A Peaceful Coexistence Between Direct-to-Consumer and Brick-and-Mortar Brands

A Peaceful Coexistence Between Direct-to-Consumer and Brick-and-Mortar Brands

The COVID-19 pandemic has affected all businesses, but it’s hit retail particularly hard. Since March, stalwart brands like J. Crew, Neiman Marcus, and JC Penney have declared bankruptcy. However, even prior to COVID, these brands were in trouble.

Direct-to-consumer brands (DTCs)—such as Casper, Warby Parker, and Everlane—have been moving in on traditional retailers’ turf for some time now. While they started out online, many DTCs now have a brick-and-mortar footprint as well.

But with the world of retail forever changed, both DTCs and traditional retailers need to rethink their strategies going forward. What can they learn from each other? And how can both types of retailers move forward with confidence into this uncertain terrain?

Let’s take a closer look at how DTCs have disrupted the traditional shopping experience, what brick-and-mortar-based brands can learn from DTCs as they adjust to this new reality, and how all brands can find the right balance between a digital and in-person experience.

Why In-Person Pays: The Motivation for DTCs to Move Offline

The retail game is tough. It’s a crowded space, and physical stores have lots of overhead costs (rent, inventory, and personnel, to name a few). But traditional retailers have been making it work for years, and it’s because they understand the benefit of getting face time with consumers. 

Even the best digital experience cannot supplant an in-person interaction. People like to see and feel a product before they make a purchase. This is particularly true for items that reflect personal style—like clothing or eyewear—and for big-ticket items—like furniture.

It’s often cheaper to get started without the overhead of retail space. But DTCs migrate offline because they see the value of creating a one-on-one experience with customers. Not only is it an opportunity for their audiences to see their products in real life, but the store itself and the people who work there can go a long way towards furthering the brand’s image.

It’s also becoming increasingly costly to acquire customers online. David Skok identifies customer acquisition costs as one of the top startup killers.

Founders are often optimistic about mythical viral growth. And they don’t have a clear understanding of just how expensive running Google and Facebook ads can be. In fact, with the exception of a recent COVID-related dip, digital ad costs have been on the rise for years.

After a few years in the digital world working hard (and spending hard-earned money) to build up a loyal following, these DTCs learn that, comparatively, the cost to investing in a physical space isn’t as bad as they originally thought.

Where and How DTCs Put Down Roots

DTCs don’t suddenly adopt the principles of a traditional brick-and-mortar business when they transition to in-person selling. They take a limited, measured, and data-driven approach that traditional retailers could leverage as well.

First, DTCs are incredibly strategic about where they open up shop. SoHo, for example, has been a great place to invest in a storefront for brands focused on the urban millennial consumer.

According to Digiday, DTCs remain optimistic that the price of Manhattan rents will remain a fair tradeoff, even post-COVID. Because they started their businesses online and have been gathering customer data from day one, they can confidently say they understand their customers and where to find them. They can zero in on an area where they know they’ll find their existing customers and others like them. And that allows them to sign onto a lease with greater confidence.

All retailers are on shakier ground now than they were at the start of the year. But traditional retailers can borrow this approach to inform where they should focus their in-person efforts. For those traditional retailers looking to cut back on brick-and-mortar locations moving forward, a dive into customer data to better understand where your biggest fans live can help you make the tough decisions about which locations to reopen and which to shutter permanently.

Similarly, DTCs should double down on efforts to make data-driven decisions about store openings. While many DTC leaders indicate that their brick-and-mortar expansion plans are slowed or paused for now, when they do decide to move forward, they’ll do well to revisit their data to ensure their fans are still in the same locations they were pre-pandemic.

Rethinking the Shopping Experience

Historically, DTCs have thought differently about how they structure their in-store customer experiences. Because the brands have a robust presence online, they know their customers are coming in already familiar with the product. 

Instead of worrying about showing off every option available, the DTC in-person experience becomes about building that deeper connection. Sure, that Everlane shirt looked nice online, but now that the consumer can feel the soft fabric and appreciate the craftsmanship up close, they’ve got the final push they need to purchase.

Consequently, many DTCs have pared down offerings in-store. Their customers don’t need to see every product in every size, color, and permutation out on the floor—they’ve already had that experience online! A less cluttered shopping experience allows consumers to focus on those details that help brands make the final sale.

Over the past few months, many traditional retailers have had to build out their digital experiences, since in-person shopping was not an option. Now that stores are reopening, these retailers can begin to rethink the shopping experience. How can they change it to integrate more fully with their newly-realized digital platform?

Uniting the Digital and Analog Worlds

Whether they started their business online or in the real world, all retailers now have to rediscover the balance between their digital and in-person experiences.

Some shoppers will be hesitant to return to in-person stores, even if brands assure their customers that they’re taking appropriate precautions. Others are experiencing serious cabin fever and can’t wait to get back out into the world for some retail therapy.

No matter how your customers feel about the reopening process, you need to be there for them. Last week, we talked about finding the right pockets of opportunity as we navigate our new reality. Data can help you do that.

Understanding your customer data will give you a better read on how your audience is feeling and what they’re looking for from you. Keep tabs on how your in-person traffic compares to your online activity and adjust accordingly. Consider sending out customer surveys to those who return to your in-person locations to get feedback from them on the experience.

As data helps you craft a more complete picture of what the future looks like, adjust your business playbook accordingly. Set forth clear rules for engagement for your team to help them strike the right balance between digital and in-person. Any shifts will affect everyone from your marketing department to sales teams to logistics managers. So consider the issue from all angles and communicate your new approaches company-wide.

The goal is to create the best possible experience for your customers. Today’s consumers are more discerning than ever before. Whether it’s a slow website or a lackluster interaction with an in-store associate, customers will forgo the brands that don’t meet their expectations.

It doesn’t matter if you started online or in-person. What matters is that you understand what your customers want now and how to deliver that to them.

About the Sterling Woods Group, LLC

The Sterling Woods Group’s mission is to help clients make sense of their data to predictably grow sales. We apply data science to help you optimize your sales funnel, improve your marketing ROI, launch new products successfully, and enter new markets profitably.

We use a hypothesis-driven, data-supported methodology to discover insights that no one else is paying attention to. Then, we help you assemble the right sales strategies, marketing plans, technologies, and resources to seize this opportunity.

About the Author

Rob Ristagno, founder and CEO of the Sterling Woods Group, previously served as a senior executive at several digital media and e-commerce businesses, including as COO of America’s Test Kitchen. Starting his career at McKinsey, his focus has always been on embracing digital technology and data science to spur strategic growth.

Rob is the author of A Member is Worth a Thousand Visitors and is a regular keynote speaker at conferences around the world. He has been featured on ABC, NBC, CBS, Fox, and Digiday.

He holds degrees from the Harvard Business School and Dartmouth College and has taught at both Harvard and Boston College.

Rob lives outside Boston, MA with his wife, Kate; daughter, Leni; and black lab, Royce.