The rise of the direct-to-consumer model

September 25, 2020 6:55 AM

With the prospect of going out now fraught with danger, consumers have switched to online retail platforms like never before

According to data compiled in the first quarter of 2020, e-commerce majors reported a record 230% increase in return-to-origin (RTO) ordersAccording to data compiled in the first quarter of 2020, e-commerce majors reported a record 230% increase in return-to-origin (RTO) orders

By Surendra Singh

As we mark the eighth month since the global outbreak of the Covid-19 pandemic, life has slowly begun to return to normal. Shops have lifted their shutters, offices have started to resume, and so has the bustle on our roads — all while maintaining appropriate precautions. But, as this post-coronavirus era draws nearer, it brings with it a great many questions, particularly in the retail and consumer space.

The onset of the pandemic had a sudden and devastating impact on the offline retail sector worldwide. With standard operations disrupted, physical retailers were faced with a staggering number of challenges. The stringent lockdowns imposed in many countries saw businesses come to a grinding halt. Even the eventual lifting of sanctions did little to ease this burden — with most consumers reluctant to leave their homes and only focussing on purchasing essentials, sales have plummeted across most segments.

Testing times for e-commerce

With the prospect of going out now fraught with danger, consumers have switched to online retail platforms like never before, with e-commerce portals seeing a massive surge in new customer numbers, and enormous growth across virtually every product category. This uptick has moved beyond essential products, with a substantial proportion of purchases now composed of consumer discretionary items. Nothing illustrates this change better than the raw figures that have been tracked. By May 2020, during the very height of the pandemic, total online spending across the globalised world hit $82.5 billion, an astounding increase of 77% year-on-year.

While e-commerce has undoubtedly become a way of life for many, the sheer volume of this sudden shift has also served to expose an array of shortcomings. The one most likely to derail the ascendancy of the online retail model is the disruption to supply chains.

The weeks immediately following the World Health Organization’s (WHO) declaration of coronavirus as a pandemic saw the management and logistics capacity of online retail put to the test. Unfortunately, the outcome wasn’t pretty. With manufacturing hubs shut down or running on skeleton shifts, international trade crippled, and cargo stuck in transit for months on end, many desperately needed products remained ‘out of stock’ for a prolonged period.

These issues were particularly acute in India’s ecosystem, with even leading e-tailers such as Amazon, Big Basket and Flipkart unable to guarantee a smooth shopping experience. According to data compiled in the first quarter of 2020, e-commerce majors reported a record 230% increase in return-to-origin (RTO) orders. This was further exacerbated by stuck shipment levels hitting 9%, and order delays surging by 21%. But, perhaps, the most striking of these figures was a 9% decline in deliveries — an unacceptable figure for an industry in which success hinges on the finest of margins.

The rise of D2C

With brands now cognisant of the perils posed by relying solely on e-commerce, a new contender with the potential to resolve these issues has arisen: the direct-to-consumer (D2C) model. This approach is defined as a low barrier-to-entry e-commerce strategy that enables brands to market and sell their products directly to their consumer base.

It has become clear to brands that both the retail and e-commerce models come with their fair share of disadvantages. At a time when companies are struggling to survive, the prospect of relying on third-party vendors in any capacity is no longer a viable prospect. By vertically integrating production, packaging, sales and distribution internally, brands can empower themselves to take back control of their business.

The new normal is here to stay. All that’s left for brands is to decide how they handle it.

The author is chief of business, Brand Street Integrated

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