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Retail vs. DTC: What brands should consider before going the retail route

Sep 7, 2019, 10:01 am

For many entrepreneurs, the biggest dream come true is finally getting their products to grace the shelves of big box stores. There is something so rewarding about seeing your product—the one you’ve spent years perfecting—earn its rightful place next to other well-known brands in your industry.

While there is no doubt that retail is sexy and appealing to those in the growth stage of their business, it’s not the only way to successfully market your products and make a profit. In fact, many entrepreneurs and marketing experts would argue that traditional retail is slowly on its way out the door and that selling direct-to-consumer (DTC) is a far more effective way to scale a business.

Should you adopt a direct-to-consumer business model over retail? We can’t answer the question for you, but from our own experience as a successful DTC brand, we can say that it’s been a smart strategy for us. Here’s why:

Bypass the problems of traditional retail

When you’re caught up in the daydream of seeing your products on a shelf, it’s easy to overlook the downsides of selling through retailers. Before you commit to traditional retail, keep in mind that you’ll probably face the following problems:

  • Dependent on Brand Awareness—If consumers don’t recognize your brand on the shelf, they are less likely to purchase your product over a competitor’s product. This often means that you need to spend more on marketing to spread awareness of your product.
  • Requires Upfront Capital—Selling retail often requires a lot of upfront capital. You don’t know how much of your product is going to sell, so you’re forced to supply retailers with a hefty supply of products that may or may not sell.
  • Cuts into Profit Margins—When you have a middleman involved, you have two options: raise the price to maintain high profits or take a hit to profit margins to entice consumers with lower prices.

The truth is that there are a lot of problems with going to the traditional retail route. By going DTC, you can skip the headaches and offer a high-quality product to your customers at a lower price point, resulting in a win-win situation for both you and the consumer. 

Customer needs are changing 

Perhaps the biggest reason why brands should consider selling DTC is for the simple fact that retail is shifting to reflect the needs of consumers. Physical retail is no longer an end game for brands, but now part of a greater omnichannel strategy with multiple touchpoints. 

“Going into retail comes with a host of headaches and problems,” says Aaron Marino, one of the founding partners at Tiege Hanley. “The beautiful thing about the internet is that it has totally changed the game.”

Online Shopping

According to a recent report from the Census Bureau, total eCommerce sales reached $513.6 billion, an increase of 14.2 percent from the prior year. With more consumers shopping online than ever before, DTC brands are now better positioned to engage customers and offer value to them wherever they shop.

Closer connections to customers

Direct-to-consumer brands have a unique ability to engage with customers on a more personal level, allowing them to foster brand loyalty and deliver a customized experience from start to finish. Unlike legacy brands that are often slow to reach customers and make a connection, DTC brands can move nimbly and establish a more personal connection with their customers.

Customers want to feel connected to your brand. Otherwise, what’s stopping them from buying at Amazon? Right now, Amazon dominates eCommerce and is expected to account for 50 percent of the market share in the U.S. by 2023. This is where DTC brands can compete with Amazon, by creating a special bond with shoppers that makes them emotionally invested in your product.

Connection Customers

We’ve seen the benefits of this firsthand with our social media strategy, the most important of which has been our Tiege Hanley YouTube channel. By inviting our audience along on our business journey and educating them about skincare for men, we were able to build an amazing connection with them that has propelled our business growth. It’s also contributed to the following:

  • Ability to create a brand lifestyle
  • Higher customer lifetime value (CLV)
  • Greater innovation based on customer feedback
  • Higher profit margins
  • Greater control over brand messaging

Direct-to-consumer for startups: A recipe for success

Everything we’ve just mentioned doesn’t happen automatically when you switch to a DTC business model. Here are just a few things that have been critical for our online success:

  • Streamlined User Experience—Your conversion rate is everything when you’re selling DTC. If your website is wonky and difficult, customers will quickly bounce off your site and into the arms of a competitor.
  • Quality Content—Content builds loyalty and gives customers a reason to come back for more. As we mentioned, YouTube has been huge for us. However, we’ve also provided valuable content to our audience via our skincare blog which builds long-term loyalty while educating our customers on topics that matter most to them.
  • Personalization—Taking a data-driven approach to your digital marketing is crucial to forming personal connections with customers. You need to know not only where they’re at online, but also how they’re interacting with your brand at each critical touchpoint.
  • A Strong Value Proposition—What makes your product different from your competition? If you don’t know the answer, neither will your customers.
  • Pricing—One thing you do need to be careful about when selling direct-to-consumer is pricing your products too low. While you want to offer unbeatable value to your customers, you also don’t want to send the wrong message to them. Price carefully to avoid making your brand appear too cheap.

Bottom line

Traditional retail doesn’t work for everyone. In fact, we’d argue that the retail landscape has shifted to a point where most startups will benefit far more by going the direct-to-consumer route.

DTC may not be as “sexy” as retail, but it can provide your business with a powerful way to scale your business. Before you get into bed with big-box retailers, it’s worth taking a step back and asking yourself where traditional retail is headed.

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