Direct-to-consumer e-commerce surpasses £122 billion, doubling post-pandemic

With the onset of Covid, the world witnessed an almost miraculous pivot towards DTC (direct-to-consumer) e-commerce. Suddenly we could order our favourite barista coffee or even a "cook at home" box from our go-to Michelin-starred restaurant straight to our door.

Having risen 16.9 per cent from 2021 to 2022, the DTC market surpassed £122.7 billion ($151 billion) in sales, according to eMarketer, a research and analysis provider focused on digital marketing.

Similarly, according to McKinsey, a management consulting firm, e-commerce sales penetration in the United States more than doubled post-pandemic to about 35 per cent in 2020 from around 16 per cent the previous year - the equivalent of roughly ten years of growth within a few months.

It is no surprise then that a recent survey of European e-commerce organisations spanning a breadth of sectors including retail, manufacturing, wholesale and third-party logistics, revealed that nearly six in ten (59 per cent) have ramped up investment into the DTC route.

The research was carried out by Deposco, an omnichannel fulfilment supply-chain applications provider, covering companies from the UK, Benelux and the Nordics.

The two key driving factors highlighted by organisations making the shift are reduced costs, cited by 41 per cent of respondents, and the opportunity to achieve higher profit margins, cited by 38 per cent of respondents.

However, the breakneck pace of these developments meant that oftentimes, companies did not plan and upgrade their systems and processes in a holistic way. For instance, many focussed on the sales front end - read fancy websites - without investing in inventory management or order fulfilment.

Merely selling online is not the same as building a sustainable DTC e-commerce business.

Hence, the top three challenges highlighted to Deposco by organisations pivoting to e-commerce were:

• Fit-for-purpose warehouse management system to seamlessly fulfil orders
• Setting up consumer-facing channels - websites, marketplaces, etc.
• Managing parcel carriers for consumer delivery options

A similar finding is highlighted in a McKinsey report from 2021, which focussed on the pitfalls companies face when moving into e-commerce. McKinsey has found that companies often make the mistake of taking a sequential approach to building their e-commerce capability - first focusing on their websites while deferring attention to the critical levers of channel management and inventory management.

Whilst covid fast-tracked e-commerce companies' journeys into DTC, the current slow growth environment has exacerbated the challenges. In the first instance, this means companies should pay attention to the whole supply chain including order fulfilment, not just digital shopfronts.

However, in addition, it also means that companies need to look again at their sales and marketing spend to rationalise it and ensure it is generating the most bang for their buck.

The good news is that Deposco's recent research suggests more companies are waking up to the need to take a more holistic approach. Whilst investment in e-commerce shopfronts still tops the chart, with 34 per cent focussing on this in order to improve their DTC offering, 26 per cent and 25 per cent respectively are investing in warehouse management and inventory management.

Chris Jones, the co-founder of Markacy, a strategic marketing advisory, spoke to Fast Company about the need for companies to optimise their online marketing spend.

For DTC brands in the early stages of growth, he said the aim should be to build a brand, establish a strong online presence, and create a loyal customer base.

To that end, Markacy has found that digital ads remain a critical strategy lever, despite declining efficiency due to changing online privacy tracking requirements.

However, Jones pointed out that other tools are needed to truly optimise online marketing. Maximising the use of creator relationships through influencer partnerships and UGC (user-generated content) is a cost-effective and targeted strategy with a strong ROI. These avenues can act as a strong complement to brand building.

Finally, short-form videos, particularly through platforms such as Tik Tok and Instagram, are important if companies are to capture the millennial marketplace and beyond.

For mature DTC brands, the situation is a little different. Jones opines they should be analysing the efficacy of various marketing tactics and fine-tuning. For instance, many may find that traditional advertising means such as display media are low impact - which means diverting that marketing spend elsewhere.

Customer acquisition is much more expensive than retention of existing clientele, and even more so in this challenging economic environment. Mature brands should focus on customer retention, which comes from high-quality customer service - including remarketing and upselling efforts.

Whilst DTC continues to promise rich pickings by connecting companies directly to end-consumers and allowing companies to fine-tune customer experiences to optimise sales, successful implementation rests on a holistic approach. The lightning-fast pace of covid-era pivots paid off for many companies whose survival would have otherwise been threatened. However, to truly implement a sustainable DTC model, ride the wave of the current downturn, and continue to capture the potential of DTC in the future, companies must take a holistic approach.

In other news, research conducted by Metapack revealed inflation will add £18 billion to the UK's non-food retail sales this year.