Source: wish.com
Will retailers get cut out by consumers in the future economy?
Thanks to an obscure international trade deal made a few years ago, the growing direct-to-consumer trend might become more prevalent, if the hypothesis in a recent New York Times article holds true, cutting out retailers in the process.
The article details writer John Herrman’s experience shopping on Wish, an app which allows customers to order from a disorganized assortment of low-priced electronics, fast-fashion and apparel knockoffs, commodities, novelty tchotchkes and the like directly from manufacturers. Many of the orders he received shipped directly from China. He ascribes the success of the app’s model to a 2010 agreement, which allows packages weighing up to 4.4 pounds to be shipped from China as “ePackets,” at a drastically reduced rate of shipping.
The chaotic marketplace Mr. Herrman describes combines the ultra-low prices and “treasure hunt” appeal that’s proven so successful for off-price retailers like T.J. Maxx. He asks if we’re facing a future in which anything in the supply chain between overseas manufacturers and customers — such as retailers or even retail websites — will be seen as superfluous.
The “end of retail as we know it” posited in the article, however, doesn’t seem like a foregone conclusion. For instance, customers still appreciate customer service and it is doubtful an online clearinghouse such as Wish or an overseas manufacturer would effectively handle customer service requests. And even if a knock-off gadget or article of clothing is ludicrously cheap, it is hard to imagine a customer buying one after another as they break instead of a longer-lasting one from a reputable source.
But recent developments have indicated that the number of jumps between manufacturers and end-customers is shrinking. Manufacturers like Procter & Gamble, for instance, have begun subscription services that allow consumers to buy and replenish products from them directly rather than going to the store. Amazon.com recently promoted the direct-to-consumer model with major CPG manufacturers in a move some saw as trying to circumvent brands’ relationships with other retailers.
Retailers themselves have also been closing the gap between suppliers and consumers. More retailers have begun drop-shipping — fulfilling e-commerce orders by having a product shipped directly from the vendor rather than from the retailer’s own stock.
Discussion Questions
DISCUSSION QUESTIONS: Will technology enable more business to be conducted directly between individual consumers and manufacturers? What will stop retailers from disappearing as direct-to-consumer commerce becomes easier?
Poll
BrainTrust
Meaghan Brophy
Senior Retail Writer
Carlos Arambula
VP of Marketing, FluidLogic
You bet it will. The tablet, smartphone and computer world IS a retailer. Because all business inexorably moves toward efficiencies (on-line is a more efficient means of retail shopping today) there is no way to put the cat back in the bag.
Yes, technology along with consumers’ comfort level with shopping direct will likely result in more consumer-to-manufacturer activity. Tesla is doing it with cars, software game developers are doing it and many other manufacturers will also. While I do agree that these direct models will put pressure on traditional retailers, I don’t believe that this marks the end of retail as we know it. Direct-to-consumer, just like online commerce in general, is not desired by all consumers.
I am in full agreement with you Mark. Physical retail still accounts for over 90 percent of purchasing as we heard from Forrester Research at NRF17, despite the very heavy push by Amazon and others into B2C commerce. I do believe that improving the in-store experiences of discovery, learning, fun, trial/try-on and immediate fulfillment can score physical retail’s future with traffic and conversion. I look forward to hearing more from you about this topic in your webinar presentation on May 25th to the retail audience of the Center for Digital Experience: “Traffic and conversion — or retail fails.” That webinar info is here.
Technology has already enabled direct-to-consumer commerce. If retailers fail to deliver good service at reasonable prices, look for consumers to turn elsewhere to make purchases. That said, I don’t expect many manufacturers will undercut mainstream retail pricing, so the basis for the success of direct-to-consumer will be ease of use (experience) and service.
Having spent considerable time driving direct-to-consumer sales, human nature limits how much product will be bought outside of the store.
In other words, there will always be retail because people like what retail can do for them. It will also always evolve and we will always have people around who desperately want it to disappear (usually so they can take the sales for themselves).
Will percentages change dramatically? I suppose as direct-to-consumer options sort out ways to deliver portions of the value of retail, direct selling (e.g. online retail) will expand. Then as retail fights back, direct selling will shrink.
Today we have roughly 10 percent of sales direct-to-consumer. I could see that increasing to 15 percent over 10 years. But it takes an incredible leap of faith to see it reach 25 percent.
Direct-to-consumer models are cyclical. Having lived through three such phases the big question is, will direct to consumer stick this time?
The value retailers bring is in providing inventory that shoppers can buy and have immediately and many different brands with the opportunity to compare. The smarter retailers provide a positive experience enticing customers to come back.
Think about it, do you really want a relationship with EVERY brand that you purchase? When you buy a connector for your smartphone, do you want a relationship with that manufacturer, or did you just want the connector to get the job done? Yes, there is the price point enticement. But for anyone who has bought a very cheap product from a manufacturer in China, in the one to one-and-a-half months it took to get the product most consumers will have long forgotten why they purchased it in the first place.
Neither model is going away, but I don’t believe that retail will die as a result of this latest wave of direct-to-consumer.
The internet has already changed the way people shop. It will continue to get easier to buy directly from a manufacturer. That does not mean traditional retailers will be going away. They have already developed websites to handle online shopping with direct shipping to the home and/or BOPIS. Retailers may have been slow to see the impact online shopping would have on their business but they are now fully aware and are working to address how to remain competitive.
There is no doubt that direct-to-consumer sales will grow because of better technology and because of new generations of “digital native” consumers. However, significant shifts towards consumers purchasing direct will happen mainly in specific verticals such as automotive, consumer electronics and basic fashion. It will be much less common with CPGs — the reasonable consumer seeks convenience and prefers to buy at retailers (whether online or off-line) that can provide him with full basket, rather than buy directly with the likes of P&G that can deliver only a small part of his basket. Moreover, he would most likely have to buy higher quantities when buying directly from a CPG producer.
Absolutely. In the coming years we will see fewer middlemen. However, that doesn’t mean all retail as we know it will disappear. There will be many people who prioritize the rock-bottom prices that come with direct-to-consumer commerce. But there will be many others who prefer traditional retail and will pay a little more for customer service, fast shipping, easy returns and curated products. Sites like Wish offer cheap prices and low or no-cost shipping, but shoppers have to wait weeks for their packages, returns are all but impossible, and there is next to no customer service. For some, the trade-off is worth it. For others, retail is simply more convenient and reliable. Retailers can weather the direct-to-consumer storm by focusing on service, quality and personalization.
For as long as I remember, industry has turned to specialization. That means that for the most part, those who mine the diamonds don’t sell the diamond rings. While in some product categories (as in the P&G example), it may make sense to sell D2C, in many other categories the manufacturer may not want to add a measure of distraction from manufacturing to wholesale distribution, or add retail or direct-to-consumer. In many cases, this kind of diversification can lead to diminished focus at the expense of all the business units. We have seen many companies drop a business segment “to concentrate on their core business.” I predict that, as in many other cases, some manufacturers will bypass the retailer, some won’t and some will and then return to pure manufacturing again.
Retail is here to stay but, without a doubt, the number of locations will wane drastically in the coming decades.
A Wish type of scenario is just one of many, like Unilever jumping in with Dollar Shave Club and Amazon’s continued growth. The differentiator will always be high-touch and high-service types of products versus commodities, CPG items and splurge items. The latter group will continue to have less prevalence in retail locations and those user-focused e-commerce merchants that provide free two-way shipping and excellent support will continue to make inroads into higher priced “hands-on” categories.
Yes it is indeed possible however, is every manufacturer ready to also be a merchant? New products need to be merchandised and marketed. Do they all want to get into that? Now, the concept of setting up subscriptions for staple items, that is cool and convenient for the consumer so we may see more of that. Today’s technology is a great enabler and we will see a new retail model in the future but I think the store will still be around. Maybe there will not be as many and they may carry less inventory but they will have their own distinct purpose.
And that’s my 2 cents.
Direct-to-consumer is not entirely new: Think about the number of manufacturers who have verticalized over the years, from Ralph Lauren to Apple. The difference now is technology and how it breaks down the need for a physical storefront. It’s making possible direct connections between manufacturers, their brand and their customers that couldn’t happen even a short time ago.
All this being said, there is still some value added by retailers (whether online like Amazon or in a physical store like Walmart) being able to provide curated one-stop shopping for most households’ needs. Don’t expect this model to disappear soon.
Of course, technology will enable more business to be conducted directly between individual consumers and manufacturers. But on the consumer side, technology has given shoppers convenience and they won’t trade that off for dealing directly with the manufacturer. If a customer buys groceries, do they want to fill their shopping cart by dealing with one retailer or multiple manufacturers? If a customer is buying a new pair of sneakers, do they want to go to multiple manufacturer websites or just one to compare them all?
The real answer is coming in the future. Will consumers be able to purchase their needs without overtly interacting with any retailer or manufacturer? It is all about convenience. That is the trend and technology will only accelerate that trend.
There is already an audience for direct-to-consumer shopping and it will continue to grow. However, retail still has the advantage of allowing the customer to see and touch the item. If the retailer uses that strength correctly by investing in well-trained associates who know how to engage and “wow” the customer, the retailer will survive. Too many retailers for years have forgotten about the customer, focusing only on displaying the item at an attractive price. If they want to keep stores open then they need to concentrate on the in-store advantage, and that is the human interaction and live customer experience. Of course, retailers still need to provide omnichannel services because that’s part of today’s demand but if they do everything, and do it right, they will be successful.
There is no doubt that technology and aggressive manufacturers will result in more direct-to-consumer business. The noted obscure trade deal is having less of an impact than the recent efforts of Amazon to become the fulfillment center for many center-store, consumer packaged goods.
Retailers need to provide a real reason to visit the store. For food retailers, the reason given for years was low prices. However, transparency and technology have obviated this weak competitive advantage. Retailers need to begin by asking the question, “what problem(s) can I uniquely solve for the customer?” Is it an inviting place to shop with helpful staff? Or maybe offer health and wellness opportunities in-store, e.g., nutrition and health counseling.
I think a lesson can be learned from movie theaters who almost went out of business, not simply because of Netflix, premium movie channels or on-demand options. Theaters were tired, dirty and often gouged consumers at a snack bar with limited offerings. However, we have seen the resurgence of theaters. How? By installing comfortable seating, offering decent food and beverages (alcoholic and non-alcoholic), offering seat-side service, etc. These are the problems theaters solved in response to the consumer need for an evening out and a movie. Other brick-and-mortar retailers need to ask the same question, namely, what does the customer give me permission to do?
Has there been a very slow evolution toward direct-to-consumer (D2C) over more than the past decade? Yes, and D2C is growing at a measurable pace today. I really don’t see any huge impact that will kill off retailers anytime soon. Remember, omnichannel is so prevalent because consumers enjoy the choice and control of multiple ways to shop. That aspect will continue into the foreseeable future. Retail will thrive as long as merchants are agile enough to adapt to changes in consumer desires. I realize that it is often easier said than done, however innovators are leading the way for others to follow. D2C will grow faster as more manufacturers establish these capabilities. Again, this is simply another channel opening up for shoppers to leverage. I think there are definitely possibilities for partnerships across manufacturers, distributors and retailers that can provide business value to all of the constituent parts of the ecosystem.
I believe retail “as we currently know it” will evolve and that includes direct-to-consumer. How can retailers avoid disappearing? Evolve.
We are already seeing national retailers that failed to respond to consumer interactions and expectations fading into history and becoming cautionary tales.
In my business we are seeing increasing numbers of brands who a.) have never sold through a retailer or b.) see a better opportunity to sell direct to consumers as a way to increase loyalty and margins. At the same time, consumer behavior (thanks to Amazon and their marketplace) is shifting away from the channel through which a product is procured and more towards simply getting the product a consumer wants, when they want it and how they want to receive it.
The confluence of these two trends is obviously stressing traditional retailers who have historically served the curatorial role. Retailers who seem to be thriving are the ones who have found a niche or audience segment that they can authentically speak to and can serve effectively — both are required to be able to compete.
I get it, but that’s not going to happen. Imagine for a second going to the Crest site for toothpaste and the Kellogg’s site for cereal and the Mars site for candy. Then looking out on your porch and seeing 500 boxes. Yeah … NO.
Retailers, as aggregators of brands, will always be a necessity. The profitability of said retailers is what’s under assault. Clearly, unless we think a monopoly is cool all of the sudden, manufacturers are going to have to work harder with the aggregators to ensure fair competition. This is not inclusive of proprietary brands though which, to me, are the golden goose (always have been) for retailers. Fun times.
Technology has already challenged retailers to evolve and it is not a new development that you need to change to survive in the modern world. But I would see this as an opportunity rather than a threat. While direct-to-consumer is growing, consumers still look for excellent service, experience, emotional connections and a personal approach. Think about augmented reality, virtual reality, AI-based personalization tools and how traditional retailers can leverage all those to become innovative. Technology has enabled direct-to-consumer sales, but it is empowering retailers to bring their service to an entirely new level.
As the Internet of Things (IoT) evolves, better visibility will be evident in supply chains, allowing retailers to skip steps and deliver products to consumers more quickly and directly. However, this speed cannot take the place of customer service that can be offered when the consumer interacts with a store associate. Studies show that 70% of consumers still go to the store for the advice they receive and the instant gratification that comes with a store purchase. This percentage may fall some, but the idea that retail stores will go away is false. In fact, stores and centers are moving toward creating a customer experience which includes restaurants and other entertainment to attract customers which an e-tail experience cannot provide.
I see direct-to-consumer growing in popularity for specialized, lifestyle brands looking to nurture satisfaction and customer advocacy (driving greater share of wallet) through the personalized recommendations, and convenient access to their full product line through DTC branded apps. Under Armour, for example, has a robust app enabling me to tailor suggestions to my preferred activities, and with the convenience of free shipping, encourages more frequent purchases. Outside of the handful of brands we are each most loyal to, and the degree to which we migrate our buying behavior to apps, its unlikely direct-to-consumer will have a significant impact on retail overall.
Technology will clearly enable more direct-to-consumer transactions and products considered commodities and marketed on a price basis may be most highly impacted by the ability to purchase directly from the manufacturer.
Razors are a great example:
Other categories of retail can incorporate technology trends to their own advantage. Retailers marketing luxury, specialty, and other items benefitting from a higher touch experience can use their stores as showrooms for their products while offering consumers the ability to purchase closer to the “source”.
Technology will make direct to consumer commerce a lot easier. There are plenty of examples of big name brands selling direct to consumers. As the costs go down for smaller companies, the practice will only become more popular. As others have mentioned, the shopping experience itself will still remain a vital part of retail. No matter how far VR advances in the near future, it can’t replace a physical interaction with a product and an actual living person giving customer service. Maybe one day in the distant future, but not anytime soon.
Retail is absolutely evolving. Retail in the future will take many different forms than what we are used to and one driver for this is direct-to-consumer sales. The extent to which this change will take place depends on the merchandise type. All retail will not come to horrifying end — there will always be a need for retailers because of the experience and services delivered to consumers. It will be easier to return most merchandise, for example, to a retailer than a manufacturer. There are also many items that consumers don’t care about brand for which they just want the convenience to purchase. E-commerce is just as much a threat to traditional retail as direct-to-consumer in many categories.