Can Retailers Hold Their Own In The Battle Of DTC Vs. Private Label?
Direct-to-consumer (DTC) brands such as Dollar Shave Club, Casper and Glossier have taken retail by storm in recent years — in fact, $3 billion in venture funding has gone to DTC brands since 2012, according to CB Insights. More than $1 billion of that total was invested in 2018, indicating plenty of investor confidence that DTC brands can grow at a rapid pace, despite fervent competition.
No doubt noticing that these brands generate both sales and a direct relationship with the consumer, major retailers — including Amazon, Target, Walmart and Kroger — have ramped up their private label offerings.
The RTP editorial team shares their thoughts on the rise of DTC brands and gives advice to retailers on how they can compete effectively in this changing landscape.
Adam Blair, Editor: One of the biggest reasons brands are ramping up their DTC operations (beyond the obvious one of selling more stuff) is the tremendous opportunity to gather first-party data about customers — not just who they are but what kinds of marketing they respond to, as well as what they like (and don’t like) about the brand’s products. So if it’s as much an information battle as a sales competition, retailers need to fight data with data. James Thomson, an ex-Amazon executive now with BuyBox Partners, gave advice to brands in an article that focused on Amazon’s private label strengths: “These brands need to gather more customer data, especially around price sensitivity (how much more likely to buy at various price points) and customer preferences (what current product gaps are pervasive in negative customer feedback).” Thomson added that brands also need to be able to launch sub-brands much faster — in six to nine months versus the usual two to three years that CPG firms have traditionally taken.
Alicia Esposito, Senior Content Strategist: My husband and I do a fair amount of business with DTC brands. He’s obsessed with Harry’s razors and I’m a huge fan of Glossier’s skincare and cosmetics products. Up front, product quality is critical. These companies invest heavily in not only developing a targeted line of products that align with their target customers; they also invest in creating quality products that add something new to the market. Whether through iteration or innovation, these brands prioritize their customers and up-leveling their respective categories. Conversely, I’m seeing many retailers’ private label brands focus on price differentiation alone, which isn’t sustainable for the long term. Finally, and perhaps most importantly, these brands go all-in on customer experience and marketing. Dollar Shave Club creates stellar content for its online properties — and their commercials typically garner a lot of word of mouth. Casper, meanwhile, really set itself apart with its pop-ups, in-store experiences. Not to mention, Casper’s social media strategy is top-notch; they’re cheeky, timely and interesting, and they find ways to add value to consumers’ lives by helping them get better sleep. All in all, DTC brands are investing in all the right things when it comes to achieving customer relevance; it’s time that retailers hop on the bandwagon, or they might get left in the dust.
Glenn Taylor, Senior Editor: Any time I hear DTC or private label discussed in any format, it always seems to come with the talk of margins soon after. Dollar General recently launched its own DG Fresh program, designed to bring distribution of perishable goods in-house and, in turn, offer a wider selection of private brands and reduce the costs of working with other distributors. In the end, higher margins matter to everyone, so it’s not much of a shock that in today’s hyper-competitive environment — where any new brand can set up shop online and gain visibility — that more retailers feel they might as well do the same. An eMarketer article made a compelling argument that one of the biggest contributors to the downfall of Payless was the company’s inability to differentiate its products and build a brand customers cared about until it was too late. The “Palessi” stunt both generated media attention and posed an alternative to the retailer’s usual business strategy by “offering” stylish shoes at affordable prices, in the way that companies like Allbirds or M.Gemi would. Private label isn’t going to solve every problem for struggling retailers, but the basics of offering a product that truly matters to the consumer are a universal necessity among retailers.