Threat to retailers from brands selling direct-to-consumer moves up a notch

by Glynn Davis on August 2, 2016 in K3 Viewpoint

Brought to you by Retail Insider and K3 Retail

Everybody reading this will have heard of Unilever but probably fewer people will know of Dollar Shave Club (DSC) in the US. Well, the big news from across the Atlantic was that the former has just bought the latter for $1 billion.

So what, you might ask. Well, the ramifications could be enormous for not only brand owners but for retailers too. Yes, it is subscription model – sending razor blades out every month to customers’ homes – which has been a rather fashionable business model of late and would no doubt appeal to Unilever. But more importantly, is that the high price tag paid for the business is a clear validation of the direct-to-consumer model.

Ever since the internet came into being as a sales channel there has been chatter about disintermediation – meaning brands skip the middle-man retailer and go straight to the consumer. This has only ever really been a minor concern to retailers because the brands have never really gained that much traction.

But for certain categories – and shaving is undoubtedly one of them – this way of shopping is finding appeal with a growing number of consumers. We know that receiving razor blades through the post from DSC at a fraction of the price of those from established rival Gillette, which predominantly sells through retailers, is attracting growing numbers of people.

Price and convenience are undoubtedly playing a big part in the appeal of the direct-to-consumer (and pure play subscription) model adopted by the likes of DSC, but what has been the real breakthrough for such businesses is that they are fully utilising digital media to build their brands.

Creating clever content and marketing campaigns – needless to say, DSC has been a master of the art of viral marketing – and distributing them across YouTube, Facebook and other platforms at a low cost has enabled them to really build a presence and to attack the incumbents.

Whereas the traditional brands have spent billions on old school advertising as well as with the retailers in-store to ensure they have dominated the shelf space – to the detriment of smaller brands – the dynamic has now begun to change. To have success brands no longer need to outlay billions on traditional marketing nor do they need to dominate the physical retail space.

Such has been the success of DSC that it is spurring on the likes of P&G to develop more direct-to-consumer initiatives such as its Tide Wash Club that delivers laundry detergent every two or three months to shoppers homes.

The knock-on effect for retailers is that they are not only seeing their sales eaten away but the multi-billion marketing spend that goes in-store from the big brands is no longer finding its way into their coffers. The DSC deal suggests that the retail industry just got a little more cutthroat.