The 2018 D2C Market Outlook: Full Speed Ahead

strategy Posted on Sep 13, 2018

The rebirth of direct-to-consumer selling has been bubbling away for so long that top startups like Warby Parker have had time to become sector legends in their own right. However, retail analysts say the model is about to “level up” and reach a new tier of maturity.

We agree. If there’s ever been a time to pull the trigger on your D2C plans, we think the coming year is it.

Here’s what you need to know.

Consumers Demand Direct Branding

In 2018, two-thirds of buyers say they expect or desire to have a direct relationship with the brands they’re buying from. Analysts at IAB say that desire is backed by the growth of non-store retailing, which has more than doubled in the last 20 years and now comprises more than 10 percent of the larger retail economy.

Even back in 2015, nearly 90 percent of consumers were saying they’d buy from a direct brand website if they had the option. Indeed, 2015 buyers had an astonishingly high opinion of direct selling opportunities in general, with 70 percent of respondents saying they trusted branded website advertising, second only to word-of-mouth recommendations at 83 percent.

In the years since, consumers unequivocally put the money where their mouths were. As a result, the Bureau issued its first-ever IAB 250 report tracking the top players in the D2C arena.

The IAB says direct selling is the sector to watch over the next few years. We believe this is a pivotal moment for D2C startups, especially those able to capitalize on market trends with a forward-looking strategy for harnessing the momentum.

The D2C Explosion by the Numbers

Direct-to-consumer brands have been successfully piggy-backing off the ongoing digital revolution in the retail sector at large, with digital sales for consumer packaged goods erupting to drive growth of more than 350 percent since 2013. Analysts expect those sales to hit $36 billion through 2018. With so many D2C brands finding success with consumer and home goods, we think this is a great sign for the sector.

Nearly 25 percent of households say they already purchase home and consumer goods online, and McKinsey expects that share to double in 2018. Additionally, nearly a third of buyers indicate they’ve bought from a direct brand itself.

Similar bellwether statistics are scattered across the retail landscape:

  • 33 percent of buyers say they prefer to order direct from a manufacturer
  • Online sales of consumer packaged goods (a key selling avenue for D2C brands) are expected to boom from 1 percent to 10 percent of total sector sales by 2022
  • D2C brands are expected to overtake department stores and “other retailers” in total retail market share within 10 years
  • Gillette has lost 16 percent of its share in the razor market since 2010, much of that to Dollar Shave Club, a D2C brand so successful it’s since been bought by Unilever
  • D2C mattress retailers are expected to gain more than 10 percent market share through 2018
  • Direct sales shoe brands have gained 15 percent market share in recent years

Small Brands Dominate, but for How Long?

While startups and SMBs have paved the way for the D2C economy, the corporate world isn’t far behind. Today, nearly 60 percent of brand manufacturers say they’ve developed D2C plans or will in the near future, and Nike is only one of many huge names preparing for a direct sales play.

Meanwhile, many of the oldest D2C brands have found so much success that they’ve gone full circle. Casper, Warby Parker, Outdoor Voices and many more D2C high-achievers have opened their own brick and mortar locations in recent years, and now compete with traditional box retailers both online and on Main Street.

For entrepreneurs and smaller brands, this is your clearest indication that the direct sales hills are alive…with money.

The Small Business D2C Advantage

Despite the looming specter of global mega-brands staking their claim, we think direct-to-consumer selling maintains its inherent advantages for small and mid-sized businesses.

For top achievers in the sector, core strengths for D2C rely on:

  • Innovative, bespoke design
  • Intense curation with a laser-focus on demographic drivers
  • High-touch relationships with individual consumers
  • Flexible and aggressively diverse use of marketing avenues and outreach opportunities
  • Nimble response to market conditions

In each of those areas, a mega-brand may be able to brute force its way into some success, but in comparison to small brands they’ll never be as intrinsically suited to a business model that demands so much niche-focused agility.

At the end of the day, we take this as a sign that the D2C landscape is primed for high-achieving startups to ride the bubble of corporate investment straight back to the top of the heap.

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