DTC brands intensifying focus on the customer

As the cost to acquire customers via digital means continues to increase, many direct-to-consumer brands are evolving their strategies to include brick-and-mortar locations // By Shelby Hautala

As the costs associated with the acquisition of customers in the digital world continue to rise, direct to consumer brands are increasingly moving towards the opening of physical locations or the expansion of wholesale options in order to continue growing. It’s a trend that Liza Amlani, Principal and Founder of Retail Strategy Group, says is set to ramp up over the course of the next 12 months or so, adding that it’s one being driven in large part by an intensified focus on the customer.

“It costs a lot more to acquire a customer solely through digital channels,” she asserts. “But if you open either a wholesale or physical retail store, then those costs of engagement and acquisition decrease. What we have also learned is that brickand-mortar, physical retail stores, is what consumers are gravitating towards even though they may be digital first. We are seeing a rise in physical store sales, which is another reason direct-to-consumer brands are venturing into physical retail stores.”

Amlani says that marketers have been talking about the transition and costs related to customer acquisition for the last few years in an effort to combat the oft prohibitive cost of digital marketing. And, she adds, only recently have many within the industry started to recognize the additional benefits that physical retail locations present.

“There is a higher rate of product return when operating a digital store versus physical retail locations, particularly for fashion and apparel brands,” she says. “When consumers purchase through digital channels, they often buy multiple sizes of the same item or outfit and then return the sizes that don’t fit, significantly impacting the rate of return and the cost to the retailer or brand. The same problem doesn’t exist within the physical retail environment, costing less to service the customer with the opportunity to engage with them directly.”

Challenges DTC brands face

Amlani says one challenge for direct-to-consumer brands is the fact that it’s hard to open their own physical retail store if they do not have the fundamentals in place, investing in talent to help them properly and efficiently serve the customer and provide them with a memorable experience. In addition, opening a physical retail location costs owners a lot more money up front, preventing some from taking the leap.

“The upfront costs associated with opening a physical retail location will lead many digitally-native brands to approach multi-brand retailers to help carry and distribute their assortment. If they venture into the world of wholesale, they are able to expand their physical presence through the development of strategic partnerships.”

Ensuring the right location

In addition, Amlani says that if a brand is looking to open up their own physical retail store, they’ve got to ensure that they secure the right location, considering new operational elements such as monthly rent, lease agreements, and the hiring of brand ambassadors. And, if the brand is looking at expanding within wholesale, they’ll need to find the right partnership that will benefit their organization and customer.

“It’s really important that if a digital brand is looking to open up a physical store, they need to really have a good handle on attracting the right brand ambassadors to the store and understand the location that will work best,” she says. “If they are looking to partner with a multi-brand retailer, they need to have a deep understanding of where its products will be positioned in the physical store in order to maximize the potential exposure that it will receive.”

The future for DTC retailers

As a significant number of direct-to-consumer brands continue with a ‘wait and see’ approach to the future of their businesses, Amlani says that some are beginning to leverage partner online marketplaces as a testing ground for their brands and the products they offer.

“Before bringing a product into a physical store, some brands are testing their products first,” she says. “The Bay has a marketplace and so, too, does Walmart and Nordstrom. So. we’ll start to see more and more brands introducing products into these marketplaces in order to gauge the reaction of the consumer. And, we may even see more pop-up locations as well as another means by which consumer sentiment toward the brand can be evaluated without the need to open a permanent physical location.”

In the end. Amlani says that direct-to-consumer brands that were digital first hold an advantage over traditional retail stores in that they already possess e-commerce experience and an understanding of the digital experience that their customers desire. And, as the industry continues to advance into a post-pandemic environment, their development and enhancement of in-store retail service will only serve to elevate the shopping journey, creating a more seamless and integrated experience between channels.