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Online retail, consider the humble store

US & Canadian companies

Online retail, consider the humble store

Inc, the US-based magazine focusing on small business, published a fascinating article yesterday on the rise of the direct-to-consumer retail business, handily abbreviated to DTC. (h/t to Modest Proposal, who posted a nice Twitter thread on the piece.)

Focusing on a range of alumni from the University of Pennsylvania's prestigious Wharton School of Business, the piece covers the travails of a range of delightful new products, from toothbrushes to tampons, looking to access consumer wallets via the web.

In summary:

The appeal of the DTC movement goes like this: By selling directly to consumers online, you can avoid exorbitant retail markups and therefore afford to offer some combination of better design, qual­ity, service, and lower prices because you've cut out the middleman. By connect­­ing directly with consumers online, you can also better control your messages to them and, in turn, gather data about their purchase behavior, thereby enabling you to build a smarter product engine.

Take Dollar Shave Club, for example.

Off the back of a viral-hit product launch video in 2012, and by offering a competitive price, the razor-to-your-door business successfully ate into Gilette's then 60-odd per cent market share, eventually being acquired by Unilever for $1bn in 2016.

One particular part of the Inc piece which stands out is how, due to soaring online advertising costs from Google and Facebook, many of the DTC brands are returning to the sepia-drenched idyll of brick and mortar. From the article:

SoHo in Manhattan has become a physical manifestation of this. Within a one-mile radius, you can walk into stores belonging to a dozen DTC brands--Away luggage, Allbirds sneakers, M.Gemi shoes, Untuckit shirts, Everlane fashion, Indochino menswear, Outdoor Voices active­wear, Bonobos men's clothing, and, of course, Warby Parker.

In effect, the internet has removed the initial barriers to entry in retail.

Thirty years ago your choice of washing powders was limited to the shelf space of your supermarket. This precious commodity tended to be laden with offerings from companies such as Procter and Gamble. Choice was really a function of market power. If Tesco's refused to stock Persil, Unilever could turn around and refuse to supply Marmite. (Some of our readers may have not minded if this example had come to pass.)

Today, however, it is easy to have your brand's logo in front of eyeballs -- all you have to do is purchase some from leaky human-data repository Facebook. Distribution is equally as simple, you can even utilise Amazon's entire logistics infrastructure in return for a cut of the spoils if you want to.

That's left the trickiest part, acquiring customers. In particular, the stubborn philistines among us who still prefer to interact with humans, and perhaps inhale some fresh air, as part of our shopping rituals.

According to research from Activate, 67 per cent of consumers who prefer to buy online rely on a physical store, whether before or after a purchase. Intuitively this makes sense. Sure you feel comfortable buying your favourite shower gel online but items for which aesthetics (such as a suit) or ergonomics (such as a sofa) matter are a different story.

Several upstart retailers have actually designed their customer experience with this in mind. For instance b8ta, a retailer of technological trinkets, created its stores specifically for trying, as opposed to buying, their wares.

This try before you buy trend is also reflected in the data. Here is a chart from Activate comparing the ratio of online visits between Walmart and Amazon, and the number of Walmart super centers located in the US's geographical regions:

So as the concentration of physical stores rises, so does Walmart's share of online traffic.

This may go some way to explaining why Amazon is beginning to roll out physical stores across the US -- not only are you exposing yourself to a wider audience of befuddled no-onliners, but you are also helping people to interact with the product, and therefore make the right purchasing choice. If your product is as good as you claim online, what's the problem?

With e-commerce still representing only 9.1 per cent of total retail spending, limiting your artisanal tooth-brush brand to the web also seems a sure-fire way to miss out on a gaggle of willing consumers. Indeed, DTC poster-child glasses company Warby Parker are an exemplar of this online/ offline blended approach, with founder David Gilboa telling PBS last year:

We find that about 75 percent of our customers that shop in our stores have been to our website first.

Then there's also the fact physical stores can act as a form of free advertising. For example, there's a reason why luxury retailers shell out for the extreme rents of Mayfair's Bond Street or New York's SoHo.

Everyone is rightly concerned about the future of retail and its wider implications for developed economies, particularly given the spate of bankruptcies in the sector over the past two years. However, given this shift towards a, shudder, “bricks and clicks” approach, we can't help but feel the overwhelming death-by-Amazon narrative is perhaps glossing over some wider problems in the economy.

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