For brands, D2C might be the next big thing, but it’s old school. There’s a lot of excitement, but most of what brands need now is good-old-fashioned blocking and tackling. 

As evidence of excitement, the marketing industry has conference fever. Here, describing one such conference, is a typical breathless blurb: “From data-driven innovation cycles to connected products, accessing bottom-funnel tactics to testing new subscription models, direct-to-consumer channels represent the next growth opportunity.” 

Growth opportunity for whom?

EMarketer says, “Direct-to-consumer (D2C) brands are on a rapid ascent, disrupting traditional retail.” 

OK, I’ll bite. Is traditional retail disrupted by D2C?

Certainly, retail is suffering, but direct selling by brands may not be the reason. 

Various parties blame: The decline of the middle class, the over-expansion of malls, the unstoppable momentum of big box retail, and the trend towards buying experiences over “things.” 

So, meh. Retail is not meaningfully disrupted by D2C. Online buying went from 5% to 13% of brick-and-mortar retail in the past 10 years.  

So, what’s disrupted? Brands?

Branding, by and large, operates by the same principles it always has, even when the choice is made to sell directly to consumer. 

Direct distribution is not antithetical to branding. It is, however, antithetical to the “pull-through” model, in which brands use retailers to make their products available.

Some brands are disrupted when discontinuities in distribution cost happen (beer, mattresses). But, by and large, brands are operating in the pull-through model, not because they don’t see the benefits of direct, but because of process momentum, and inherent channel conflicts. For example:

1. Different business models. The problem brands run into is that the P&L of a mass brand is vastly different from a D2C brand, and it’s difficult to support both costs structures and associated skill sets at the same time.  D2C spends money on accurate targeting, clicks, pick-pack-ship, copious data, etc.  Traditional brands spend their margin on mass media, retail promotion, etc.  

2. Antitrust laws. This might cause a raised eyebrow, but the issue is real. In the USA, the Robinson Patman Act of 1934 prohibits producers from treating one retailer differently from another. Imagine having to treat Amazon exactly like Walmart, by law. Crazy.  For example, I was once asked not to put “buy now” links on brand websites because the link favored a retailer (by pointing to its site!). D2C brands don’t have to worry about antitrust. 

3. Shipping and return complexity. The gritty details of pick/pack/ship/return are expensive, labor-intensive, etc. This stuff gives heartburn to large companies. Retailers shield brands from these ugly realities. Who gets title? When? Terms? 

4. Channel conflict. Big brick-and-mortar retailers threatened with disintermediation have a simple way to fight back. The buyer says something like: It would be a shame if you sell direct. What if I had to drop your volume 20%? Game over.  

So, friction for incumbents is significant, but enablers for D2C widen the gap further. 

One of those enablers is invisible: ISO 9000 and the rise of contract manufacturing. Want a short run of peppermint laundry scent booster? Maybe a low-clay, high-viscosity hair pomade with properties allowing you a certain hairstyle? No problem now, but infeasible a decade ago. 

The other big change is information. Today, there are vastly more tools and people trained to use them, more data-driven media, more data systems (e.g., CDPs), etc.  D2C models win by generating data that can be used across all aspects of a business.  Retailers hoard the critical loop-closing data, turning it into revenue streams in advertising, and merchandizing, sucking yet more margin out of brands.    

So D2C has powerful underlying economic advantages. It results in more consumer choice via infinite assortment, and enables diffuse innovation, absent the soul-crushing burden of billion-dollar revenue hurdles for R&D. 

In the end, consumers will acquire stuff in the way they find most convenient. Brands will distribute accordingly. Retailers will exploit logistical efficiencies, and consumer relationships. VC will fund energetic hopefuls who will forecast dire consequences for the entrenched, and be wrong a lot. 

Under full scale assault by well-funded revenue-hacking upstarts, a reordering of the old guard seems possible.  But wait. This is a space where that same old guard can still make choices that keep them on top, difficult as those choices may be. (Like, fix the friction). 

If the old guard fail at this point, the demise will come by way of 1,000 paper cuts, arguably self-inflicted.