Retail today has become extraordinarily competitive with consumers forcing major shifts in retailer and brand strategies. In a constantly connected e-commerce world, shoppers not only want convenience and speed, but also the availability to browse a wide range of products at different price points.
It’s this new paradigm that has given rise to increased retailer and direct-to-consumer (DTC) brand relationships. However, DTC success isn’t something that can be simply achieved overnight. Each partner must take steps to ensure seamlessness for the consumer, while maintaining a high degree of SKU-level inventory visibility. With unique benefits for retailers and DTC vendors, this phenomenon requires a standardized and automated approach that eliminates errors associated with manual processes and supports the frictionless experience consumers expect.
Benefits for Retailers and Vendors
In an effort to stay relevant in the eyes of increasingly digital savvy consumers retailers see DTC partnerships as an opportunity to increase assortment, have a steady stream of new product offerings, and increase website traffic. Nordstrom, for example, recently revealed DTC brands now make up 40 percent of overall revenue at Nordstrom's full-price stores. With decreasing mall traffic and a higher demand for off-price products, the retailer has been motivated to stock DTC labels to make their product offering more aspirational and unique. Retailers also benefit from partnering with DTC brands because there’s an opportunity to save costs in handling and storing products by eliminating ownership of the inventory.
DTC vendors also benefit from leveraging the retailer’s built-in infrastructure for increased revenue and more widespread exposure. DTC companies, like Casper, have disrupted well-established market footholds, drawing attention from retailers like Target, who now carry Casper mattresses as part of their Brand Shops. This DTC brand now offers a more well-rounded showroom experience for consumers by meeting them in the stores where they already shop, while also benefiting from the brand equity and trust associated with a well-known retailer.
From either perspective, the focus must remain on the consumer. Recent research from the Interactive Advertising Bureau (IAB) indicated that DTC companies excel when they have agile supply chains flexible enough to evolve along with the consumer. IAB cites DTC success stories, like Warby Parker’s, the eyeglass DTC retailer, as the “enduring shift in the way the consumer economy operates.” Their CEO, Neil Blumenthal commented to CNBC in early 2018 that pitting online versus offline is false, and that "It really is the intersection of the two. ... And we are trying to approach retail expansion in a very deliberate manner, where we are testing and learning."
Elements of a Successful DTC Collaboration
Going from purely DTC to taking on a retailer partner is sure to add a new level of supply chain complexity. DTC brands that sold online first and are now looking to partner with retailers need to plan for improved scale and better flexibility to support an omni-channel model. Some brand owners often struggle to manage DTC-allocated inventories for multiple retailers. With the use of GS1 Standards for greater automation, collaborative business practices are more important than ever to achieve success.
Leveraging a standards-based framework allows for easy data sharing, compared with the use of proprietary data systems that cause breakdowns in supply chain communication, data silos, and order errors. Successful trading partner collaborations rely on a global system of unique product identification. The Global Trade Item Number (GTIN) is a key identifier used for physical products and is the same identifier brands and retailers use to sell products online. It forms an important bridge between online listings and physical products. It also helps optimize a product’s ability to be surfaced in search engine results when consumers are shopping online. Many major retailers require vendors to have items set up with proper GTINs for each product type, size, and other variations.
GTINs are increasingly necessary online and have always been encoded into UPC barcodes for inventory management and point-of-sale checkout processes. Retailers like Target, Macy’s, and Nordstrom have been increasingly successful with Electronic Product Code (EPC®)-enabled item level Radio Frequency Identification (RFID) deployments. Using RFID to carry serialized GTINs, RFID helps brands and retailers maintain a high degree of SKU-level inventory visibility to know exactly what’s in stock.
For example, instead of a brand’s system simply recording 100 large sweaters in stock, serialization through RFID allows for specificity—they can be confident that they have 100 large sweaters in red, pink, and purple on hand for a Valentine’s Day promotion. It’s this visibility that can help DTC brands know exactly what they need to allocate to different retailer partners. In a DTC-retailer relationship, the DTC brand takes on the role of inventory manager, and fulfilling orders for five different retailers, while also still fulfilling direct orders, can be difficult. RFID brings more accuracy and efficiency with real-time intelligence.
Ultimately, the blurring of online and physical retail experiences is here, and DTC partnerships hold a tremendous amount of potential to meet changing consumer needs. Manufacturers need to be aware of these rapidly evolving sales models, and take steps now to be prepared for a more agile and consumer-driven supply chain.
Michelle Covey is Vice President of Retail Apparel and General Merchandise at GS1 US.