Cutting out the middleman

For decades, wholesale distribution has been the way to go. It gets your product to market fast and consumer visibility is huge.

But the retail landscape looks different these days with brands fighting to be front and centre of a customer’s line of sight as more and more products hit the shelves.

In 2019, Nike confirmed it would be pulling its products from Amazon.com marking the end of a two-year pilot programme. This would allow it to gain greater control over its listings. In 2020 it launched its Consumer Direct Acceleration (CDA) strategy – “a clear and connected digital marketplace…more closely aligned with what consumers want and need.”

Specifically, it would be lowering its reliance on wholesale partners which has seen it withdraw from the likes of Fred Meyer, Bob’s Stores, Belk and Dillard’s.

The move has paid dividends for Nike, which was named the most valuable apparel brand of 2021. In fact, the company’s CEO John Donahoe says the brand is in a much stronger competitive position than 18 months ago.

Industry experts suggest Nike’s move is the tip of the iceberg. In the wake of its full-year results, Under Armour management told investors it had witnessed a strong increase in direct-to-consumer sales, an area in which it plans to continue to expand. In February last year, it announced it was closing between 2,000 and 3,000 wholesale accounts.

Last March, Adidas unveiled its Own the Game growth strategy to 2025 in which it revealed it would target consumers more directly by shifting to a DTC-led business model. The company’s DTC business is projected to account for around half of the company’s total net sales by 2025 and to generate more than 80% of the targeted top-line growth.

More brands are likely to bolster their direct-to-consumer business strategies and Kelly Goetsch, CPO at digital commerce platform commercetools says this is particularly true of footwear brands.

“By selling direct, they get to build lifelong relationships with customers by offering a differentiated experience. They de-commoditise shoes, which leads to higher loyalty and more margin.”

The move to DTC is not just limited to the sportswear giants as Goetsch suggests “every brand will [follow suit]”. She says: “The word of this decade is disintermediation.”

It’s important to note that DTC is not a new phenomenon. It has been going on for several years. All that is happening now is more brands, especially luxury ones, are heading in this direction. In fact, some are increasing the volume they sell at via this business model thus lowering their reliance on traditional wholesale retailers.

The benefit for brands in this age of data transparency is it gives them accurate insights on what’s trending and what consumers are buying. On the other hand, retailers can issue promotional pricing to clear stock, which is out of the brand’s control and could compromise how its viewed by consumers.

GlobalData associate apparel analyst Darcey Jupp, adds: “With supply chain issues continuing to put a strain on global brands, it is not surprising that more are choosing to withdraw wholesale, as protecting margins becomes essential with rising costs.”

Consumers may see an increase in price due to this shift, but they’re more likely to get a better shopping experience as it is centred entirely around the consumer. Plus, they will have access to a greater number of exclusive launches.

It’s not great news for wholesalers, but there are opportunities to be had such as the ability to launch own-brand and private label products at a more competitive price point.

Jupp points out: “Retail partners will understandably be upset with losing lines from the biggest sportswear brands, but they must take advantage of this opportunity to redefine their product offer and consider working alongside smaller sports brands with significant growth potential and high-levels of consumer interest.”

Foot Locker says it is using the opportunity to accelerate its own brand and category diversification efforts. In May the company entered a strategic partnership with German sporting goods giant Adidas aimed at targeting US$2bn in retail sales by 2025.

The accelerated shift to DTC does not mark the end of wholesale. It will remain an important channel, just not the most important one, and will still form an important element of a brand’s business strategy.

Jupp warns brands looking to explore a DTC strategy need to be careful how they execute it. She notes that while Adidas has started on a similar path “it should be cautious that the move does not prove detrimental for its brand sales, as it continues to underperform versus its key rivals”.