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Mixing Models: How DTC Brands Are Interacting With Traditional Retailers

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Amid store closings and increased advertising for digitally native players, retailers face an increasingly volatile operating environment, with many emerging threats to business. According to Euromonitor’s 2020 Apparel and Footwear research, internet retailing is the fastest-growing distribution channel for fashion with a CAGR of 17% from 2014-2019. However, this doesn’t mean the end of brick and mortar retail; but indicates a much-needed shift in the traditional retail model.

Digitally native players are still establishing physical locations and using those spaces in creative ways. Traditional brick and mortar retail and the established players across traditional channels have something to offer digitally native or direct to consumer (DTC) players and vice versa. Euromonitor estimates that by 2023, only 17% of retail sales globally will take place online.

Direct to consumer brands’ strategies for physical stores are very different from that of the brands they are disrupting. Rather than acting as an avenue to drive sales, these stores function as a way to offer distinct experiences to consumers as well as allowing them to interact with the brand and their products. Finally, they function as a form of advertisement with Instagram-friendly interiors.

Many brands have established branded physical stores while others look for a partnership with established retailers. Traditional brick and mortar retailers remain aware of the “cool factor” and innovation from DTC players. Rather than trying to emulate the success of the other they are partnering to win. These are the three main forms these partnerships take.

DTC storefronts inside established retailers

One-way DTC brands bring their products to physical retail, is through short term and long-term store-in-store experiences, that embrace the traditional retail model.

ThredUp and Macy’s partnership follows a similar model. A section of the department store’s floor is devoted not to a fragrance or fashion brand – but rather to a re-commerce site in ThredUp, a growing online resale store. This partnership is mutually beneficial – a shopper on a mission to test ThredUp’s wares will have to hunt through the department store to find them – driving foot traffic in the department store.

Birchbox has recently expanded its partnership with Walgreens.  The customer experience is inspired by Birchbox’s variety of beauty and personal care subscription – by allowing consumers to pick from a selection of beauty samples. The model departs from the ecommerce version – where the experience is more discovery-oriented.

Traditional brands and retailers try direct channels on for size

Most traditional brands, at some level, have their own ecommerce sites, creating partnerships, not due to a shift in product, but a shift in model. Due to the unique models of many DTC companies, there are more frequent interactions with traditional players.

Online rental company Rent the Runway stocks Ralph Lauren and luxury reseller The RealReal offers Dior and Prada on consignment. In addition to offering apparel rentals, Rent the Runway offers some soft home goods (pillows, blankets, etc.) from West Elm. In selected cities, furniture rental company Fernish offers Crate & Barrel furniture for long term rentals. Brands like Crate & Barrel might envision rental models to capture a new generation of consumers – who’s not yet ready to buy and but can still become familiar with their products.

DTC products join the roster

The third type of partnership is also seeing success, with traditional retailers stocking products from digitally native vertical brands.

In the US, Quip, an oral care DTC player, has partnered with Target to distribute their toothbrushes. The push to bring clients online and engage directly with Quip comes through their replacement brush heads which are sold exclusively online through a subscription model.

Ulta has made a push to stock an increasing number of “indie” beauty brands. Beginning with powerhouse partners like Kylie Cosmetics, Ulta has been bringing digitally native brands to the store. They recently launched SPARKED – a program to highlight emerging beauty brands and bring consumers curious about brands sparking discussion online in stores. The Ulta SPARKED website features an online brand exploration experience and the brands' products are stocked in stores.

Rent the Runway’s partnership with Nordstrom involves allowing drop-offs of rental returns at many Nordstrom locations but also means Nordstrom now contributes clothing to Rent the Runway’s inventory. As well as contributing foot traffic to Nordstrom stores, Rent the Runway members are entitled to Nordstrom’s gift wrapping & styling services. The intertwining of services provides value and to the consumer while making the partnership mutually beneficial.

Understanding the pros and cons of each channel is important to ensure partnering with the correct players. Just as it is important for traditional retailers to acknowledge the role that DTC companies have in speaking to a specific consumer and meeting them at a pain point; it is imperative that DTC players learn from traditional retailers. The process of forming mutually beneficial partnerships depends on a strong understanding of the competitive landscape and actual consumers. These insights are also imperative for product manufacturers to ensure they are selling in the right channels.

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