Abercrombie & Fitch is counting on direct-to-consumer (DTC) sales to counter the retail apocalypse, Columbus Business First reports. Despite closing 400 stores over the last few years and the prospect of 60 percent of its U.S. leases expiring over the next two years, the fashion brand saw a 4 percent increase in sales, largely thanks to direct-to-consumer sales.
DTC sales made up 28 percent of Abercrombie’s receipts in 2017, and the company now runs 20 sites and apps in 11 different languages. The company anticipates that online sales combined with a strategic downsizing and redesign of its brick-and-mortar operations will grow the company’s sales from $3.49 billion a year to $5 billion.
Abercrombie & Fitch isn’t the only major retailer redesigning its sales strategy around a direct-to-consumer model. For instance, consumer designer brands Milly, Comme de Garcons and Theory have developed in-house offshoots of their main lines for exclusive distribution through their brands’ direct online and in-store channels. Retailers are prioritizing direct-to-consumer sales because of DTC’s proven advantages over traditional sales models. Here’s a look at some of the reasons the retail industry is shifting to direct-to-consumer sales.
Appealing to Online Shoppers
One reason direct-to-consumer sales is a winning formula for retailers is because an increasing number of online shoppers prefer to make their purchases directly from brands rather than third-party retailers. Over eight in 10 consumers expect to be able to buy directly from brands when shopping online, and nearly nine in ten would prefer to make direct purchases, a BrandShop Digital Consumer Preferences survey says.
For consumers, buying directly offers the assurance of product authenticity and the confidence that purchases are backed by a brand’s customer service, reducing anxiety over risks such as shipping, exchange and refund issues. For retailers, catering to this consumer preference provides the opportunity to build relationships directly with customers, promoting consumer loyalty and repeat marketing and sales opportunities.
Streamlining Inventory Management
Another advantage for brands turning to a direct-to-consumer model is the ability to simplify inventory management. Brands that sell directly to consumers can scale their inventory to actual sales volume, explains Sufi Khan Salaiman, vice president of e-commerce at surveillance systems provider Lorex Technology.
Lorex originally moved into DTC e-commerce sales in order to unload excess inventory that had built up through returns, Salaiman says. As Lorex’s e-commerce sales began to blossom, the company realized that an online direct-to-consumer model could help reduce overstock problems by keeping inventory scaled to demand.
Increasing Profit Margins
Lorex’s e-commerce move brought in 50 percent profit margins on its first million sales and set the company on a path to earn nine digits this year, illustrating another motive for adopting direct-to-consumer sales model. DTC sales offer brands higher profit margins than traditional sales models.
One way direct-to-consumer sales boosts profit margins is by lowering expenses. By selling more products directly to consumers and less through wholesale and retail channels, companies can reduce the expenses of paying third parties. Additionally, this gives companies the opportunity to develop their own distribution channels and customer relationships, laying a foundation for repeat business that increases revenue. The profitability of the direct-to-consumer strategy is illustrated by the success the technology industry has enjoyed in DTC sales. Online consumer technology sales increased 19 percent in the first three quarters of 2017, propelled by a 34 percent increase in direct-to-consumer sales, according to a report by the NPD Group.
Increased customer satisfaction, more efficient inventory management, and higher profit margins are three reasons the direct-to-consumer model is attracting retailers. As more companies see the benefits of direct-to-consumer sales, the DTC model will increasingly reshape the retail industry, promoting customer loyalty, smoother operations and greater sales success.