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Understanding Direct to Consumer Issues, Part Three: Defining the Issues and Presenting Solutions

Published on | RIA | Point of View

In this month's issue of the Pulse, the Running Industry Association (RIA) presents the final installment of a three-part series exploring brands' direct to consumer (DTC) sales policies. The discussion comes as some of the industry’s hottest brands have told the investment community they want to grow DTC faster than wholesale, leading to a direct cause-and-effect outcome of store complaints around overall brand DTC approaches. 

The RIA's goal, therefore, is to inform and provide perspectives from all sides of this complex topic. Part One examined the issue from a retailer's point of view, Part Two examined brand perspectives, and Part Three presented here will sum it all up by examining the major friction points while offering potential solutions and best practices. 

Online Inventory Access

An increasingly common problem for run shops that results from DTC selling is an in-store customer wishing to purchase a footwear product in the size and color that they saw online, but it’s unavailable at the store. Solutions to “save the sale” include stores securing that product on a one-off basis from B2B (vendor-reserved) inventory via special order (whether shipped to store or drop shipped to customer). If not available from B2B inventory, stores may be able to secure the product from DTC-reserved inventory, and hope to maintain discounts as well. 

These solutions are fraught with challenges, however. One issue is delivery time, as a vendor’s DTC network is often better set up to handle speedy turnarounds than the B2B platform. Some brands also remove the volume-discount price for drop shipments or special orders heading to stores. Margins on drop-shipped orders are already compressed, as stores typically cover the shipping cost to customers. Retailers understandably want special order deliveries to match DTC speed, and to maintain margins, for brands to continue to offer the volume discount for all special orders.

For some vendors, however, gaining access to DTC-reserved inventory is more complicated. DTC and wholesale operations are often run by separate teams with different strategies and margin goals. At most brands, e-commerce still represents a minority of sales (i.e., 15% to 30%) and the benefits of shifting DTC inventories to B2B inventories to support store-inventory shortages is believed to be overestimated by many stores.

There’s also a pervasive feeling among some run specialty shop owners that DTC-reserved inventory is better supported because DTC growth is being prioritized. Many stores are seeking more balanced inventory allocations between DTC and B2B on a pre-season planning basis. Accordingly, some vendors are working on improving collaboration between DTC and B2B operations to support “save the sale” strategies for their wholesale partners.   

Abundant Online Colors

Brands can offer a wide variety of colors online, but running shops are generally only able to carry a few colors of a key style, at most, at the store level. An executive at one running brand explained that consumers have been trained to expect multiple color options (i.e. Apple 14 iPhone has six colors), and providing choice pushes consumers more effectively toward their purchase decision. The brand executive suggested carrying an extra color instead of an extra width. The broader solution from a retail perspective is improving access to online inventory via special orders.

Online Promotions

Brands make a convincing business case that their websites help them create a more personal connection to consumers, while DTC offerings expose the breadth of the offerings and help to showcase their technologies. However, many brand websites contain small discounts designed to acquire customers, including deals related to first orders, friend referrals, or membership programs. Some running shops see these strategies as a violation of the brands’ own MAP policies, and seek some fairness and flexibility around pricing. MAP policies overall remain a contentious issue with stores who feel challenged to stay up to date on changes across brands, and are continuously vexed by vendors violating their own MAP policies on Black Friday, or loopholes like MAP holidays/exception windows that retailers aren’t informed of. 

Vendor websites also often include expansive promotional pricing on retiring models, slow sellers, or end-of-season order cancellations from stores. Better inventory planning up front is expected to help. One newer challenge is the confusion caused by a brand discounting a certain color of a style online and the consumer expecting to see the style’s entire range at the lower price. One solution is discounting by style instead of by colors. 

Online Exclusives 

Some brands offer online exclusives as a differentiator. A solution includes making those exclusives available pre-season to specialty stores. Many stores wind up not purchasing the exclusives, but favor at least having the option and not being surprised when it becomes available on the brand’s website. Another solution is not offering online exclusives to avoid conflicts with local store offerings. 

Dealer Locators

Most run specialty shops applauded the arrival of “Dealer Locator,” “Store Locator,” or “Find a Store” tabs on vendor websites that let consumers identify stores close in proximity that carry their product of choice. In many cases, with the support of Locally for example, the shopper is able to see if their local store has the shoe in the size and color they want. 

Mike Massey, Locally’s founder and CEO, tells RIA that there is a business case for brands to add a buy-local option on their DTC sites.

“My argument would be: you can only run a successful DTC business because people are familiar with your brand from seeing it at local shops for years,” he said. “Once other brands win that shelf space, it is very hard to run a purely DTC business. Most of the ‘double’ margin is lost on customer acquisition (folks no longer come directly to your site) after seeing products in their favorite stores. Or, very often, that doesn’t work either. Wholesale and DTC are locked together.”

He added that the store locator page can be set up to encourage discovery for runners not knowing what they want to buy as well as to focus on pickup and delivery choices for those knowing what they want. Massey said, “By not providing the path to that purchase, or making it vague, the brand potentially also hands off an acquired customer to another brand.”

The major complaint from retailers related to dealer locator strategies is that the option to purchase locally can be hard to find. It’s often a small tab at the top of the vendor’s landing page. Other major retail sites let customers know an item is available for pickup nearby at the “add to cart” page with messaging such as “Available near you” from Target and “Order now for pickup” from Best Buy. A perusal of footwear vendor sites also shows little messaging around supporting local retail, being able to pick up today, or even the value of going through an in-store fitting process that could help drive customers to run shops. 

From a logistics standpoint, products showcased on brand sites aren’t always consistent or up to date with the local store’s assortment. Search functionality is time-consuming, and requires a consumer to visit each local store’s online page and then click on each style to see what colors and sizes are available. 

Digital Co-Marketing 

Between social media, email outreach, and online selling, brands have vastly more access to customer data than pre-internet days. Many vendors already support local run shops with special events and clinics at the local level and some are partnering with local stores on digital campaigns. Next steps could include linking local stores to vendor membership programs.

The challenge of shared digital campaigns is that unlike community-driven events,  digital advertising places a high priority on ROI such as clicks/conversions. One specialty store owner felt a reluctance to share customer data – whether a vendor sharing data with a local shop or a local shop sharing their data with a vendor – as it would limit efforts to optimize digital campaigns. The owner said, “Customer data is gold.”

Private Label/Exclusives 

Private label solutions are often cited as one way for retailers across many channels (i.e. grocery and department stores) to gain leverage with their suppliers, whether over pricing, product access, or selling DTC. For example, Dick’s Sporting Goods has cited private label assortments as an offset against the DTC moves by Nike and Adidas. Offering a private label can also support differentiation and margin support. 

In the run specialty space, private label strategies in the apparel category are growing, but running footwear is seen as overly complicated to produce on a private label basis. Carrying an exclusive line would also leave less room to carry other inventory, including less colors or widths of a stronger branded style at the store level. 

Regardless, experiments in private label footwear are happening, including Fleet Feet’s exclusive with Finnish running brand Karhu. Diadora’s profit-sharing, exclusive-to-run-specialty model also acts to some degree as a private label for partner stores. Some stores would also welcome run-specialty-exclusive footwear models from vendors, although they’ve become less frequent in recent years and some vendors question their value.

Rebalancing Distribution

Retailers historically have reduced their open-to-buy positions or even dropped vendors over distribution policies, typically when they start selling to competitors, including more discount-driven channels or stores. Conversely, a brand may decide to end sales to certain stores to similarly fine-tune its distribution strategy. 

Should a brand’s expansion in DTC or other channels ultimately hurt sales at run specialty stores, history has shown that other brands step up to drive growth. In the run specialty space, Adidas is an example of a brand that has lost significant share after reducing investments, including rep coverage, in the channel. ASICS and Nike, once with major share in run specialty, are now seen regaining share as they’ve increased investments in run specialty. Removing a major vendor is more challenging given the volume that would have to be replaced. Many runners would also expect to see the brand. There are also risks in walking away from a brand that may have had a bad season.

Localized Versus Digital Outreach 

Vendors, some more aggressively than others, are expanding DTC efforts because they believe that many consumers prefer shopping online due to the convenience of avoiding a store trip and the extensive offerings available online. Some also feel that potential customers for running products may feel intimidated walking in a run specialty shop, or may not feel entirely welcome due to a variety of factors, and as a result prefer to make their purchases online. 

In addition, whether online selling is more profitable appears debatable. Online selling incurs high returns, free shipping, and back-office infrastructure, resulting in lower margins than would be expected. But brands through DTC pushes gain customer data, and arguably, a different – and often younger – customer than the one heading to a run specialty store.

As a result, brands are taking a new hybrid approach to reaching consumers directly online while also maintaining commitments to local run shops. In the glass-half-full view, consumers initially buying at a brand DTC website eventually head to stores for the fit process, training tips, race sign-ups, group runs, and other community aspects. 

Brands employing a hybrid approach embrace the idea that with their local reach and entrepreneurial spirit, independent shops have a decided advantage over DTC online – as well as corporate-owned stores – in engaging and turning runners into lifetime customers, as well as in validating running brands with local run communities.

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