Do direct-to-consumer digital brands have advantages over traditional retailers?
While a number have discovered the benefits of opening physical stores, digital direct-to-consumer (DTC) brands continue to operate much differently than traditional brick & mortar retailers and legacy e-commerce brands, and that gives them an advantage pursuing digital initiatives.
That’s at least according to a new study sponsored by Oracle from CommerceNext.
Compared to their traditional counterparts, DTC brands were found to be increasing online marketing budgets at a higher rate, focusing more of their budgets on customer acquisition and more aggressively pursuing AI-driven technology initiatives such as chatbots and personalization. To date, DTCs have also avoided leveraging promotions and discounting, which can be effective, but erode margins.
Like traditional DTC retailers such as J. Crew and Victoria’s Secret, digital DTC brands benefit by sourcing directly from factories. As younger organizations, they tend to be more open to experimentation. Being digital-first drives them to an “obsession with data” versus traditional retailers.
The study found that only 22 percent of digital DTC brands consider achieving a unified view of the customer to be a barrier, compared to 29 percent of incumbent e-commerce brands. Only seven percent of digital DTC brands consider aging legacy technologies a barrier versus 41 percent of traditional retailers. Such DTC brands are also less worried about managing tech integrations.
Digital-first DTC brands have different concerns, however, such as hiring and retaining top talent (30 percent of DTC brands versus 19 percent of traditional retailers).
Digital-first DTC brands’ biggest concern by far was achieving profitability at scale (40 percent versus 11 percent of incumbent retailers). That’s partly because many are backed by venture capital firms and are able to prioritize growth over profitability.
“They have a different set of growth goals and internal stakeholders to please,” said Charlie Cole, chief digital officer, Tumi + Samsonite, of digital DTC brands in the study. “For traditional retailers to combat that, they’ll need executive buy-in to take more risks, try new things, and be more experimental in channel diversification. Above all, traditional brands must be less afraid to fail.”
DISCUSSION QUESTIONS: What advantages may digital DTC brands have over traditional retailers in the ongoing shift to digital retailing? What can traditional retailers and DTC brands do to compete more effectively?