Apparel World Says Yes to Direct Channels

— November 01, 2012

Selling direct-to-consumer (DTC) is nothing new for the apparel industry. Retailers such as J.Crew, Victoria’s Secret, Land’s End and countless others have long offered direct-mail catalogs and phone-order capabilities. Today, you can barely find an apparel company that does not have an e-commerce channel, and apparel firms are starting to embrace new DTC options such as shipping merchandise directly from retail stores to consumers, and/or allowing customers to purchase merchandise online and pick it up in stores.

Why the big push for a proliferation of DTC options now? “The ability to shop online and compare products and prices across multiple retailers has made ‘window shopping’ easier than ever,” states David Sisco, director of retail and consumer goods marketing at UPS, which works with many apparel companies on DTC fulfillment. “In order to compete effectively, apparel retailers must leverage e-commerce channels for brand awareness and to differentiate themselves among their competitors to increase sales.”

In short, providing consumers direct access to purchase and receive goods in multiple ways is smart business. Taking the DTC plunge can also be a great way for brands and retailers to strengthen brand awareness and reach new markets and customers at a considerably lower cost than opening new stores.

For an increasing number of apparel retailers, using their stores as warehouses has become one of the more attractive DTC strategies. Ship-from-store is gaining traction among large chains such as Nordstrom and Macy’s — the latter of which plans to have 300 of its 840 locations equipped with ship-from-store capabilities by year’s end — in large part because it can provide faster and easier fulfillment that allows retailers to compete with online mega stores like Amazon and Zappos, says Gartner analyst Jessica O’Brien.

“Ship-from-store gives apparel retailers the potential ability to get items to customers more quickly,” she says. “This approach can also yield benefits like an uplift in sales; more efficient inventory across the network; and fewer out of stock items — which means more profitable multichannel customers.

“Markdown avoidance is another big benefit of ship-from-store,” she adds. By allowing retailers to ship an item from a retail store — where it may be lingering on the sales floor — directly to a consumer who orders it online, apparel retailers can save the always-coveted full-price sale, O’Brien explains.

But just because DTC brings great benefits doesn’t mean it is easy to execute; potential logistics and technology snafus abound. Warehousing configurations and strategies, for example, may need tweaking. “From the fulfillment side, DTC orders are very different from wholesale-retail orders,” explains Marc Bessho, an analyst with Kurt Salmon. “A lot of wholesale and retail apparel DCs are set up to move cartons very efficiently, but are not necessarily designed for handling the individual item picking and packing that is characteristic of DTC orders.”

In addition, he explains, DTC order quantities must be perfect. “If you’re shipping to your own retail stores you can afford to round up or down on the quantity and presentation/packaging standards are fairly simple. But if the quantities aren’t exactly right for an end customer or the packing and presentation doesn’t meet expectations, that customer may be unhappy and they will not shop with you again, and in the worst case you also have returns to handle,” Bessho explains.

“Apparel companies conducting DTC business must also set up their technology systems very differently. They need an e-commerce platform,” he adds.

Companies embracing ship-from-store or buy-online-pick-up-from-store options face another set of potential roadblocks. Inventory integrity, for one, must be extremely tight. “Apparel retailers offering these new fulfillment options must have very granular inventory visibility across all their stores and warehouses in order to execute on that promise,” O’Brien explains.
There is also the changing dynamic of what a ‘store’ means in these cases, she adds. “Are you a warehouse? Are your employees helping customers on the floor, or are they pick/pack/shippers? It’s a lot to sort out.”

So, given these pros and cons, how are apparel companies using DTC channels to their advantage? Here is a snapshot of two apparel brands that are successfully navigating the DTC landscape.


CASE STUDY 1:
Going Direct to Satisfy Customer Demand

Canadian maternity and nursing bra brand Bravado Designs Ltd. began selling DTC because its consumers demanded it — literally. The company initially sold its products exclusively to small independent retail boutiques, but often received calls from women who didn’t live near any of those stores and wanted Bravado to send bras to them directly. “We got into DTC initially to fill gaps in our geographic coverage,” notes Kathryn From, Bravado’s managing director.

In 2000, Bravado migrated those phone purchases to e-commerce, and today, online DTC orders account for 10 percent of the revenue of Bravado’s North American premium line (the company also has a line for Target that is not on Bravado’s web site), as well as six percent of its units sold. Bravado also recently launched a DTC channel in Europe, for which it is expecting strong growth.
 
“DTC has been a natural — and profitable — extension of our brand,” says From. “And, we make great margins because we can sell at MSRP.” Selling DTC has also provided the company the ability to speak directly to its customers via email blasts and glean valuable insight from market research surveys.

It has been tricky for Bravado, however, to balance the desire to grow its direct business while preserving good relationships with its existing base of retailers. “By launching DTC sales, you are competing directly with your business-to-business customers, so it is difficult to advertise and drive traffic to your site,” she says.

Determining the logistics of DTC was fairly easy for Bravado. The company maintains one supply chain to serve its regular and DTC channels, using a U.S.-based logistics provider to handle warehousing, fulfillment and returns processing. “We began working with them to accommodate our U.S. DTC customers, as it was taking too long to mail orders from Canada. The only way it worked was for them to run our B2B business as well, and it offered scalability as we grew,” From says.

The company also uses a streamlined approach to technology. “We have an EDI feed to our warehouse in the U.S., so orders are uploaded electronically,” From explains. “Our website is linked directly to our ERP system so we don’t touch orders. All processing, including payment, is done automatically. The only manual part is reconciling with our payment processor.”



CASE STUDY 1:
Bringing Kids Apparel Direct to the Playground

“Having direct contact with consumers lets us see their true taste rather than how boutique buyers curate our line,” says Lynn Husum, founder of Brooklyn-based urban children’s apparel brand Appaman. This was one of the major reasons behind the company’s decision to launch an online DTC channel 18 months ago after nine years of wholesale and direct-to-store distribution.

Like many small apparel companies, Appaman sold to independent boutiques, whose buyers would cherry-pick which items to carry in their stores, meaning that the whole line was not readily available to consumers. “We felt like it was important to offer our customers a way to purchase those other items from us directly — and those items tend to be our best sellers online,” Husum says.

Her hunch has worked out well so far: DTC sales via Appaman’s web site have doubled in the past year and online inventory sells at full price. In addition, order sizes tend to be large. “Our direct customers come to us to outfit their kids. If they like our pants, they buy four pairs online,” Husum says.

In fact, some items have proved so popular that the company has had to scramble to meet inventory demand. If a celebrity’s child is spotted in one of Appaman’s trendy styles, for instance, popularity will skyrocket online, making order fulfillment a challenge. “As the web channel gets busier, our challenge is to better understand inventory demand and predict which pieces will be a hit with our direct customers,” she explains.

The company is also working to expand its DTC channel globally.
Fulfillment for direct orders has been fairly seamless thanks to Appaman’s partnership with UPS, which was already handling Appaman’s wholesale business. Customers place orders online, then Appaman sends a batch file to its third-party warehouse in New Jersey, which fulfills the orders — wholesale and direct — with UPS Worldship. “Orders placed by noon are shipped the same day; otherwise the orders ship the next day,” says Hussum.

The technology has been key in helping Appaman with cost allocation and maintaining the integrity of orders placed via the website, Husum notes. In addition, the manifest feature of UPS Quantum View Manage (QVM) lets the company confirm that its third-party warehouse is doing its job effectively. “QVM also helps us confirm that orders are properly delivered and alerts us of exceptional circumstances to delivery,” she adds.  

Amy Roach Partridge is a New York-based Apparel contributing writer specializing in business and technology.

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