successful. The article will be concluded with her comments in a recent interview with Glossy. Co.
The biggest risk in starting a fashion brand is the inventory. It took me a year to find the best factories, figure out my supply chain, and prepare everything. “Today, building a brand is all about creating an efficient supply chain.”
