By Liz Young
Apparel makers including Levi Strauss, Skechers and Canada Goose are trying to get closer to their customers. Doing that will require nailing the nuts and bolts of retail logistics.
The stalwarts of department-store sales are taking the strategic step into direct-to-consumer sales, reasoning that the investment is needed to kick growth into a higher gear and potentially reset the future of their businesses. The strategy includes mastering difficult operations like home delivery as well as taking on the broader business of stocking more of their own bricks-and-mortar stores.
"You've got to have a supply chain that looks more like a retail supply chain than a distribution one," said Tom Enright, an analyst with research firm Gartner. "There's a bit of a reinvention of the supply chain."
Companies making goods from T-shirts to appliances typically ship merchandise in large quantities to retailers, often on shrink-wrapped pallets hauled by tractor-trailers to merchants' distribution centers. Retailers then handle distributing and selling the products through stores and home delivery.
Reaching customers directly means charting a different supply chain, including picking, packing and shipping individual items through warehouses, as well as developing shipping and returns policies that are crucial to consumer sales. Suppliers accustomed to delivering their goods in 56-ton trucks to retailers' stockrooms and warehouses must instead "find a vehicle that's going to go out into the suburbs," Enright said.
Terry Esper, a logistics professor at Ohio State University, said more suppliers today operate last-mile delivery networks as retailers have encouraged them over the past few years to deliver orders straight to shoppers to speed up fulfillment.
"Now these manufacturers are saying, 'We're learning a capability that we didn't have,'" Esper said, leaving them "to reconcile why I just don't take advantage of that capability myself."
That requires greater investment in logistics, but to many suppliers the financial case is compelling.
"If you're selling something for $100 to a retailer and they're selling it on for $200 to a consumer, well, you can have all of that yourself" if you sell directly to customers, said Enright.
Levi Strauss is working to expand its direct-to-consumer business amid declining wholesale revenue. The San Francisco-based company, which sells its jeans through retailers such as Target and Urban Outfitters, plans to grow its direct business to more than 55% of revenue by 2027. Direct-to-consumer sales accounted for 48% of revenue for the quarter ended Feb. 25.
Levi has been opening more bricks-and-mortar stores, updating inventory-management processes to help keep popular items in stock and releasing new products more frequently to encourage customers to return, Chief Executive Michelle Gass said on an earnings call earlier this month.
Ohio State's Esper said broader trends in consumer markets, including the growth of separate sales channels such as social commerce, give the direct strategy a boost because companies can reach shoppers through influencers and content creators on social-media platforms such as TikTok.
"When their brand gets hot, they're already prepared to do direct-to-customer because they've often been doing a lot of dropshipping on behalf of retailers," Esper said.
Shoe maker Skechers recently automated more tasks at its North American distribution center in Rancho Belago, Calif., to help fulfill e-commerce orders more efficiently.
The Manhattan Beach, Calif.-based company opened 35 stores in the U.S. last year, and plans to open between 140 and 160 stores worldwide this year.
"We have outsized opportunity to continue to grow our direct-to-consumer business," Chief Financial Officer John Vandemore said at an investors conference last month.
Jonathan Stuart Sinclair, president of the Asia-Pacific region at Canada Goose Holdings, said selling more of its winter jackets straight to consumers as well as through department stores has helped the apparel maker reach more shoppers.
The Toronto-based company has expanded its own network of bricks-and-mortar stores and said its direct-to-consumer business accounted for 84% of its revenue in the quarter ended Dec. 31, up from 78% the previous year.
"Most people who start in this sector start wholesale, and that's because you focus on the product, you focus on the market," Sinclair said at an investor conference last month. "Eventually everyone realizes you need control."
Still, selling directly to consumers comes with risks.
Nike during the pandemic cut ties with longtime retail customers such as DSW and Urban Outfitters as it sought to capitalize on a pandemic-driven surge in e-commerce. But the move shifted storage and shipping costs from wholesalers to Nike and left the sports apparel manufacturer with overstuffed inventories that led to margin-slashing discounting.
Nike reversed course last year and returned to selling through DSW and others as it looked to clear out merchandise.
"I don't see it as a reversal of the strategy," Nike Chief Executive John Donahoe told The Wall Street Journal. "I see it as an adjustment."
Write to Liz Young at liz.young@wsj.com
(END) Dow Jones Newswires
April 25, 2024 05:30 ET (09:30 GMT)
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