DEEP DIVE: D2C disruption
The coronavirus crisis and ensuing lockdown will inevitably change the way business is conducted within the mobility industry and across the business world more generally. One particular change that could transform end-users buy their products is a move by manufacturers to direct-to-consumer (D2C) channels. In this deep dive, THIIS speaks to suppliers and retailers to find out if the trend will pick up pace in the months ahead and, if so, what impact could it have on the mobility retail sector.
D2C thrust into the limelight
A contentious issue among retailers, D2C channels are by no means a new idea and have long existed within the mobility sector, often running alongside manufacturers’ business-to-business (B2B) operations.
The protracted closure of bricks and mortar retail stores, however, has recently propelled D2C models back into the spotlight as manufacturers across various consumer product segments looked for ways to reach customers in the absence of retailers.
David Jinks, Head of Consumer Research at courier specialist ParcelHero, explains why many suppliers have started to change their approach to selling directly to consumers in the wake of the pandemic.
“It’s no coincidence that these D2C brands have, in many cases, thrived during the lockdown, even as many big retail names have struggled to get their products to consumers,” says David.
“With department stores closed, and even third-party online channels such as Fulfilment By Amazon (FBA) blocking the distribution of non-essential products, many brands and manufacturers have been left stranded. In complete contrast, some new direct selling retailers, including recipe box seller Gousto, have reached such a peak during the COVID-19 crisis that they can no longer take on new customers.
“A few years ago, D2C seemed impossible and specialist brands could only sell through high street shops such as department stores. But the internet and social media have created new ways to sell and create awareness, with the result that direct to consumer retail has boomed.”
To understand just how much of a shift this has had on traditional distribution models, consider the multi-billion-pound conglomerate PepsiCo. The mammoth group of some of the world’s best-known food and beverage brands including Walkers, Quaker Oats and, of course, Pepsi, launched its own D2C website called snacks.com in May – a first in the wholesaler’s 127-year history.
A little closer to home, Roma Medical also launched its own D2C website, Invamed.co.uk, in May, joining a number of mobility and access suppliers that already operate their own direct selling channels.
A growing trend
While the pandemic may have put D2C adoption into overdrive, the growth of manufacturers introducing direct sales channels has long been on the cards.
According to 2019 report into D2C channels by Barclays Corporate Banking, three quarters (73 per cent) of UK manufacturers sold some or all of their manufactured products direct to end-users – a sharp increase compared to just 56 per cent five years ago.
In addition, the report highlighted that more than three quarters (77 per cent) of all manufacturers planned to invest in D2C during the next year, with 74 per cent having increased capital expenditure to set up their channels over the last 12 months – and that was before the coronavirus lockdown.
Why is D2C on becoming more popular?
As mentioned, D2C models have existed for a long time but were less commonplace. The traditional supply chain was relatively straightforward: manufacturers supplied retailers who, in turn, sold those products at a mark-up to end-users.
The rise of ecommerce, affordable online payment tools, digital marketplaces such as Amazon and eBay, search engines and social media has, however, significantly disrupted that model.
Before the internet, reaching consumers directly required significant infrastructure and investment, be it through costly bricks and mortar stores; sales reps knocking on doors; or expensive advertisements in newspapers, radio and television.
“It comes down to trust. We’re open and honest with dealers and they trust that we’re as committed to their growth as we are to our own.” Paul Stockdill
As the internet and the phenomenon of ecommerce has grown, so to have the means for companies to reach end-users at much lower costs. Search engines such as Google have made it easier for customers to find companies and their products while social media platforms such as Facebook and Instagram provide companies with the means to advertise extremely cheaply to a highly targeted audience of potential customers.
The meteoric rise of digital D2C brands such as Gymshark – the gym clothing start-up now seeking a valuation of as much as £1 billion – are evidence of the huge potential open to manufacturers that can successful establish their own direct sales channels.
Ecommerce, mobility and D2C viability
While the internet has been a catalyst for D2C popularisation in industries such as fashion, groceries and electronics, the mobility sector has been less widely impacted by the prevalence of ecommerce because of the types of products being sold and who they are sold to.
Traditionally, customers in the sector, particularly those who are older, have been slower to adopt ecommerce, limiting the viability of purely D2C channels – but data suggests this is changing.
Over recent years, studies have suggested that older people have become increasing technology literate and with the lockdown forcing many former technophobes to engage with online shopping, the tide may be changing for mobility-related ecommerce.
A new study conducted last month by Civica found a high level of technology usage by those aged 70 and over, with just under two-thirds of respondents using a smartphone daily, 84 per cent confirming they are very or somewhat comfortable using a laptop and just over a quarter owning a smart speaker.
Often referred to as ‘silver surfers’, these increasingly online-savvy consumers present manufacturers with an opportunity to reach them directly using digital channels.
Tony Hughes, Executive Director at Civica, says: “Our new research shows that the over 70s appreciate and enjoy using online services. They are equipped, savvy and ready to engage.
He adds: “With the over 70s accounting for 15 per cent of the UK population – almost nine million people and growing – it should be a priority for all organisations to ensure this generation is factored into new digital developments and current online offerings.”
Now, the mobility sector has its own examples of successful start-ups using D2C as a primary sales model: eFOLDi. The lightweight folding mobility scooter manufacturer recently secured a £2.5 million investment from venture capital firm Guinness Asset Management.
Since its launch, the company has used television and social media advertising to reach customers directly and, last year, confirmed it had achieved £2.27m in sales and a net profit £413,000 – suggesting that D2C sales for big-ticket items such as scooters may be a viable option.
D2C challenges in mobility
For manufacturers, D2C channels offer a number of benefits, including greater control over the customers’ sales journey, an opportunity to collect valuable customer data for remarketing, as well as the chance to set the selling price for their products without relinquishing margin to retailers.
The adoption of DTC models does not come without its challenges though.
At the top of the list for many suppliers is the concern of what impact the introduction of a DTC model may have on existing relationships with distributors and retailers.
A risk to relationships
For many manufacturers, B2B and D2C models are not mutually exclusive; instead, many suppliers opt for a hybrid approach. It is a decision that does have the potential to cause animosity.
According to Barclays Corporate Banking 2019 report into D2C models, one in five manufacturers stated they had not launched a DTC channel because of concerns that it would negatively impact their relationships with trade customers.
It is a fear not without merit, with some retailers less than ecstatic about the thought of their suppliers also becoming their competitors.
Darren Macey, Business Development Manager at South East-based retailer Lifestyle and Mobility, asserts: “D2C is a very risky move for any manufacturer to make. For retailers like us that have been supporting a manufacturer for years, it can feel like a kick in the teeth and will probably cause us to move away from them.
“Selling direct, in my opinion, is the wrong move. Retailers need their suppliers’ support and backing now more than ever.”
The importance of mobility retailers
Unlike many other customer-packaged goods segments, the mobility sector – which often deals in medical devices – and the retailers within it are unique to that found in other consumer-packaged goods sectors, such as fashion.
This is because pre- and post-sale services such as assessments and aftersales care play a significant role in the buying process of mobility products, which has somewhat restrained the growth of D2C models when compared to other industries.
Mark Hermole, Managing Director of mobility scooter manufacturer KYMCO, explains: “We have always valued the dealer-centric approach to the market for a variety of reasons – many which are covered as core values of the BHTA’s Code of Practice.
“Primarily, we feel that customers in our sector who are often vulnerable, less-able, elderly and disabled need a full and professional assessment of their needs and, indeed, their abilities. Customers should be offered a choice in order to find the correct product(s) to suit all of their needs in their entirety – e.g. physical, mental, social and environmental.
“Aftercare is also of paramount importance to all consumers – especially in this category of personal medical devices – and our dealers have always provided this to a very high standard!”
Beyond just taking orders and shipping units, manufacturers planning D2C operations in the sector also have to consider the ongoing needs of end-users – areas where mobility retailers traditionally excel.
For many manufacturers in the sector, the cost to create a national infrastructure capable of providing initial assessments and ongoing aftercare support for end-users makes a purely DTC model unworkable, as Rise & Recline’s MD John Lougher points out.
“Our mobility retail partners have the infrastructure to service consumers in every part of the UK. In addition, they can offer a range of mobility products that the customer is looking for in one location,” he observes.
“If every manufacturer wanted to deal direct, there would be a huge cost implication in setting up the infrastructure which would negate the extra profit from cutting out the retailer.
“Also, once you sell a product, it is important to offer good aftersales care and, again, for manufacturers to set this up would be a huge investment. If a customer has a problem over a weekend, it’s their mobility centre which are able to help and that is their added value to their customer being local.”
Echoing John’s thoughts, People First Mobility boss Karen highlights the essential local reach and knowledge inherent with mobility retail and cautions of what a trend towards D2C could mean for the sector.
“Have the manufactures who want to go to D2C really thought about it?” she asks.
“How can they offer the local service? How can they know Mrs. jones down the road likes a box of Maltesers with her new scooters and if her ailments are better this week? How will they manage the breakdowns and repairs? How long will it be before they are able to get to the customer when they break down?
“Are they going to send sales representatives to people’s homes in a van with a few samples of their products? I worry this is a trend that will see the industry go back to the old days of direct selling, where people were sold to in their own homes, viewing items from only one supplier and being more pressured into buying there and then.”
Can D2C and B2B mix?
Running both B2B and D2C models simultaneously is a difficult line for manufacturers to tread without potentially alienating trade customers.
Stairlift manufacturer Handicare and its direct selling arm Companion is one such mobility company that manages to walk the tight rope well.
“Direct-to-customer channels are now, and have always been, a valid business proposition. However, the way in which they are managed can have a huge impact on the ability to maintain a dealer network…” Alastair Gibbs
Sharing his insights into how the company is able to make the often-opposing models work, Sales and Marketing Director Paul Stockdill explains: “It comes down to trust. We’re open and honest with dealers and they trust that we’re as committed to their growth as we are to our own.
“Our D2C experience has been invaluable during lockdown. Using our new HandicareLive online platform, we’ve been able to share our successful commercial training with partners coping with unprecedented challenges to help them emerge better prepared to cope with the new trading conditions we’re all facing. This helps dealers see us as a consultative business partner, rather than simply a stairlift supplier.”
Sharing a retailer’s perspective, Alastair Gibbs, Managing Director of Herefordshire-located TPG DisableAids, suggests that it can work but only when retailers and manufacturers are competing on an equal footing.
“Direct-to-customer channels are now, and have always been, a valid business proposition. However, the way in which they are managed can have a huge impact on the ability to maintain a dealer network at the same time,” he notes.
“When the playing field is level and transparent, dealers know in advance that they may be up against a direct selling sales team. That team should buy their product from the manufacturing facility at the same price that a dealer would buy it. They should have the same considerations of service delivery and warranty conditions and be honest and clear with the customer as to how that service would be delivered.”
Alastair warns that the relationship falls apart when a manufacturer only takes the sale and distributes the product but relies on dealers to fulfil the aftersales side of the bargain.
“What does become unfair is when a manufacturer takes the direct sale and then relies upon the dealer network to carry out the warranty and service work on a per occasion basis – only paying the dealer for the service they use but not carrying the overheads of providing that service 365 days a year,” he adds.
“Dealers that choose to do that type of service work either have no interest in selling whole goods or do not see that they are actually supporting their competition.”
Acknowledging that manufacturers and importers have had a tough time throughout COVID-19, Alastair says he understands the desire for suppliers need to ramp up and increase sales quickly.
“It is very tempting to think that selling a few products directly to end users, and getting a bigger margin, can do no harm,” he says.
“I would argue that as a distributor / retailer, it will do great harm. I, for one, would be considering my position if I found one of my suppliers trying to cut me out of the supply chain without putting in place all of the expensive bits of providing an onsite warranty and service program that did not rely upon my goodwill.”
Investing more in trade partners
Retailers such as Lifestyle and Mobility’s Darren Macey and People First Mobility’s Karen Sheppard believe manufacturers moving into DTC may have their priorities wrong and should instead focus on the trade.
“Suppliers need to look outside the box on how to support dealers, such as through more lead generation,” argues Darren.
“Now is the time for them to spend money on brand awareness, further training and demonstration stock.”
It is a stance shared by Karen, who points out that suppliers do not need to look at circumnavigating retailers to secure more sales.
“The best way for a manufacturer to increase its sales and share of the market against other suppliers is to have a very good relationship with their retailers,” she points out.
“Offer them incentives to be more engaged with them. Do extra marketing, offer better point of sale and pass it on to the retailer. The supplier still gets the sale and the retailer can offer the local and friendly one-to-one service that end-users want and need.”
Blurring the lines
It is important to remember, however, that this blurring of the lines of the traditional roles of manufacturers and retailers is not just one-way traffic.
As more manufacturers are considering ways to directly reach end-users, there is a growing trend among retailers also looking at ways to streamline their supply chains by purchasing products at source.
Just as the model of D2C is not a new notion, neither is that of retailers creating and selling their own ‘private-label’ products, cutting out distributors, wholesalers and suppliers in the process.
And, akin to the growth in D2C models, the data suggests private label growth is also strong in the UK, which is the world’s largest private label market.
“If this continues, I can see alliances being made among the dealers to start bringing in products from China directly.” Darren Macey
According to private label data compiled by Nielsen in 2019, market share for own-brand products climbed to 46 per cent – largely dominated by the grocery and fashion segments.
Now, savvy mobility retailers are increasingly looking to get in on the own-brand action and removing some links from their own supply chains.
Similar to the way the internet has made it easier for manufacturers to reach end-users, so to has it made it easier for retailers to reach factories in distant lands who can produce anything from simple ADLs to bigger ticket mobility products.
It is a fact not lost on Lifestyle and Mobility’s Darren Macey, suggesting that the current trend towards D2C may fuel a rise in own-label products.
“If this continues, I can see alliances being made among the dealers to start bringing in products from China directly,” he speculates.
“I would urge all suppliers to tread very carefully if they are thinking about going down the DTC route to market.”
The shifting landscape of product supply
Speaking back in October 2019, Lee Collinson, Head of Manufacturing at Barclays, suggested that the trend of DTC was only heading in one direction – and that was long before lockdown disrupted the world of retail.
“The rise in businesses selling direct to customers is one of the biggest changes the manufacturing industry has seen in generations,” he said at the time.
“It’s a massive shift and the rewards are potentially huge, with nearly half of companies selling DTC reporting an increase in revenues as a result, along with a bigger customer base and the ability to personalise products.
Whether the mobility sector will continue to insulated to a degree from the growing move to DTC or if retailers will continue to look to own-label products remains to be seen. As Lee notes though, those in the supply chain will need to remain mindful of the shifting sands in order not to be left behind.
“Wholesalers and retailers are aware of the challenge and will need to continue to find ways to adapt and flex their approach,” he ends.
“DTC comes with its own challenges and requires investment in services, training and IT. The future is likely to involve a mix of DTC, wholesale and retail and there will still be a role for all three channels.”https://thiis.co.uk/deep-dive-d2c-disruption/https://thiis.co.uk/wp-content/uploads/2020/08/D2C-Disruption.jpghttps://thiis.co.uk/wp-content/uploads/2020/08/D2C-Disruption-150x150.jpgIndustry Deep DivesNewsroomTrade FocusB2B,Companion,D2C,direc-to-consumer,DTC,Handicare,Kymco,lifestyle and mobility,mobility dealers,mobility retailers,mobility sector,mobility suppliers,People First Mobility,Rise & Recline,TPG DisableAidsThe coronavirus crisis and ensuing lockdown will inevitably change the way business is conducted within the mobility industry and across the business world more generally. One particular change that could transform end-users buy their products is a move by manufacturers to direct-to-consumer (D2C) channels. In this deep dive, THIIS...Sarah SarsbySarah Sarsbysarah@thiis.co.ukAdministratorTHIIS Magazine