There was a moment, between 2018 and 2021, when it seemed like the future of business was largely direct-to-consumer sales (DTC). Eyeglasses firm Warby Parker was crushing it, selling more than 100,000 pairs of eyeglasses in its first year. Peloton was taking the world by storm with its direct-to-consumer exercise equipment. Businesses were cropping up right and left with DTC business models, and investors were lavishing tech valuations on these companies.
But then something happened: Many of these DTC companies began to fail.
“The line for DTC: eliminate the middleman, and you will make more money,” notes Simeon Siegel of BMO Capital Markets in a recent CNBC segment on the DTC craze. “What we're finding out is that the middleman serves a purpose."
The problem with DTC isn’t that it works because it does; companies like Chewy’s and Warby Parker still are doing well with DTC, as are other brands. The problem is that DTC alone isn’t enough for many businesses.
The early successes with DTC used first-mover advantage.
When Warby Parker was one of the only companies that sold eyeglasses DTC online, there was little competition and online ad prices were therefore relatively low. But as more businesses have embraced online DTC, ad prices have skyrocketed over the past few years the online market has gotten crowded. This has pushed up customer acquisition with online DTC by 60 percent from 2017 to 2022, according to Peel Insights, and the average customer acquisition cost has now reached roughly $70 per customer.
Some brands still are online DTC only, but those that have survived and thrived now often include other sales channels such as wholesale distribution and brick-and-mortar stores. Peloton now uses suppliers, brick-and-mortar, and wholesale in addition to DTC. Warby Parker always had more than the online DTC channel, and now sells glasses through its roughly 230 retail stores in addition to other channels.
DTC remains an important sales channel for many businesses because consumers want to buy products at the moment that they see them on Instagram. But consumers also want to find these products in stores and buy them when browsing store shelves, so DTC isn’t often enough by itself for company profitability.
For most businesses, a mix of channels is needed for sales today. Online DTC is one important sales channel, but it isn’t the only one. Instead, most businesses must support commerce anywhere strategy that combines online DTC with other, more traditional sales channels.
ERP enables this commerce anywhere strategy because businesses must have backend systems that easily can support a range of sales channels from online DTC through wholesale distribution and POS sales via company-owned brick-and-mortar stores. This anywhere approach is hard with a patchwork of disconnected systems that each live in a silo but relatively easy with ERP solutions such as SAP Business ByDesign and S/4HANA Cloud Public Edition.
With an SAP ERP solution, a business can connect marketing and inventory with its online store, and integrate easily with Amazon and other online marketplaces. But businesses also can use SAP Customer Checkout for POS sales in a company’s brick and mortar store, and leverage the logistics and distribution functionality in the ERP solution for handling wholesale supplier orders even when each distributor has specific requirements around lot size and order format.
With an SAP ERP solution, a business has the backend in place for supporting all the sales channels that might be needed, both today and as new sales channels emerge.
This sales channel flexibility not only makes commerce anywhere possible, it also helps businesses branch out into DTC during digital transformation. So ERP helps Peloton expand the channels in which it sells to include more traditional channels, but it also can assist businesses that are not currently selling DTC to move in that direction.
“Today we're almost 100 percent B2B, and we want to expand into the B2C realm,” notes Eric Johnson at Countrywide Tire in a recent case study. “We've got a great website that allows our B2B customers to place their orders online, and we think that it would work for B2C as well. That's something that SAP is allowing us to do easier.”
Learn more about our ReadySet GROW with SAP for Consumer Products
DTC is an important sales channel. But it isn’t the only sales channel needed for profitability today. Businesses that have a flexible digital backend can take commerce commerce-anywhere approach and avoid the challenges faced by DTC-only companies.
For more on the role that ERP plays in a commerce anywhere strategy, contact one of our experienced ERP consultants at (801) 642-0123 or by writing us at info@nbs-us.com.