So in the United States, many powerful companies such as Blockbuster Borders, Forever 21 and Sears
all have filed for Chapter 11 bankruptcy.
So why these companies with offline stores are shutting down?
Now, there are lists of problems that even you will face if you open your own offline retail store.
So the number one problem is excess product.
So if you wanted to buy these product at the most affordable price from a wholesaler or let's say from
a manufacturer, in that case you have to buy these product in bulk quantity.
And if you do a volume purchase, in that case, you have to sell these product.
But in majority of case these brands were not able to sell all these product that they bought in bulk
quantity, and that's why they end up increasing the inventory holding cost.
And if you have more inventory in your warehouse and if it is not moving, then it will reduce your
cash flow.
And that was the first problem with all these retail brands.
The second problem is that people were not purchasing these products at all.
So if you go to these retail store, you will see that they have a peak demand, especially on Saturday
and Sunday.
But people are not visiting the retail store on Tuesday afternoon or on Wednesday afternoon.
And that's why less people are going to these retail store and buying product.
The third problem that these retail stores are facing, or maybe you will face if you open a retail
store.
Now, if you look at all the areas that have high footfall or that have high intention of people buying
the product, you will see that the rent is super high and it will be hard for you to justify the rent
when you have less revenue in your business.
Now, in this video we will understand a better business model.
That's your direct to consumer business model, and we will understand how these different startups
and companies are using direct to consumer business model in 2023.
So in simple term, our direct to consumer business model will cut out the middleman and sell all of
their product directly to the end consumer with the help of a third party logistic provider.
Now, I'll give you a couple of example.
You have brands like Gymshark, Casper and Goli Nutrition.
Now, all of these brands are selling all of their product directly from a manufacturer to the end consumer
with the help of some third party logistic provider like FedEx and UPS.
And they don't really have all of these middlemen or intermediary like a wholesaler or a distributor
because they are selling their product directly from a manufacturer.
To the end consumer.
And that's why this business model is used by all modern brands in the package code or glassware or
furniture or home goods piece.
Now, in order to understand direct to consumer business model, let's compare the d2c business model
with the traditional retail business.
So if you look at a traditional retail business, you have your manufacturer, then these manufacturer
will sell all of their product in bulk quantity to these wholesaler.
Then these wholesaler will take a small cut and then they will sell all of these product to the offline
retailer with the help of these distributor.
And finally, a consumer like you and me will purchase these product from a retail shop.
So that's your traditional retail supply chain or business.
Now let's talk about a direct to consumer business model.
So in direct to consumer business model, you have to cut out all the middlemen.
So let's say you have a manufacturer who is manufacturing this product and as a D to C brand, you will
list all of these products on your website or let's say on your marketplace like Amazon, eBay, and
then you will sell all these products directly to the end consumer with the help of logistic provider.
So you have cut out all the middlemen like wholesaler, distributor and offline retailer.
You will simply take a product from a manufacturer, list that product on your website or let's say
a marketplace, and then sell that product directly to the end consumer by removing all the intermediary.
Now there are multiple examples of companies using the D to C model.
So if you look at companies like Gymshark, Dollar Shave Club, Golf, Nutrition, Qobuz, Warby Parker
and Boat, all these companies are using direct to consumer business model.
But if you closely look at these t2c brand, some of these D to C brand may also operate a brick and
mortar store in addition to their digital channels.
And we'll talk about the reason why they do that in the coming video.
But let's look at all the different brands in the d2c space.
So you can see that all the different d2c brand across these different domain.
So you can pause the video and look at all the d2c brand in clothing and accessories space in health
and beauty space.
Now let's understand about DX to see business model by doing a small comparison.
Let's look at a traditional retailer like Nike and ad2c brand like GYMSHARK.
Now let's understand how pricing will work in a traditional retailer.
So let's say a manufacturer is manufacturing a pair of shoes at $99.
And I know it's a higher amount, but let's start with $99.
So a manufacturer is taking a small commission of $6 and then he's selling these product.
At one zero $5 to a wholesaler.
Now, the wholesaler is also taking a small cut of, let's say, $5, and he's sending these product
to these distributor at one one $0, at one $10.
The distributor is also taking a small cut of $10 and selling the same product to a retailer.
And finally, a consumer is buying these shoes from a retail shop at the price of $1.85.
So you can see that how the price.
Have increased from $99 to $185 till the time the product reaches to the end consumer.
Now let's look at a brand like Gymshark and how they can sell the exact same product at a cheaper price.
So a brand like Gymshark normally.
Buy this product from a wholesaler or directly from a manufacturer, and they will take a small cut
of, let's say, $10 and they will also pay a $5 as a logistic fees to the companies like FedEx.
And they are still able to sell the exact same product at just one $20.
And that's the beauty of using a DX to see business model.
So now let's understand the benefits and drawbacks of using a DX to business model.
Let's start with benefits because you have removed all of these middlemen like a wholesaler or a distributor
and retailer, you will have more control over your profits because you are just buying this product
from a manufacturer And with the help of a logistic provider like UPS or FedEx, you are directly selling
these product to the end consumer.
So you are removing the middleman and that's why you will have more profit.
The second benefit of using a DTC business model is that because you are selling all of your product
on your website or let's say in these marketplace, you will have more access to the customer data.
So if you are selling your product using your own website or let's say a marketplace like Amazon, in
that case you have your customer data, you can simply get their name, their email ID, their gender,
or maybe their ease as well.
And if you have all of these details, then you can personalize your product or let's say you can make
your product much better than your competitors who are operating in offline space.
Because in that case, these retail store.
Or these distributor may not be giving back you the data about the customer.
The third benefit of using a D to C business model is that because you don't really have a wholesaler
or distributor or a retailer, you can have a higher degree of personalization.
In your product range.
So maybe you can launch multiple colors online or let's say you can launch a special.
Kind of addition in your product and you can simply sell all of these personalized product on your website
or mobile app or let's say, on a marketplace.
So you can have a higher degree of personalization if you don't really have all of these intermediary.
The fourth benefit is that you can simply have a higher control over your profit.
So if you have recently bought anything online, you will see that these brands will normally try to
upsell and cross sell you the product.
And we have seen that in case of Dollar Shave Club.
So Dollar Shave Club started as a brand that used to sell these razors online, and soon they started
selling shaving cream, aftershave gel and all of these other products as well.
So a DTC brand can easily upsell and cross-sell the product on their platform.
Now, the fifth benefit of using a D to C business model is that you have more room for product testing.
Now, if you have an offline channel, in that case, you have to launch your product in 100,000 quantity,
and that's the only way you can test your product.
But in direct to consumer business model, you can launch a special edition with, let's say, 1000
quantity or standard quantity, and you can simply test whether people like the special edition of your
product or not.
So you have more room for product testing because you can quickly get the feedback and you can quickly
look at the sales every single day.
But in an offline retail channel, you literally have to push that product to a wholesaler.
Then these wholesaler have to push the exact special edition product to distributor, then to retailer.
So the feedback loop is very long and you have to wait for a longer time in order to test these different
variant or flavors of your product.
Let's look at some limitations of a D to Z business mode.
The biggest limitation is that you will have some hurdles to growth.
So all the brands that are using DX to C business model, they are fighting for the same digital native
customer.
So you have a limited set of people who are buying online.
Now to solve that problem, the brand normally pivot to an omnichannel approach where they open the
small offline retail store so that they can expand their business.
The second limitation of a D to C business model is that it will increase your responsibility.
Now, in an offline retail business, you just have to make sure that your manufacturer is manufacturing
the high quality product and after that you don't really have to worry about a distributor, a wholesaler
or a retailer.
But in direct to consumer business, you have to have a full accountability for every facet of supply
chain.
So you have to manage everything from packaging to warehousing to logistics by yourself.
The third limitation is you will have a steep marketing cost.
So as discussed, you have a very limited number of digital native customer, and without the big box
department store, you will be fighting for the exact same customer.
And in that case you might be paying a higher fees to these expensive influencer so that you can promote
your product online.