Designers and Manufacturers Bypass the Middleman with Direct-to-Consumer Online Business Models

Digital marketing, the power of ecommerce and today’s simple access to global manufacturers have combined to launch another interesting trend: companies that claim to source their merchandise at the same manufacturers used by well-known brands, and then sell, via their web sites only, high quality items direct to consumers are modest prices. The intent is to bypass middlemen and retail stores, and thus offer very high value. Shopping from home during the Coronavirus pandemic boosted this trend.

New apparel companies are among the leaders in this field. One of the better-known companies with this business model is Everlane, www.everlane.com, which states, “We spend months finding the best factories around the world—the very same ones that produce your favorite designer labels.” Online apparel firms with similar business models include JustFab, ShoeDazzle and BirchBox. In fact, the list has gotten very long.

Such companies must offer excellent service, reasonable prices and cost-free returns, in addition to a compelling merchandise line, in order to be competitive. Even when they do so, there is reason to question whether or not they can compete successfully against companies such as Ralph Lauren that have massive supply chains, unbeatable design and marketing teams and immense buying power. If apparel manufacturers that rely on traditional marketing feel threatened by online-only, off-brand upstarts, it would be simple enough for them to launch their own businesses based on this business model, using a different brand name in order to avoid sales channel conflicts.

Meanwhile, brands and logos owned by companies like Ralph Lauren are extremely powerful in the minds of consumers and are exceptionally difficult for smaller firms to compete against. There is also the “wait for name brands to go on sale” mentality that is now standard in consumer behavior. That is, department stores and specialty clothing retailers have essentially trained consumers to expect their favorite apparel brands to be on sale. If you see something new that you like in stores today at full retail price, you know that it will almost undoubtedly be marked down by 25% to 40% soon. At the end of the season, it may be marked down by as much as 70%.

Nonetheless, there are some niche markets where the direct-to-consumer model may make a lot of sense. Eyeglasses are a standout in this regard. Once a consumer’s eye exam is completed and a prescription written, glasses can be made virtually anywhere. Traditionally, however, consumers have ordered their eyeglasses (in particular, expensive designer frames) in expensive retail store fronts that operate at high overhead. Consumers can try out various styles of frames in these stores and turn over their prescription to a salesclerk so that glasses can be custom ordered. However, the actual manufacturing of lenses, and their assembly into frames, will be done elsewhere.

This is where a successful new company called Warby Parker comes in. Its founder saw opportunity in this multi-step supply chain and notoriously high prices. At www.warbyparker.com, customers can select from basic frame styles, upload their prescriptions and order attractive glasses for around $100 to $300, which is a comparative bargain. While Warby Parker has built a considerable following with its online business model, its strategy includes both bricks and clicks, as it is opening a growing number of retail showrooms in major cities in the U.S. Executives of the company reported that when a physical location opens in a new market, online sales in the area typically triple. The firm plans to open as many as 900 U.S. stores. (Of course, there has long been a modestly priced alternative in the eyeglasses market: companies that operate hundreds of storefronts that offer both eye exams and frame selections. After the exam and sale, the eyeglasses are manufactured in a lab owned by the same firm that owns and operates the stores. This vertical integration can offer relatively low prices at high volume but may not appeal to fashion conscious consumers.)

Large numbers of direct-to-consumer businesses are springing up offering everything from custom shirts to bed linens to shoes. Deal Décor sells furniture under this model. Crane and Canopy has gotten good press coverage of its business model, which is very similar to that of Everlane. This firm, at www.craneandcanopy.com, sells sheets, duvet covers and other bed linens that it claims are from the same factories, with the same quality textiles, as those offered by designer labels. Here again, the price is lower than standard retail prices found in stores, at least until such stores put their goods on sale.

The business of shipping goods directly from manufacturers in China to consumers around the world is booming. Chinese retailer LightInTheBox offers hundreds of thousands of items, from wedding dresses to table linens to iPhone chargers to faucets, at competitive prices that are free of middleman markups. Costs are kept down further by LightInTheBox’s proximity to its suppliers, so that its inventory is kept low. The company does business in multiple languages, so it employs part-time workers from around the world who connect with customers via phone and email.

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