How DTC brands can improve supply-chain management

DTC brands are losing their competitive edge over traditional retail, as difficulties with supply-chain management make it harder to compete with major players. According to Diffusion’s annual Direct-to-Consumer Purchase Intent Index, just 12% of consumers preferred to shop with DTC brands because they offer fast and free shipping, down from 57% in 2022.

Brick-and-mortar retailers, such as Walmart and Target, continue to invest in expanding their e-commerce and delivery capabilities—chipping away at what was once a crucial differentiator for DTC brands—at the same time that supply-chain challenges hamper the entire industry.

Indeed, many big-name DTC brands emerged prior to the Covid-19 pandemic, when supply chains were under less pressure globally. Now, they have to adapt to survive and thrive in the post-pandemic economy.

Supply chain middlemen

These circumstances have required some DTC brands to walk back one of the core tenets of the DTC model: making direct sales to customers. Rather than controlling the entire sales process from online purchase to shipping, brands such as Allbirds, Solo Brands, and Peloton are relying more on wholesalers.

The motivation for this pivot is that wholesalers allow companies to buy in greater volume, creating cost efficiencies on the supply side—if not big profits.

Fabricio Miranda, founder and CEO of Flieber, a technology company serving omnichannel businesses, told Retail Brew that “in some cases, they even lose money on the wholesale sale, but the quantity and the volume that they bring allow them to have much better efficiency on the supply-chain side.”

Considering that profit has become a top priority for maturing DTC brands—especially those that went public in 2020 and 2021—the shift speaks to how important a stable supply chain has become in the post-pandemic economy.

Still, it’s unclear if the drift away from the “direct” in direct-to-consumer is irreversible. Miranda said it’s more likely a temporary compromise until other solutions are adopted to help DTC brands better manage their supply chains.

Better tech, better logistics

Miranda explained that there are a number of technological solutions on the horizon, but they are currently highly fragmented. Some big players in the space include Flexport, which handles freight forwarding; Convoy, which coordinates trucking needs; and Deliverr, which offers flexible storage options.

“You have a bunch of companies already solving verticals,” Miranda said. “But coordination of those verticals is still not there.”

He predicts a wave of consolidation in the coming years will create more one-stop shops for DTC brands looking to manage their supply chains. Of course, this would also involve companies relying more on middlemen on the back end of their business in addition to working with more wholesalers on the front end.

“One of the things that I’m seeing is a continued reliance, if not a heavier reliance on third-party services,” Joshua Palacios, a supply-chain expert and senior sourcing manager at direct-to-patient healthcare company Ro, told Retail Brew. “It just lifts a bunch of weight off of these brands’ shoulders.”

These third-party logistic providers, or 3PLs, are helping DTC brands develop what’s called “upstream mapping,” he added, which involves firms coordinating more closely with their suppliers and manufacturers around supply-chain issues.

“They need to go as upstream as possible in the supply chain just to get visibility—and the visibility piece is so crucial,” he said.