Direct-To-Consumer is Dying. It's Time for a New Paradigm

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Key Points:

  • Brands will need to mix creativity across Web3, social media, online retail, and in-store experiences to reach a wider audience base.
  • The future of direct-to-consumer shopping will be a more resilient version known as connect-to-consumer.
  • Retailers who are focused on creating genuine connections with their customers across each of these channels will succeed in 2023.

Brands like meal replacement firm Huel and men’s grooming company Harry’s have amassed multimillion-dollar retail success in the last decade by cutting out the middleman and selling straight to customers online using social media and digital-first advertising. The companies in question all served as prototypical examples of the emerging direct-to-consumer retail model (DTC). This tendency was already well underway when the worldwide pandemic hit, but many brick-and-mortar shops were forced to shut down and shift their focus to online sales to survive.

In contrast, the sales of outdoor pizza oven manufacturer Ooni skyrocketed during the lockdown, increasing from £13.7 million (USD$16.7 million) in 2019 to £52.7 million (USD$63.6 million) in 2020, demonstrating the effectiveness of certain organizations in weathering the storm. Consumers have also adapted well to this growing trend, and by 2021, it is expected that 60% of customers will have made at least one purchase from a direct-to-consumer company.

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Why is DTC a Dying Trend?

The market is once again witnessing rapid change as the epidemic gradually winds down. Direct-to-consumer (DTC) sales for Nike, an older, more established brand, increased by 30% to $16.5 billion in 2021. However, in 2022, many of the publicly-traded DTC businesses, like Warby Parker and Allbirds, had their stock prices fall by as much as 64%. Reasons for this poor showing may be found in the workings of the economy. Retailers are feeling the effects of the rebalancing of the economy in the form of increasing prices and strained supply chains.

As the pandemic recedes and the market shifts, established brands are also embracing DTC strategies. However, the stocks of some publicly-listed DTC brands have dropped in recent years due to economic factors such as rising inflation and supply chain pressures. Additionally, new transparency features from tech companies have made it more difficult and expensive for DTC brands to acquire new customers through social media advertising.

McKinsey found that price hikes are the top concern for around two-thirds of UK consumers, with over 70% reporting that they had altered their buying patterns as a result. However, the recent decline of DTC brands is not only attributable to this phenomenon. Brands have a more difficult time acquiring new consumers via paid social media advertising after 2021 when Apple launched a new transparency feature that enabled users to opt out of app monitoring.

These market factors will cause DTC retail to transform into a new, more robust retail model in 2023, which is known as connect-to-consumer (C2C/CTC). From social media and Web3 to online and traditional retail, this new strategy is all about maximizing exposure to consumers. Brands that are looking to embrace it will need to be creative with how they use these four channels to spread their message and build their fan base.

CTC Helps You Build Strong Buyer Relationships

Gymshark, a fitness gear company, created a pop-up barbershop in July staffed by barbers educated in mental health to get guys talking about their issues as they got haircuts. As an alternative, War Paint, a make-up product aimed squarely at men, is transforming boarded-up locations into virtual storefronts. The CTC concept is also being heavily tested in the wild on several social media sites.

In the first three months of 2022, social media orders increased fourfold, as reported by Shopify. YouTube is included in this potential market. For instance, British YouTuber Gabriella, who has almost 900,000 subscribers, uses her channel to sell stationery. The Unofficial Manchester United fan channel United Stand, which has 1.4 million subscribers, also uses YouTube and Shopify to sell products to its members.

The third generation of the World Wide Web is also facilitating novel means of interaction between brands and their target audiences. Perhaps you have a token or NFT in your digital wallet that grants you access to a special promotion online or a VIP treatment when shopping locally. Starbucks is among the first major companies to implement this trend by providing its customers with special benefits via a Web3-based rewards program.

Connecting with Customers in 2023

In 2023, the most successful merchants will be those who prioritize creating genuine relationships with their target audience across all of these platforms. By eliminating their dependence on any one distribution approach, firms like these will continue to prosper. Today, you can run a business anywhere and reach hundreds of customers in a physical location or billions of them online using platforms like YouTube, TikTok, and Web3.

In response to these market forces, DTC retail is evolving into a new approach called connect-to-consumer (CTC), which involves reaching customers through multiple channels simultaneously, including social media, online platforms, and brick-and-mortar stores.

Brands will need to be creative in how they connect with customers and build communities on different platforms. Examples of this include pop-up shops, social media features, and Web3 technology. In 2023, the retailers who will succeed will be those who focus on building authentic connections with customers through all these avenues, becoming channel-agnostic and operating a store everywhere.