Striking the balance: Rethinking DTC and wholesale

In days gone by, fashion brands were accustomed to serving their customers through single channels, but the complexities of today’s market are forcing them to rethink their strategies.

While in the past, brands could compete with either a wholesale or direct-to-consumer (DTC) model, a more carefully considered blend of DTC and wholesale is needed to optimise customer engagement, manage costs, and control the brand image.

The evolution of wholesale and DTC

Traditionally, brands relied heavily on wholesale partnerships with retailers to reach customers. This model dominated for some years until the digital boom of the early 2010s. DTC brands leveraged the advent of eCommerce to bypass traditional retail channels and engage with their customers directly while taking higher profit margins.

There are notable strengths and weaknesses to each approach, with wholesale enabling brands to expand their reach by tapping into the established customer bases of their retail partners – lowering customer acquisition costs. Retailers also manage more of the marketing, inventory, and logistics, freeing up time for brands to focus on production and brand development.

However, brands give up control over how their products are presented, priced, and promoted, leading to diluted brand identities. Additionally, retailers effectively serve as middlemen and require their cut as payment, meaning margins are lower for wholesalers. The payment terms can also be less favourable, with longer cycles that can impact cash flow.

Conversely, DTC channels circumvent the middleman to achieve higher profit margins and increase revenue per unit sold. This model fosters direct relationships with consumers, providing the brand with valuable data to personalise marketing and build loyalty.

With that said, DTC brands have significantly higher operational costs, as they bear the costs of warehousing, shipping, and returns.

Furthermore, The Business of Fashion recently revealed that online advertising is experiencing diminishing returns, driving up acquisition costs, and forcing DTC brands to find cost-effective ways to not only attract but retain customers.

Evidently, neither model is perfect, and brands must look to find a balance between them.

Testing waters with wholesale: The Vuori story

Activewear brand Vuori is one example of a company that has adopted a strategic approach to balancing DTC and wholesale. Initially, the brand built a strong DTC footprint and leveraged eCommerce to build a direct connection with its customers.

The insights gained from these relationships were invaluable, helping to tailor Vuori’s offerings to meet specific demands. However, it needed to establish a foothold in new markets to support its growth plans – something that is difficult to achieve in a pure-play DTC model.

Vuori ultimately entered into strategic wholesale partnerships with renowned retailers like Selfridges and Harrods to plant its roots in the UK. Sales eventually grew, and more UK shoppers found their way to the brand’s eCommerce store.

On the back of successfully testing the waters in a new market, Vuori launched its own boutique store and plans to open a second in late 2024.

Leveraging wholesale for learnings: The Represent story

Much like Vuori, Manchester-based Represent began as a luxury streetwear brand that only sold goods via DTC channels. Represent has always focused on delivering high-quality products and building a community via social media.

To support its growth strategy, however, Represent began branching out with strategic wholesale relationships to widen its reach and complement its DTC efforts. While DTC accounts for 70% of its revenue, the brand has more than 150 stockists worldwide, including Saks, Nordstrom, Flannels, Harrods, and Selfridges.

Speaking on wholesale, co-founder and creative director George Heaton told Drapers:

“The retailers we build partnerships with give us great advocacy and widespread views on the brand through geographies. This helped us landscape the interior and feel which led to us making the decisions on visually how we show up in our own retail locations.”

Leveraging the insights gleaned from wholesale, Represent opened its first brick-and-mortar store in LA earlier this year, and has announced plans to launch additional physical retail locations in London and Manchester.

Luxury brands: Take note

While any fashion and apparel brand should be duly taking note of the lessons imparted by Vuori and Represent, they are particularly apt for market segments that are undergoing significant change… like luxury.

Business consultant Yemi L recently called attention to the fact that in two years, 60% of luxury customers will be 45 or younger. By 2030, 33% of luxury customers will be 33 or younger.

While many think that luxury consumers shop for the same reason, that isn’t necessarily the case. Yemi noted that younger consumers prefer to be part of a community, while older shoppers remain loyal to their favourite retail client advisors.

This is indeed true; Represent has firmly established a fiercely loyal community of predominantly younger shoppers with very different priorities from traditional luxury shoppers.

The intersection of luxury and streetwear (or even luxury and outdoor wear) creates new challenges for long-time players who need to attract and retain different generations with varying wants and needs. It’s no longer good enough to just be DTC or wholesale.

How do brands find the perfect balance between DTC and wholesale?

As with most endeavours in life, the best way to determine a brand’s optimal mix of DTC and wholesale will be trial and error. Whether that entails testing new markets with wholesale or expanding reach through online DTC retailers is ultimately up to the brand.

One great tip The Business of Fashion posited was ensuring the right product mix is offered across different channels to avoid “cannibalisation”. This could be as simple as offering seasonal pieces on one channel and regular goods elsewhere, or releasing limited time items in pop-up stores. The trick is to ensure no one channel absorbs all revenue.

However, this is impossible without an effective inventory and supply chain management system.

Our K3 Fashion solution, embedded in D365 Finance, Supply Chain Management and Commerce, supports all channels where fashion brands operate, ensuring they can seamlessly handle everything in one platform.

This is important to note because out of the box, D365 Finance does not offer wholesale support. Our enhancements make this possible to ensure brands engage with retailers as well as handle their own inventory.

Perhaps most importantly, we offer the ability to ringfence goods, which essentially means brands can block or allow sales activities to keep inventory available for specific customers, countries, or regions – no matter whether you’re a wholesaler or retailer.

The real magic, however, is that wholesale, retail, and online teams can plan their own inventory. When goods arrive, they can be systematically separated until separation is no longer required, providing individual teams with increased visibility and planning prowess.

This is just a small sample of the functionality that we have to support wholesalers and DTC brands. If you’d like to learn more about how we can support you, feel free to drop us a line.