Perspective

Retail's New Math: DTC + Brick and Mortar = Success

Direct-to-consumer brands (DTC) saw tremendous growth over the last several years, reaping the benefits of a digital marketplace ripe for disruption, catering to a new wave of Millennial and Gen Z consumers that are inherent digital natives. Companies like Dollar Shave Club, Glossier, and Casper began to redefine how people shop – with a newfound emphasis on convenience and curated experiences.

On the other side, legacy retailers and consumer-packaged goods (CPG) companies need to consider how to innovate and keep up with the emerging DTC model. While native DTC brands have a competitive advantage – they were “born” digital – traditional retailers and CPGs face an uphill battle to transform their business models and adapt.

However, convenience has quickly become the new shopping standard – in what is now a much tighter market. According to a 2019 report from eMarketer, there are more than 400 unique DTC companies (and growing). What was once a differentiator is now the status quo, leaving DTCs to figure out new ways to increase revenue and maintain loyalty while standing out from the crowd. For some, brick and mortar has been a pivot point, with brands like Fabletics, Away and Warby Parker opening experience-focused physical locations and providing new ways for customers to shop.

“The space itself is becoming increasingly competitive,” Scott Clarke, vice president, consumer products industry lead, said. “So whether you're a retailer or CPG company, you're finding new, innovative ways to create differentiation in what's becoming an increasingly complex and uncertain marketplace with a lot of new entrants as well.”

In this changing landscape, retailers and CPG companies with an already established physical presence have new opportunities to revitalize the in-store experience, combining online and offline channels in the form of unique partnerships, activations, and integration with DTC or subscription models. With differentiation as a driver, CPG brands and retailers are staying competitive by shifting focus on staying top-of-mind across the entire customer journey, experimenting with new ways to engage customers with a personal touch.

“More CPG companies are looking at how they differentiate themselves inside physical stores regardless of whether or not they're investing in direct-to-consumer,” Clarke said. “Retailers are looking for new opportunities to differentiate the way in which they position and curate products within their physical space in order to be able to create a more compelling value proposition to the consumer.”

The power of partnerships

On the retail side, DTC partnerships are becoming more prevalent, with different approaches for offering unique in-store experiences. For example, Walmart recently announced a partnership with SmileDirectClub, offering a suite of new dental hygiene products sold exclusively in Walmart stores and on the Walmart.com website. Consumers will only be able to purchase these products through Walmart, and not through SmileDirectClub’s DTC site, offering a unique shopping experience for the retailer and a chance for SmileDirectClub to upsell digital customers while reaching new markets.

In-store pop-up collaborations are also making waves. Most recently, Tiffany & Co. announced a collaboration with UK-based flower service Flowerbx, welcoming a subway-themed kiosk at their New York flagship store ahead of Valentine’s Day 2020. Nordstrom has also embraced similar partnerships, striking in-store and e-commerce deals with brands like Thinx and Stella & Dot, as well as an exclusive pop-up deal with Stadium Goods.

According to Clarke, it's these types of curated experiences – ones that answer consumer need and engage organically – that can help brands build lasting relationships with customers.

“If you can help curate the experience, and accelerate them to an outcome that aligns to their needs, then you start to put yourself ahead of the problem -- you start to create that level of trust with the consumer,” Clarke said.

Redefine delivery models

Behind the scenes, partnerships can also provide expedited ways to improve shipping and fulfillment, while also bringing traffic to physical locations.

According to RetailTouchPoints, 90 percent of retailers plan to implement buy online, pickup in-store (BOPIS) programs by 2021. In another report from Adobe, the trend picked up 35 percent year-over-year this holiday season.  Kristen Groh, managing partner, Publicis Sapient, says BOPIS models can help CPGs and retailers expedite both the shopping and returns processes.

“If you use the retailer as a partner for the last mile they can become the fulfillment warehouse,” Groh said. “You change the model, and that is a massive business shift in how they operate.”

Tell new brand stories

As retailers and CPGs continue to carve their own space in the DTC market and integrate online and offline channels, Clarke says that brand recognition and trust should always be front and center, regardless of where a consumer decides to make a purchase.

“How can I ensure that when that consumer enters a physical store, they’re already predisposed towards my brand because I've inspired them to engage me directly at other critical points along that journey?” Clarke said. “It's a continuous lifecycle of interaction and experience enhancement.”