Direct to consumer – the way to boost the UK’s manufacturing sector?
The supply chain used to be very simple. Manufacturers supplied retailers, who sold the product at a mark-up to end-users. It worked well, however with traditional retail continuing to struggle with store closures becoming a common occurrence, manufacturers are increasingly looking at bypassing distributors and retailers and going direct-to-consumer (D2C) as a way of opening up new sales avenues to grow profits, build customer insight and consequently gain a competitive edge.
Adopting a D2C approach might just provide the boost that some manufacturers are looking for. Being so dependent on their supply chain partners, which are often hamstrung by their binding contracts with retailers, can cause an inability to react quickly to industry events and modern customer expectations in terms of product and service. However, if a manufacturer chooses to sell D2C, it would have far more control over all operations that go on ‘behind the buy button’, as well as the ability to quickly make changes to its strategy. This new-found control stretches to consumer-facing aspects of supply, such as pricing, branding, inventory and control of the process from production, including which logistics companies to partner with and how to distribute its product.
It also provides the manufacturer with more control over the relationship with the customer and the ability to leverage the additional consumer insights that come with it. For instance, instead of selling through retailers where poorly trained retail staff or inefficient business systems may have held a brand back, D2C allows a manufacturer to execute the selling process in line with its business. Customers can speak to the manufacturer directly and engage with highly trained customer service brand ambassadors that can assist with their buying decision. Customer insights would normally only trickle down the chain as far as the retailer, but opening a D2C channel can allow manufacturers to directly receive feedback and insight from their consumers and adapt their offering accordingly. This allows more ownership of how the end-consumer perceives the brand and forms a more constructive relationship, encouraging brand loyalty.
In order to fully realise the benefits of a D2C channel, businesses need to ensure they have the correct internal skills and capacity to work directly with consumers, or partner with a third-party logistics company (3PL) that does. Those selling D2C must implement the technology to handle high order volumes while effectively meeting consumer demands and expectations. This includes the ability to offer fast and reliable delivery, and manage stock held in the warehouse, as well as allocating it efficiently to ensure smooth pick and pack, dispatch and returns. The most effective way to do this is to ensure that all operations are fully integrated by a reliable order management system (OMS). This would enable employees and customers to access a real-time view all of a customer’s activity in one place, and allows self-service actions, such as returns.
The benefits of D2C are being realised by many businesses. For example, Nike, one of the largest retailers in the world, is working hard on direct sales. According to Market Realist, the retailer plans to grow this part of its business by 250% in the next 5 years. In the company’s forecast, its D2C sales will reach $16 billion by 2020—a massive increase from the $6.6 billion this channel generated in 2015. There are other success stories, such as mattress brand, Eve, and Harry’s, an innovative men’s shaving brand, so we know that this business model can allow manufacturers to reap huge rewards. However, in order to succeed and stay afloat in a tough trading environment, manufacturers need to be prepared to adapt their methods and learn how to work directly with consumers and logistics partners. So, the question remains, as online encourages everything to converge, will manufacturers take the opportunity to widen revenue opportunities, whilst they still can?
By Mel Tymm, Industry Principal, Maginus