Coresight Research predicts 'hybrid' wholesale, DTC model for next 3 years

Retail Dive


Dive Brief:

  • As DTC becomes a more widespread strategy across retail, many established companies are turning to the model. A July report from Coresight Research noted a large variety of businesses trying to increase direct-to-consumer sales, including Nike and Under Armour, as well as brand conglomerates like L'Oréal and Unilever.

  • Coming off of a particularly strong year for digital, several of the brands Coresight Research studied showed DTC revenue growth of double digits in 2020, including Canada Goose (21.7%), Levi's (17.8%) and Under Armour (11%).

  • DTC has become "an increasingly important channel for both new and existing brands," the report noted, and for many of the companies it also comes at the expense of wholesale partners. Nike and Under Armour, for example, have both doubled down on reducing their wholesale partners as DTC grows.

Dive Insight: The interplay between DTC and wholesale has become more complicated recently, as traditional DTC brands like Casper form partnerships with retailers like Bed Bath & Beyond and Target to sell goods, and well-known brands like Nike step back from their wholesale-focused models in pursuit of higher margins and better consumer data via DTC.

As Coresight Research CEO Deborah Weinswig noted in the report, the direct-to-consumer model comes with higher advertising and operating costs, but also higher margins and a better understanding of the customer. While wholesale by default has lower margins, the channel offers access to a larger customer base and more efficient marketing. Those last two points could be particularly attractive to DTC brands that are hoping to cut down on acquisition costs, which have hampered profitability, though Coresight highlighted the importance of finding wholesale partners that align with their brand positioning. That has been part of the plan for brands like Nike, which has stressed moving away from "undifferentiated" wholesale partners and only maintaining relationships with those that depict the brand the way it wants to be seen. In fact, Coresight's report recommends traditional brands and retailers reduce wholesale partners in order to increase DTC sales, as well as improve website functionality to support selling DTC. As digitally native companies look for other avenues to make money, however, some traditional retailers have managed to establish themselves as go-to wholesale partners, including Nordstrom and even some big-box sellers. For many DTCs, Target has become a partner of choice as it builds out a large merchandise assortment of popular and up-and-coming DTC brands.

Though direct to consumer is gaining steam among both startups and traditional players, it's not an all-DTC or all-wholesale world. "As such, we expect brands to continue to rely on a hybrid wholesale-DTC model for the next three years, but with growth in the proportion of DTC exposure and an increase in DTC businesses," Weinswig wrote in the report.

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