Nike built up a huge direct-to-consumer business, newer brands doing it, too
This is the time of year when retail trends emerge and gain momentum or flop.
Here’s one to think about. Look at your holiday gift receipts. Did you shop directly from brands? Did you make purchases directly from New Balance, Apple or Lego?
Nike said in November it didn’t need Amazon and pulled its products from the online behemoth. So did Ikea.
“Consumers are interacting more with brands, and brands are able to connect directly with consumers without the retailer in the middle,” said Joel Bines, global co-head of retail at consulting firm AlixPartners.
While it’s been happening for years with traditional brands of Nike, Louis Vuitton and Gucci, there’s a relatively new sphere of direct-to-consumer brands, backed by venture capital funds, that are gaining market share, Bines said.
Brands used Black Friday to push direct traffic and sales. Heading into the holiday season, 78% of direct-to-consumer brands said they were increasing their advertising budgets versus 60% of traditional retailers, according to CommerceNext.
Tommy John had a percent-off coupon on RetailMeNot. So did Bombas, Rothy’s and Untuckit.
For now, these new direct-to-consumer brands are flush with funds from venture capitalists and don’t have to post profits.
“Casper sucked a lot of market share out of the mattress business and now it’s into pillows, blankets and bedding,” Bines said. “Allbirds, Everlane, they’re becoming brands that started out as venture capital-based brands that people never heard of.”
Take socks and underwear, a department store mainstay and, for decades, a way that moms have padded the volume of gifts under the tree.
Until the last few years, everyone bought their underwear at the local department store, said Rod Sides, vice chairman at Deloitte and its U.S. retail and distribution leader, but now there are specialty brands that didn’t exist five years ago touting their designs on TV and radio advertisements.
Bombas and more recently Kane 11 have flooded the airwaves with commercials.
Kane 11 is the brand this holiday season that informed us that men’s socks come in 11 individual sizes.
Tommy John underwear, now also for women, touts its briefs stretch in 16 directions.
“I didn’t realize there was a problem with men’s underwear. These brands are siphoning off sales,” Sides said. “I didn’t used to think much about my purchase of a three-pack of socks.”
All the new entrants are trying to attract customers, too, Bines said. “Every dollar I spend at Everlane, I’m not spending at Macy’s.”
It’s a new challenge for traditional retailers that’s not coming from Amazon, said Al Sambar, Accenture retail managing director.
Basically, the consumer is king, Sambar said. “Brands are fighting to form a relationship with you. They want to form partnerships to help me achieve my fitness goals, beauty needs, my ability to feed my family better.”
Fifteen years ago, starting a brand was a bigger, more costly proposition, Sides said. “You needed a fair amount of capital to open a store. Now you can start a brand with a credit card. There are no barriers.”
These companies are following a couple of strategies. Many brands are launched with tons of marketing and end up selling, maybe to a competitor, he said.
Others are making the transition into becoming a retailer with stores.
“I think as long as the economy stays where it’s at today we’ll see more and more of them,” Sides said.