Why are DTC brands moving into B2B and wholesale?
The pandemic years witnessed a pivot for many traditional B2B operators who looked to DTC as a solution to ensure they were still able to sell their goods amidst the closures of physical retail stores and loss of sales.
Over 3 years later and we’re now witnessing this trend in reverse; DTC brands are increasingly looking at B2B operations in order to expand and grow their business. But why is this happening now?
This is not a previously unknown trend, with DTC power brands like Harry’s having been stocked in the likes of Boots for a while; and the appeal of higher volume orders is certainly nothing new. But we have seen this really accelerate recently as general ecommerce sales growth has cooled down.
There are, as is often the case, a few different reasons but two key drivers are the significantly increased acquisition costs for DTC brands (particularly when looking at growing brand awareness) coupled with the advances in technology that now allows the two retail channels of B2B and DTC to be more synergistic.
The cost of brand awareness
Using upper funnel media to grow demand and increase awareness is an increasingly expensive decision for DTC brands who are in the crucial phase of exploring new growth strategies. For US based Solo Brands, the move to wholesale in late 2022 organically helped in raising their brand awareness as they noted a 23% jump in first-time customers shopping the DTC site for fire pit accessories. This implied that the firepit itself was either gifted or purchased via a new retail partner. Their decision to start partnering with retailers led to “short-term cannibalization” on DTC sales, but was a more long-term play versus the investment in the more costly solution of above-the-line advertising.
For food-box delivery company Farmbox, the need for increased brand awareness led to a partnership with Medicare and employer healthcare programs to make healthy eating accessible to members of wellness-focused health plans. Building on their DTC set up, their successful pivot into B2B actually resulted in the closure of their DTC operations this year, having closed 2022 on revenue of $36m generated solely through their B2B business (vs. $1m DTC revenue in 2019).
We’ve seen the choice of B2B as a strategic growth opportunity also with Brooklinen, a DTC US brand and their recent launch of a B2B collection aimed specifically at boutique hotels, as well as sofa-in-a-box DTC brand Swyft, who successfully sell to retailers, interior designers, home staging, build-to-rent and landlord sectors through their B2B business.
Advances in technology
Alongside the brand awareness and growth decisions that many DTC brands are currently facing, eCommerce platforms that power many DTC brands websites have made it much easier over the last few years for brands to consider running a hybrid B2B/DTC operation.
Alongside the Adobe offerings, Shopify’s partnership with wholesale marketplace FAIRE, Bigcommerce’s new B2B invoice portal, and Sparklayer’s new ignite integration has really opened up what DTC merchants can achieve in the B2B space. These developments have eradicated the need for a duplication of effort and systems – and with less overhead costs. When looking to go wholesale, DTC brands are therefore seeing the opportunity to scale by leveraging their existing set up without significant upfront investment and recruitment.
This rise in disintermediation has been particularly successful for furniture and beauty brands, where there are large B2B audiences (beyond retailers / re-sellers) made up of interior designers and set stylists, and salons, beauticians, freelancer make-up artists etc. This blurring of the lines is driven by the need to be more agile and responsive to changing market demands and the way people shop.
LOOKFANTASTIC are a prime example of this and have tapped into their B2B audience (such as small salon owners) to act as brand ambassadors or influencers for the DTC site. As a B2B customer the hairdresser is given their own affiliate code that they can share with their customers to use on the LookFantastic site, generating them commission. LookFantastic enjoys more sales through the DTC operation, whilst leveraging a benefit for their B2B customers and offering them incentive to use LookFantastic’s B2B platform for items that were traditionally the reserve of big beauty wholesalers.
Looking at the future of successful B2B selling, many DTC brands already have one advantage that is also contributing to this trend: historically, B2B-only platforms had been built with a B2B aesthetic, lacking some of the “consumer-like” features that both B2B and B2C shoppers have come to expect when buying online, like rich content, fully mobile visual merchandising, and personalisation. B2B buyers today have the same habits as B2C buyers, which has shaken some legacy business models and thought processes. A study conducted by TrustRadius in 2021 found that millennials comprise 60% of today’s B2B technology buyers, and they expect the same easy online, transactional experience.
As digital commerce becomes increasingly competitive, many companies are looking to consolidate their operations to achieve economies of scale. For DTC brands, the technology now exists that makes the move into B2B a smoother, simpler transition and offers both the opportunity for greater brand visibility and awareness, as well as increased sales volume.