How Large Retail Groups Can Capitalize on the Growth of Direct-to-Consumer
Given a turbo boost by the pandemic, retail’s digital transformation genie is well and truly out of the bottle. More and more brands are awakening to the opportunities (and risks) of selling direct to consumer.
Retail is changing fast
Everyone with a high street knows a paradigm shift has already occurred in retail. Manufacturers used to produce goods that got to consumers via intermediaries, shipping tens of pallets to a trusted network of these few selected resellers. It was design, make, sell (DMS) and it worked. But it’s no longer the case.
Digital native retailers like ASOS and Etsy, and now some large retail groups, are running direct to consumer (DTC) models. Take the merchandizing arm of one leading entertainment company, for example. We just helped it re-invent its global logistics fulfilment systems from scratch. They have digitized and standardized everything from robotic order picking to label printing systems within their global network of 42 warehouse distribution centers.
One of the largest grocery companies in the US just replaced warehouse cherry pickers with drones for stock checks at height. These drones are capable of quickly and safely validating whether, for example, there are 10 pallets of product stuck 50 feet in the air. We test all aspects of the drones to keep them working reliably because, in consumer-packaged goods, margins are small, so any efficiency or cost optimization has significant benefit.
We also help businesses like these use sophisticated CRM and ERP systems to seamlessly create and fulfil many smaller orders characterized by one box to 1000s of individual customers. It’s sell…and then make.
Large retail groups can’t afford to miss the boat
However, historically larger retailers have been slow to embrace the model and, as a result, still have a relatively low market share of DTC. The pandemic also compressed 10 years’ DTC growth into three months and put large retailers behind the curve. Their old DMS model relies on mass sale events like Black Friday and end of Spring/Summer to get rid of stock nobody bought. The DTC model cuts out middle companies, so there are immediate and significant advantages and large retail groups can’t afford to miss the boat.
With unprecedented and empowering scalability driven by time-to-market efficiency, smaller, more agile retailers have punched well above their weight. That’s because the DTC model is much more efficient and much more profitable, negating the requirement to house and carry large volumes of stock. DTC also enables retailers to collect, manage and gain insight from their data, from which they can adapt personalized propositions and loyalty schemes based on attributes like returning or new customer etc.
‘The DTC model is much more efficient and much more profitable, negating the requirement to house and carry large volumes of stock.’
Hyper focus on the individual
Where before retail marketing tended to target groups with shared interests from hiking to hip hop; there’s a new hyper focus on the individual. Some brands that were not doing so before, or just dipping a toe, are now interacting with their customers in deeply personal ways. Online (and increasingly even in-store via IoT devices) customers prefer to have some personalization to their retail experience. The beauty of the DTC model is you can target dynamic customer trends, adapt your tech stack and evolve your customer apps to meet individual demands.
Avoid the pitfalls of DTC
Clearly, the pressure for tailor-made products will only intensify. That’s not to misrepresent the current status quo as an ‘us and them’ scenario. ASOS is not eating the lunch of large retailers but helping maximize exposure to the market. What they have done is proven that more aggressive attacker brands could leverage data to exploit niche pockets of demand and that the more DTC the proposition, the more profitable it is.
DTC also initiates more business processes that companies have not attempted before. Customer-facing apps and integrations, for example, massively increases data footprint, and data exhaust to- and from the cloud. New data feedback loops are required in the supply chain. Some may for the first time have customer interaction online – direct communication channels technology that was not used or maintained before.
There are complexities in shipping technologies and myriad systems with customer data including sensitive personal data and payment details that create huge cybersecurity liabilities. At the back end, logistics companies become the face of your business. That means third parties involved all the way through but it’s the brand’s problem if something goes wrong and systems must talk to one another, because how they respond to, avert and resolve issues impacts customer satisfaction. Any breach, any fault or system downtime and your brand is exposed.
This said, DTC does not yet mean full abandonment of the DMS model. In the race for wallet share, retail runners and riders need to aim for omnipresence of brand. They will, for now, still have stores, still have resellers but they will also need to fortify their DTC offering to ensure it’s strong and getting stronger.
The critical importance of testing DTC technologies
There are unpredictable costs and potential balance sheet implications that categorize DTC as far more than an IT project but actually a business-critical issue. To capitalize on DTC’s great promise and risks identified above, retailers need the right balance between quality and speed.
A market moving so quickly, with tech that needs updating so regularly, necessitates rigorous testing of at least:
- Precision testing rollouts manages the risk of quick deployments without cutting corners. Flexibility to adapt and changes with every deployment is key because of the speed of change of both retail tech and retail markets.
- Customer apps
- Managing the quality of the app running and changing at speed.
- Order fulfillment systems
- Does ordering and fulfilment work across integrated systems? Does it provide purposeful business intelligence?
- Security testing services
- Is critical customer data always secure?
- DTC communication channels
- Can customers always reach you? Can you track their order?
- Test strategy
- Is overall test strategy fit for use or fit for purpose?
‘Ultimately, a good technology deployment is valueless unless it moves the business forward aligned to its overall strategy and objectives.’
Brand assurance for large retail businesses
In this new world of drones flying around warehouses, we are the ones who make sure it all works reliably. Ultimately, whatever technology – whether its drone route optimization or customer comms channels – needs testing, a good deployment is valueless unless it moves the business forward aligned to its overall strategy and objectives.
Beyond testing, we are the world’s leading AI powered quality assurance company. Qualitest offers retail groups brand assurance – validating how your retail business is supported by multiple underlying technologies and ensuring it runs seamlessly at every touchpoint.