To be or not to be D2C

As a new year dawns, marketers will be asking themselves ‘what do we have to be in 2019 to engage more customers, sell more products and stay competitive?’ Simple answer: be direct to consumer. 

According to Terry Kawaja of LUMA Partners, a New York based investment bank, legacy brands will struggle to compete with direct-to-consumer (D2C) rivals. D2C operators are digital-first and mobile-centric which gives them a big advantage compared to the entrenched retail models of legacy brands. This point was reinforced by the latest sales figures for ‘Singles Day’ (China’s shopping event on November 11, or double 11’) where $45 billion of goods and services were sold in 24 hours. This is three times as much as ‘Black Friday’ and ‘Cyber Monday’ online sales combined. And, 90% of purchases were on mobile devices versus to 34% on Cyber Monday.

Singles Day is an initiative started by Chinese e-commerce giant Alibaba 10 years ago and sales have grown at an eye-popping average of 50% per year! However, sales are slowing down as witnessed in 2018 with a modest 24% increase against 44% in 2016 and 2017. For many brands and retailers, it must be soul destroying to see a giant like Alibaba offering price cuts of 30% on key products such as parent and baby products, skin care and cosmetics or apparel. Higher discounts are delivering three to four times higher category sales on Singles Day versus normal shopping days. Unless you have very deep pockets it is almost impossible to compete with Singles Day. More concerning, Alibaba used Singles Day 2018 to connect online and offline operations with its stores throughout China including 62 Intime department stores, 100 Hema supermarkets and 222 Easyhome furniture stores. Most impressive was a coffee promotion with Luckin coffee, a competitor of Starbucks, who offered a ‘Buy 1 get 2 free’ discount by ordering online and collecting in-store. This resulted in a total of 18 million cups of coffee sold in seven days which is 62 times the average cups sold per day! In total, more than 19,000 brands participated in Singles Days 2018. 

Heading in the opposite direction is Manchester United who announced the club will be opening three physical ‘experience centers’ in China by 2020 in Beijing, Shanghai and Shenyang. With more than 107 million fans in China this is an attempt to capitalize on one of the largest fan bases in the world of a sports franchise. United are not the first to open a center in China as Paris St. Germain opened a similar concept last year equipped with indoor football fields and a club themed bar. No doubt United’s investment was influenced by the sale of Premier League broadcasting rights to Chinese digital broadcaster PPTV for $700 million starting in the 2019/20 season. The first touchpoint for most European football clubs was social media followed by touring and then physical locations such as fan experience centers. 

If there is one brand that sets its own agenda it is Nike. Whilst most of us would recognize the Nike swoosh from a distance, it is another side of the company that is setting the pace, Nike Direct. With the goal of ‘owning the experience’ Nike has been investing heavily in a direct-to-consumer strategy. According to Nike Direct President, Heidi O’Neill who says ‘I can see a time when we don’t talk about channels. Consumers are very fluid from physical to digital’. One of the main goals of Nike’s $2.1 billion investment is to establish a single customer profile of every NikePlus member so the purchase history for each customer is available at any retail outlet in the world. Following the acquisition of data analytics firm Zodiac last year, Nike is able to make a deeper analysis of the active membership and predicted lifetime customer value. Early results indicate the investment is paying-off as 29% or $10.5 billion of Nike sales came via Nike Direct. Wholesale still delivers the majority of sales but is declining in the US home market. In Europe and Asia Pacific direct sales grew 21% compared to 14% and 5% respectively for wholesale. 

From a sales and marketing perspective ‘to be or not to be direct-to-consumer’ is no longer a question but a requirement. In a world where fans and consumers expect engaging experiences and seamless integration between online and offline, just be direct!