[2021 컨슈머]⑤ “I don’t sell it on Amazon” Nike’s’God’s Hand’ worked

Input 2021.01.07 06:00 | Revision 2021.01.07 06:44

Direct selling D2C saves commissions and increases customer experience
Nike declared’de-Amazon’ to increase sales and operating profit amid corona
US D2C market, 23 trillion won this year… Growth in well-being, clothing, and tech fields

“I don’t sell it on Amazon.”

In November 2019, Nike, an American sports apparel and supplies company, announced a de-Amazon. This is to focus on’D2C (Direct to Consumer·DTC)’, a direct consumer sales method. It is true that the Nike brand is familiar with consumers, but concerns were raised in the industry when the’Bullet Declaration’ that it would overtake a huge distribution network with guaranteed sales.

A year later, from September to November of last year, Nike’s sales increased 9% from the previous year to $11.2 billion (about 12 trillion won), and operating profit increased by 30% to $1.5 billion (about 1.63 trillion won). D2C sales increased by 32% year-on-year to 4.3 billion dollars (about 4.4 trillion won), and online sales surged 84%. As offline stores were closed in the aftermath of the coronavirus infection (Corona 19), sales plummeted 36% in March-June and sales in June-August fell close to 1%.

◇ No need for department stores or coupangs… D2C catching’performance and customer experience’

D2C, where manufacturers sell directly online without going through distributors, is emerging. Glasses maker Warbi Parker, razor maker Dollar Shave, cosmetics maker Glossy, and mattress maker Casper have grown into direct sales based on their online malls. Traditional manufacturers who had a high degree of dependence on channels also jumped into D2C. Nike, L’Oreal, and Birkenstock have switched to D2C, and luxury goods such as Gucci and Louis Vuitton are trending to expand direct sales by establishing their own online malls.

The reason why manufacturers who have focused on making only jump into sales is to capture two rabbits:’performance’ and’customer experience’. D2C can generate stable profits by saving commissions paid while entering retailers. You can also control the brand experience on your own without being swung over by the retailer. In this regard, Nike CEO John Donnaho said, “We will provide the same service to consumers around the world with a system differentiated from existing retailers in order to focus on direct relationships with consumers.”

In fact, after the D2C declaration, Nike reorganized its mobile application (app) into a paid membership system, and increased customer contact points by increasing hands-on direct stores such as’Nike Live’. It also acquired data analytics company Celect to enhance personalized service. Currently, there are more than 250 million Nike Plus members. According to Bloomberg, they spend more than three times more money than users of the Nike website.

D2C did not suddenly emerge. For a long time, manufacturers have built their own online malls to reduce their dependence on channels, but it was not enough to meet the ultra-low price strategies or fast delivery suggested by large retailers such as Amazon and Coupang.

However, as e-commerce platforms that support online businesses such as Shopify and Cafe 24 have been activated recently, and customer communication through social media (SNS) such as Instagram and YouTube has become easier, direct sales have become easier. MZ generation (millennial + generation Z) with high consumption power prefers online malls with individuality and taste instead of traditional distribution channels, raising the possibility of D2C’s growth.

According to eMarketer, the size of the U.S. D2C market is estimated to be $17.5 billion (about 19 trillion won) last year, up 24.3% from the previous year. This year’s market is expected to grow 19% to $21.5 billion (about 23 trillion won). According to a survey conducted by US PR communication company Diffusion, 34% of US consumers have purchased products at D2C malls, and D2C purchases in the well-being, apparel, and tech sectors are expected to increase by 50% over the next five years.

◇ Manufacturing and distribution boundaries disappear… Distributors should be’win-win’ with DTC companies
In Korea, the D2C strategy is rapidly spreading as the demand for non-face-to-face shopping increases due to Corona 19. Blank Corporation has sold more than 1 million units by taking videos of idea products such as drug pillows and filter showers, promoting them on Facebook, and selling them by connecting them to their own shopping malls, and Leggings brand Xexy Mixes directly sells 85% of its total sales.

Traditional manufacturers are also focusing on D2C. Food companies such as CJ CheilJedang (CJ The Market), Dongwon (Dongwon Mall), Lotte Chilsung Beverage (Chilsung Mall), and Korean Yakult (Freddit) have also strengthened their malls by fashion companies such as LF, Handsome, and Shinsegae International. It built its own mall and started selling it directly.

The industry analyzed that “the boundary between manufacturing and distribution is disappearing” regarding the rise of D2C. Distributors already operate a variety of own brands (PBs). An official in the manufacturing industry said, “The power of distribution was still great, but as it invaded the manufacturing area, the sense of crisis in the manufacturing industry increased,” he said. “I jumped into D2C in the judgment that in this way, it would have no choice but to fall into a subcontractor of a distribution company.” .

The rise of D2C, which rejects brokerage sales, is a threatening trend for retailers. In the US, where the market is larger than ours, collaboration between traditional retailers and D2C brands is active.

Wal-Mart has partnered with Smile Direct Club for teeth braces, Nordstrom Department Store with Cosmetics Glossy and Clothing Everlane, and Neighborhood Goods Department Store with D2C brands. It is to increase freshness by displaying D2C brands with a new concept that was not seen in existing stores, and to catch customers who are leaving D2C channels.

Such collaboration is an opportunity to increase customer contact points for D2C companies as well. It is because it is not easy for consumers to search for channels directly without considerable product power or recognition.

Dankook University economics professor Jeong Yeon-seung said, “Manufacturing and distribution have different competencies and expertise. No matter how well D2C a manufacturer is, there will be a limit to growing like a retailer. Rather than focusing all of our capabilities on D2C, we use it as one of various channels. It is desirable to do it,” he advised.