Growth in DTC ecosystem brings new challenges for brands and opportunities for consumers


They say with any challenge or crisis comes great opportunity, and when opportunity knocked during the spring of 2020 in the form of a global pandemic, online merchants’ business operations changed, likely for good, overnight. As such, the inevitable evolution of the digital shopping ecosystem was brought forward by several years according to industry experts across the world.


But ecommerce has been booming for several years now, and that growth likely helped set the stage for a world where digital-first shopping is quite the norm for all demographics of people across the country.


To learn more about where we’ve been these past several months and where we’re going in this space, I spoke with the CEO of Whitebox, Marcus Startzel. Marcus is an expert in driving industry-leading growth and expertly grasps the concept of technology’s role in improving our lives. Prior to joining Whitebox as its chief executive, he held various senior leadership roles with public and private companies like AppNexus, MediaGlu, Millennial Media and Ad.com.


Gary Drenik: As the country enters its eighth month of the pandemic and prepares for the holiday season, it’s unlikely we’ll see digital commerce sales slow down anytime soon. Looking back, how do you think brands have adapted to the extreme increase in demand since March?


Marcus Startzel: What has become abundantly clear is that the world has changed, and consumer shopping habits and behaviors have changed right along with it.


As a result of an unprecedented shut-in this past April, millions of people found themselves buying both essential and non-essential items online instead of relying on trips to their local markets and stores. Traditional and direct-to-consumer (DTC) brands had to stop on a dime at the start of this situation to quickly re-evaluate and take action regarding their inventory, supply chain and logistics capabilities, and end-to-end sales processes. And as we’ve seen, those brands that were able to adapt the quickest benefitted the most from the crush of online business that happened between April and June when most states were still in Phase One of the quarantine.


But the truth is, e-commerce sales have been steadily increasing for more than a decade and brands that haven’t been able to innovate, pivot or adapt to this growth probably struggled the most with the intense demand from consumers these past seven months.


Because e-commerce is the fastest-growing segment in retail, and has been since the early 2000s, new technologies and industries, like the direct-to-consumer market, have emerged on the scene at an even faster rate. In fact, according to new data from IBM’s U.S. Retail Index, the pandemic has accelerated the growth in digital shopping by roughly five years, and it is expected that e-commerce will grow by nearly 20% by the end of the year.


Though, shoppers right now aren’t just going online to buy another batch of toilet paper and hand sanitizer. They are also exploring new casual attire to wear around the house, buying tonight’s dinner, upgrading their living rooms and home offices with new furniture and decor, and investing in fitness equipment.


For brands, too, this year obviously became all about adapting. Brands that opened themselves to new online channels and marketplaces and quickly shifted their ad dollars and strategies from in-person experiences to digital and in-platform advertising stood out as differentiators in the crowded DTC market.


In addition, those brands that were thinking from end-to-end, and were able to quickly reallocate inventory from their brick and mortar stores to serve their new fast-growing online channels found additional success. Our customers found they could respond faster to retailers’ direct-to-consumer orders. This cut the lead time to get products to consumers by eliminating the need to ship to stores or distribution centers. It was a win for everyone.


Quick thinking has also been a key ingredient for online merchants in 2020. Launching services that catered to new online shoppers both in their purchasing journey and in their available options for delivery were key. Especially considering that Prosper found that 38% of adults in the “Boomer” generation said they were shopping more online; this kind of innovative thinking opens doors for other growth across unexpected demographics.


A final but important differentiator for DTC brands, even in “normal” times, is the use of customer insights and data. With the increased attention to their online channels, brands moved fast to help their customers make informed decisions, utilizing backend technology solutions. Those who made decisions based on the data were likely able to better take advantage of the increase in consumer spending.


Drenik: What do you think has been the big differentiator for direct-to-consumer brands who have been able to succeed in 2020? What will it take for them to succeed in years to come?


Startzel: The explosive growth of ecommerce in 2020 has created new dynamics and choices for millions of consumers across a variety of marketplaces and channels, with new products, brands and subscription services, and increased flexibility when it comes to shipping options.


According to the Q2 2020 report from the U.S. Census Bureau, ecommerce accounted for 16% of total retail sales in Q2, up from 12% in the first quarter of 2020. Is it any wonder that brands want a piece of the ecommerce pie? The fast-growing DTC ecosystem has created a democratized battleground in the fight for consumer loyalty, and brands that embrace this growth with a strategic approach to modern commerce will emerge as the differentiators.


With more product choice and easier access to both essential and discretionary items, expectations have shifted even more heavily in the consumer’s favor. And, with speed, convenience, price, access, quality and value still driving the consumer online purchase journey, it’s easy to see that what’s good for the consumer isn’t always easy for the brand.


But for many DTC brands, visibility doesn’t—and hasn’t—come easy. Essentially, brands face a struggle to meet more than just their customers’ needs; they must also effectively manage their advertising and marketing, monitor their commerce channels, and re-evaluate supply chain and operations requirements. Chief among a brand’s struggles right now, of course, is COVID-19. An increase in online spending means consumer demand is overtaxing those companies trying to scale their services.


If 2020 has taught e-commerce brands anything, it’s that insights and inventory management can make all the difference when it comes to making better business decisions. The brands that differentiated themselves this year and positioned themselves for ongoing success are ones that excelled in these key areas:


  • Using omnichannel data and insights to make data-driven decisions across retail channels to increase sales and reduce costs. With a full-picture view of their customer journey across channels and a greater understanding of selling trends, they are better able to make business decisions across all channels.

  • Adopting a vertical integration model to unite inventory, order management and marketplace demand data. In that way they’re helping customers seize every opportunity in the value chain and quickly respond to opportunities as they arise and customer preferences as they change.

  • Exhibiting flexibility in operations and processes to change to meet customer needs. For example, we have a carrier-agnostic approach. By partnering with large national carriers like UPS and FedEx as well as local and regional carriers, we remain nimble and able to make the best choice for our customers.

From in-depth analyses on the customer journey from start to finish, to insights that provide a holistic view of the brand’s inventory and supply chain, the backend story is even more crucial to a brand’s success sometimes. Looking ahead, challenges associated with the explosive growth in e-commerce will continue to present both hurdles and opportunities, and DTC brands in particular cannot afford to mismanage the complexities and costs associated with success.


Drenik: How are you seeing shopping habits change as they relate to the DTC economy? Do you think these changes are permanent?


Startzel: Consumers expect easy, accessible and fluid shopping experiences from all channels these days, which means easily finding products in their local stores when they do make those trips, on a brand’s website, through an app on their mobile devices and even social media sites like Facebook. And, if the last few months are any indication of the direction we are headed, the true era of digital-first shopping has officially begun.


I think COVID-19 was a sea change for e-commerce across all demographics. Not only did it drive more people online, it brought forward supply chain and logistics challenges that brands of all sizes likely never dreamed of. The idea of a global pandemic forcing people indoors for two months was inconceivable!


And that time indoors moved more people (of all ages, across the country) to the internet in droves. As smartphones have become more sophisticated, so, too, have the people using them for their daily needs outside of communicating with others. For instance, according to Prosper’s annual Monthly Consumer Survey, in February 2020 approximately 5% of adults said they had shopped for household supplies on their mobile device in the past 30 days. In October, that number nearly doubled to approximately 10%.


Without a doubt health and safety has played a role in that growth, but so has the adoption of services like buy online pickup in store (BOPIS) or curbside pickup, subscription-based models and two-day shipping. As these extremely convenient shopping services become more favorable among more consumers, we know that the retail ecosystem must adapt quicker than ever to meet the expectation of a seamless shopping experience. And while physical stores may still be the primary driver of sales and traffic for large and small retail brands, DTC brands have the unique challenge of trying to be everywhere at once, but especially online.


As the DTC ecosystem expands, I expect companies in this space will continue to make the necessary refinements to their processes while aligning new priorities to meet growing demand from consumers. The technology and fully automated fulfillment centers that are now powering this ecosystem enable even more progression when it comes to the instant access shoppers now demand. All of these combined fuels the growth in online and mobile shopping, which is why I don’t foresee a step back any time soon.


Drenik: Lastly, what do you think is next in the evolution of the DTC economy?


Startzel: This moment in modern retail history is unprecedented, and there is no playbook for dealing with this level of turbulence. But what I think will remain constant is a renewed focus on the customer as the central figure in the commerce experience. For customers that means an increase in choice. For brands that means innovation and flexibility to support customer choice. It also affects brands in the products they bring to market, the ways in which they market and sell to consumers, and how they are getting the products to customers.


Brick and mortar transactions and relationships will decrease in focus while omnichannel experiences will become a key focus. DTC brands will need to be anywhere the consumer is looking, and that is expanding and ever-changing. Product access—in-store purchase, ship to home, ship to store, in store pick up, etc. will also keep evolving to meet consumer interest and demand.


The future of many industries, including retail, is happening right now. In this constantly evolving landscape, brands must be nimble and more importantly, the brand must continue to put the consumer at the center of their mission. Outside of this pandemic is still a fast-growing e-commerce market that has already come into its own the past few years, and with expansion now a must, DTC and e-commerce brands need to ensure they are consistently delivering a high-quality consumer experience.


Drenik: Thank you Marcus, your insights on the ways Covid-19 is impacting consumer behaviors and DTC brands are quite timely. How DTC brands use insights to manage the complexities of this turbulent market and drive omnichannel experiences is becoming foundational for success.


Article courtesy of Forbes here


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