New Concept of Direct Trading, the D2C Trend

D2C (Direct to Customer), a type of business in which a company makes direct deals with customers
without going through a distribution network, is currently trending.
Companies are rewriting new survival functions, whether online or offline. The concept of offline stores has changed,
and online channels have become more straightforward. Now that existing distribution channels can be passed through,
the terrain is expected to change greatly. Let’s take a look at the future and the rough sketch of the D2C which is leading this change.
Article: Editor’s Office

Nike, D2C trend leader

In August, Nike became the talk of the town by opening a large store in Myeongdong, Seoul, one of the commercial districts damaged by COVID-19. It was a supersized offline store that occupied three whole floors of a building that had been vacant for six months. It would be surprising to open a large store at a time when online shopping is the trend and offline distribution has subsided due to the pandemic.

However, this store had a different concept from the existing ones. It is a Nike Rise store, a new concept of experiential store that emphasizes digital experiences of customers and shows the data obtained through an app on various digital devices installed throughout the store. The large displays from the floors to the ceiling shows how many people are running and wearing Nike products at the moment, in which area most of them are running, and how many hours they have run. It is a new concept experiential store that creates a world of Nike members and tells stories by connecting the city, products, and consumers through the app the members use.

Why the market is changing to D2C

The companies that focused on the digital switch from offline to online shopping are now keen on the new-concept shopping ecosystem of D2C. As explained above, D2C refers to direct-to-customers. It is becoming active online, and now is also changing the offline market, as in the case of Nike. In other words, the ecosystem is changing. So, why is the market changing?

First of all, as the offline distribution has rapidly contracted due to the pandemic, it emerged as a new way of survival. COVID-19 has caused an extreme online sales trend. Because the restructuring of offline stores has become inevitable, the number of offline stores that simply displays products has decreased, and consumer experiential stores with services that online shopping cannot provide are brought forward. Now, the reason for having offline stores is that they can provide direct consumer experiences. As a result, the size of the store has also got bigger to provide a variety of experiences and become a space where customers can stay for a long time instead of just a shopping store.

Secondly, the explosive growth of online distribution due to COVID-19 is one of the factors that created the D2C trend. Companies have directly sold products through their online shopping mall in the past, but their presence was insignificant due to the influence of large online shopping services such as Amazon, Coupang, Gmarket, etc. However, the online shopping market has grown incomparably larger than the past, a digital environment to connect their malls and offline stores was created, and their profitability was adversely affected as the online shopping mall platform fees continued to increase. As a result, Nike, which is leading the D2C craze, left Amazon in 2019. D2C trend is accelerating, centering on brands that have high customer loyalty such as Pepsi, IKEA, Patagonia, Heinz, Hermes, and Lululemon.

Thirdly, changes in shopping trends are also a factor leading the D2C craze. In the past, a product that was even a penny cheaper would be chosen by customers through price comparison. However, the MZ-generation leading the shopping trend thinks differently. They value satisfaction over prices, and show extraordinary loyalty depending on their level of satisfaction. In contrast to the large online shopping malls that have inherent limitations in providing customer experiences, companies generate greater sales by linking their mobile-specific malls and experiential offline stores to communicate directly with customers.

D2C takes profit and loyalty at the same time

Although there are several advantages in D2C, the key is profitability. Because they do not go through the existing distribution channels, platform-use fees or marketing costs are not incurred for top exposure, and increased price competitiveness. Instead, in order to maximize the inflow to their mall, they need to utilize various social media contents. Consumers will voluntarily share popular SNS contents to various social media platforms, and it can increase brand loyalty. This process, in the end, will return as profit to the company.

There are also advantages for consumers. Until now, the products in offline stores often had higher prices, even though all they did was displaying products. So many people went to the store to try them on and bought them via online shopping malls. However, this process was too inconvenient. Now, the offline stores emphasizing customer experience have become comfortable and desirable places to go. You can experience and try the products on as much as you want, and take the product right away after paying on the company mall app. Various benefits provided by the brands are a bonus depending on the season and event.

To small and medium-sized companies and small startups, as well as large companies, D2C represents a great opportunity. Other well-known brands such as Market Curly, Bucketplace, ZigZag, MUSINSA, etc. are success stories that started as small businesses and grew in size with D2C strategy. In the past, small brands were willing to take the loss to enter into large online/offline distribution channels, because going into the channels determined whether they made contact with customers. However, there are more solid OEM companies, and more SNS platforms that enable interactive communication with customers. You can now launch a small business without paying huge fees to online/offline distribution channels only with brilliant ideas or items, and the sales potential has grown incomparable to the past.

D2C leads, and digital innovation supports it

Of course, D2C is not a solution for all. Various disputes may arise from its inherent risks. Satisfaction through experience varies greatly depending on individual inclinations and tastes. In D2C, which is closely connected to SNS, the damage risks from “black consumers” are inevitably greater. Since individual companies deal with personalized customer data, there is a possibility that personal information leakage and security issues will constantly arise.

It is clear, however, that in the future, whether online or offline, consumer experiences will be the key to purchase conversion. Accordingly, companies are expected to continue investing heavily in D2C to showcase a more satisfactory consumer experience. In addition, digital innovation that enables three-dimensional experiences such as VR and AR will cause more and more companies to keep pace with the D2C trend.