Under Armour announced in September 2020 that they were laying off 600 people to focus on a direct-to-consumer (DTC) model. In a massive overhaul, the sports equipment company plans to exit between 2,000 and 3,000 stores, and plans to exist in 10,000 stores by the end of 2022. On a Q3 earnings call for 2020, the athletic brand reported flat revenue. While wholesale revenue decreased 7% compared to the same period last year, DTC revenue increased 17% to $540 million. This was driven by upward growth in ecommerce.
They aren’t the first apparel brand to shift its focus. In August 2020, Nike announced they were closing nine of their wholesale accounts, including those with Belk, Dillard’s and Zappos. This comes after its 2019 decision to stop selling products directly on Amazon—which was both an attempt to curb counterfeit products and part of an overarching plans to build DTC sales. And of course, the two athletic behemoths tout this shift as a net positive for the companies.
“We believe that the critical mass of our transformational challenges is behind us, and we remain sharply focused on operational improvements and financial discipline to accelerate strategies to create sustainable, long-term growth for the Under Armour brand and our shareholders,” said Patrik Frisk, Under Armour President and CEO.
And a Nike spokesperson was quoted saying, “Nike has a bold vision to create the marketplace of the future, one closely aligned with what consumers want and need.”
The rise of direct distribution.
As a modern consumer, you’ve probably purchased at least one product from a DTC startup—whether you know it or not. If you’ve purchased glasses from Warby Parker or a mattress from Casper, you’ve inadvertently participated in this direct distribution model.
Popularized by companies like Bonobos and Glossier in the mid-2010s, the first-wave of challenger brands lit a fire under legacy organizations. These digital-first stalwarts disrupted industries with direct distribution models that cut out the proverbial middle man. They eschewed retail stores and emphasized stylized branding. And while DTC first appeared in industries like skincare and fashion, it’s entered complex spaces like smart home technology.
As this illustrates, DTC is by no means a new concept. But the fact that Under Armour and Nike are embracing the model may serve as a bellwether for what’s the come. And don’t think these legacy players aren’t looking at the numbers. Nearly 14% of all US total retail sales are estimated to come from ecommerce by 2021. Because DTC cuts out the middleman, there are immediate cost savings. Let’s review some of the immediate benefits of DTC.
Cut out the middle man. Gain control.
DTC enables brands to market directly to customers. This provides complete control over the entire customer experience—from acquisition to sale. Because every facet of the buyer’s journey exists online, you have direct access to real-life data. Collecting customer data and insights provides a clear picture of your target audiences and their purchasing habits.
Unlike traditional advertising efforts that rely on third-parties to track campaigns, brands retain full ownership of that data. They can map out customer journeys based on a holistic understanding of which campaigns and content are driving conversions. In turn, this enables DTC brands to benefit from personalization capabilities. Brands can use browsing, search, and shopping history to provide tailored online experiences to their users. Not only can they attract new customers, they can use data to resell, cross-sell, and upsell products.
As legacy brands leave brick-and-mortars in favor of online, the floodgates have been opened—and competition is about to get fierce. So, how does a brand stay on top? Transparency is big. In the wake of the global pandemic and social unrest of 2020, consumers are increasingly looking for brands to advocate for change. In fact, an Edelman survey from 2020 found that 70 percent of respondents said trusting a brand was more important today than in the past. And 74 percent say a brand’s impact on society is a reason why trust has become more important.
Many DTC brands were built on a mission, United by Blue being one of them. For every product purchased, the apparel company removes one pound of trash from oceans and waterways. Of course, not every brand must stick to an ethos or take a charitable angle. But interactions with customers should be authentic and memorable. In addition to giving back to the world, many DTC brands let customers know how they’re listening to feedback and providing insight into product, service, or location launches.
As the rise of DTC continues its upward trajectory, it only makes sense that the advertising model is evolving. So, why rely on outdated advertising techniques when you can deliver your customers customized campaigns on channels they prefer? At Media Design Group, we’re updating an outdated advertising buying model. We provide timely, actionable insights based on real data—and consolidate these findings into helpful, accessible dashboards.
Looking for a team of media pros to analyze your existing data—and make recommendations to scale your campaigns? The future of advertising is here.