Author: 26 Oct 2022minutes read
In 2024, direct-to-consumer (DTC) sales in the US are projected to hit $212.9 billion.
It seems like it was only yesterday when the first DTC brand stores began appearing across the web. In 2016, the DTC market was worth a mere $36.08 billion, but now the movement is entering the teenage years, an age of strong feelings and myriad transformations. And, there are plenty of great — and scary — changes shaping this ecommerce market segment. But are they what they seem?
Let’s have a look at the latest trends and learn what some industry-leading experts have to say, so you can decide whether these trends are temporary blemishes you can ignore or they can help transform your business.
Many DTC startups entered the market as disruptors to offer shoppers a better product — and a better online shopping experience — than traditional retailers. But these days, with less foot traffic in brick-and-mortar stores, established brands are starting to emulate the tech-savvy digital disruptors, so competition in the DTC space is intensifying.
eMarketer experts found that ecommerce sales of established brands have outpaced sales of digital native brands by nearly 4% since 2021, and they expect this trend to continue.
While traditional brands often have access to more resources, scalable operations, and larger audiences, DTC merchants don’t have any intermediaries between themselves and their customers. They can engage and inspire shoppers directly, offering shoppers a unique experience that they are less likely to find in other online stores.
“Brands have a real opportunity to inspire customers through their brand sites,” says Shalina Ganatra, head of ecommerce consultancy at Wunderman Thompson Commerce. “In a world where consumers have more choice than ever about where and how they shop, creating an engaging experience through their DTC channel is something we are hearing more about from the brands we work with.”
U.S. shoppers are diverse and have high expectations for products and experiences tailored to their unique desires. And, they want instant gratification – or at least in 1-2 days. Researchers at McKinsey discovered that 71% of consumers expect companies to deliver personalized interactions, and 76% are frustrated when this doesn’t happen. Yet, only 15% of retailers say they have fully implemented personalization.
Personalization doesn’t have to be complicated. Whether it’s customized navigation on your ecommerce site for customer segments, regular check-ins and follow-ups asking customers for feedback, machine-learned recommendations for new products, or targeted social commerce, these types of engagements are meant to improve the way shoppers experience your brand, and can benefit your bottomline.
“Personalization is especially effective at driving repeat engagement and loyalty over time,” write authors of the McKinsey Next in Personalization report. “Recurring interactions create more data from which brands can design ever-more relevant experiences — creating a flywheel effect that generates strong, long-term customer lifetime value and loyalty.”
Recommerce, defined as reselling of previously owned (new and used) products, is on the rise. For instance, secondhand clothing is expected to grow 16 times faster than the broader clothing retail market and reach $82 billion by 2026. Consumers are embracing recommerce, be it peer-to-peer or brand-to-consumer, because it’s viewed as an environmentally-conscious and a more budget-friendly choice.
Taking cues from shoppers who look for outlets to reuse and resell, ecommerce businesses can join the new trend. From well-known brands and startups alike, some brands are already reaping rewards from the recommerce movement. It can offer another way to tap into the growing cadre of socially-consciousness shoppers while building relationships with new and existing customers – and potentially fuel growth.
“If [DTC] companies can own the recommerce interaction with empowered customers, they can keep their brand at the forefront,” according to research from Deloitte. “This retail trend also aligns with how consumers increasingly prefer to shop. Among the variety of sustainable methods of shopping — including brand-owned recommerce, rentals, subscription boxes, and peer-to-peer marketplaces — 65% of consumers across all generations prefer brand-or retailer-operated recommerce.”
Buy Now, Pay Later (BNPL) lets shoppers make purchases when they want, while paying for them in a time frame that suits them best. Although this isn’t a new trend, it’s becoming a payment method of choice for many: About 60% of consumers say they are likely to use BNPL over the next 6-12 months.
With so much interest and little oversight, government agencies are beginning to take notice, and this could lead to more rules and regulations — and a potentially cumbersome process for merchants who want to offer it.
Some experts describe BNPL as “a merchant-subsidized credit at point of sale”, but merchants don’t have to finance them on their own. For instance, Amazon Pay includes BNPL as a checkout option (in select markets), and there are many other options. According to McKinsey research, merchants see value in this solution, as they can improve cart conversion rates, increase average order value, and attract new, younger shoppers.
According to Fred Lebhart, Founder & CEO of Efelle Creative, BNPL can be both a benefit and a challenge for online brands. He noted, “We’re recommending BNPL for many of our clients, especially those sellers offering higher-priced items. It’s a way to expand the options for different types of online shoppers, but options can be a double edge sword. What we’re seeing is a NASCAR checkout approach, where shoppers see multiple branded ways to complete a purchase. We council our clients to dig into the data to see which purchasing options shoppers on their site use most frequently, and streamline the options where feasible.”
According to Kendrick Sands, head of consumer finance research at Euromonitor International, “Despite regulatory uncertainties, increased competition or rising interest rates, BNPL won’t disappear anytime soon. This payment solution is beneficial to consumers and merchants and has unlocked potential spending that wasn’t available before.”
Consumers no longer shop in one place or in a linear fashion — they embrace a whole range of channels. The notion of omni-channel shopping is reshaping ecommerce and forcing brands to rethink their customer engagement strategy across devices, time and channels. For example, 77% of millennials and Gen Z shop on social media platforms, and half of them research brands there as well. This means, ecommerce businesses need to consider establishing a presence everywhere their customers are – not just where they think they might be. It’s no longer a ‘build it and they’ll come’ ecommerce world.
To succeed, it seems, merchants need to offer a consistent, engaging, and personalized experience for shoppers, wherever they are. Perhaps that’s one of the reasons why two-thirds of retail leaders surveyed by McKinsey noted this trend as the most significant and the most challenging.
“To stay relevant, sellers have to embrace connected commerce and meet their shoppers where they spend their time; consumers want to easily and securely shop on any channel, including social media, marketplaces, mobile apps, and brand websites — whatever channel is convenient for them at the moment," Nicki Rogers, head of sales at Amazon Pay, writes in a report for Internet Retailing. “Take mobile, for instance, where cart abandonment is at 86%. Amazon Pay provides the option of a guest checkout out of the box and eliminates the need to type any redundant information on a small screen. In other words, it’s a streamlined mobile checkout.”
Doug Montgomery, Agency Director at Efelle Creative, added, “Investing in an omni-channel sales strategy is essential to converting customers at the right moment on the right channel or device. It’s more than just tapping into shopper behaviors though. One of the biggest challenges for today’s ecommerce businesses is inventory management across multiple channels. With the right tools and integration strategies, the everywhere at once approach can actually simplify operations for SMBs.”
Consumers tend to like a one-stop shop for everything, and that’s why they often start their purchasing journey on shopping sites like Amazon.com. In fact, 64% of more than 30,000 global consumers surveyed told Wunderman Thompson researchers that they’re excited about being able to order all of their goods through a single retailer. This means, ecommerce businesses need to consider how they can meet those customers in the right marketplace at the right time.
Caitlin Strandberg, a partner at venture firm Lerer Hippeau, told Fortune.com: “You can build brand awareness across the web, but if you’re going to be where people buy — people are buying more and more on Amazon — you can expect they’ll search your brand name on Amazon, and you want to be on that search page.”
Remember the omni-channel trend? You have to be where your existing and prospective customers are. Thriving online brands find ways to deliver known and trusted online shopping experiences that are personalized, relevant and timely.
As your ecommerce business grows through the teenage years, one transformative offering that can help you reach millions of shoppers is Buy with Prime. Whether you sell on Amazon.com, multiple marketplaces, or are just standing up your DTC site, you now have a solution to attract and engage Prime members with a shopping experience they know and love.
Learn more about Buy with Prime.