Direct-to-Consumer (“D2C”) brands have undergone a rapid ascent—maturing from niche “digital-born” challengers to genuine disrupters of the consumer and retail space. As of Q4 2019, over 400 of these brands were estimated to be active globally, and collectively they have taken significant market shares across consumer product staples such as footwear (15%), mattresses (20%) and razors (12%).1
On the supply side, D2C models have been enabled by lowering barriers to entry across the value chain:
On the demand side, consumer expectations are also shifting. With the oldest millennials turning 40 in 2020, the consumer landscape is shifting such that bulk of spending power will reside with the first “native digital” generation—with an estimated collective spending power of $1.4 trillion in 2020 in the US alone2. Latest estimates for 2020 peg the number of D2C customers as over 87 million in the U.S., up 10.3% year-on-year.3
While nuances exist across different countries and markets, consumer surveys of millennial and Generation Z consumers have found consistent themes around the importance they place on customization, credible value propositions and cohesive “brand stories”4 which are increasingly being met by these D2C challengers.
In the face of this, established consumer and retail players have not stood still. Across multiple categories—including consumer packaged goods (“CPG”) and apparel—a number of incumbents have taken an active interest in establishing their own D2C channels. Some have pursued the M&A route of D2C brands (i.e., Unilever’s acquisition of Dollar Shave Club5), whereas others looked to acquire “bolt-on” capabilities to underpin own brand D2C channels (i.e., Nike’s acquisition of Zodiac, a data analytics firm6).
Taken together, whilst the above point to a multi-year “quiet revolution” driven by structural industry and consumer trends, the onset of the COVID-19 crisis at the start of 2020 has clearly sharpened the focus on D2C and e-commerce channels. As social distancing measures took hold, forcing a shuttering of non-essential stores, retailers with established online D2C channels have been more resilient in their ability to meet consumer demand. Going forward, we may see a greater share of companies pivot to D2C channels as a resilience strategy.
Regardless of the motivation, the challenges around engineering D2C pivots are broadly consistent.
While we think addressing these challenges is a baseline for any treasurer operating in a D2C space, it is also clear that idiosyncratic challenges will be influenced by the company’s starting point, legacy operating model and its chosen D2C strategy.
The exhibit below lays out in more detail the scale and scope of challenges faced by treasurers navigating a transition from “legacy” B2B models to D2C models (whether organically developed or via M&A)
More so than ever, what happens in treasury has implications for the business. This is increasingly the case as companies respond to a broader e-commerce disruption, of which D2C is a particular example.
As a treasurer, what should you be thinking about as your company embarks on this journey?
J.P. Morgan understands that each company faces a unique set of challenges and priorities as it considers participation into the D2C space. That is why we offer a variety of products and services, including innovative treasury and payment tools, to help clients respond to the challenges they face.
In an increasingly complex cross-border environment, we also offer a combination of local capabilities and global reach that can help you tap into the world’s largest growth markets while maintaining your focus on your core business priorities.
To learn more, please contact your J.P. Morgan representative.
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