For much of the past decade, the relationship between brands and retailers has been shifting. What was once a straightforward quid pro quo – distribution in exchange for margin, reach in return for reliance – has become more strained. In response, brands that once viewed direct-to-consumer as an unnecessary headache now see it as commercially vital. The result has been a flurry of brands that were built on the might of retailers now taking D2C seriously.
To understand why, it helps to explore the catalyst for this change. Many will quickly point to the pandemic, which exposed both the fragility of retailers and brands’ over reliance on them. Whilst there is truth in that, the shift runs deeper. The pressure to strengthen D2C has been building for years, driven by structural changes in the role retailers envision themselves playing and how brands acquire customers.
Distribution Doesn’t Equal Visibility
Faced with pressure on traditional revenue streams, many retailers are redefining the retailer-supplier relationship through building their own media and advertising networks. For brands, this means that the once assumed visibility within a retailer’s store or website is increasingly for sale. Whether it be to appear within on-site search results, secure placements across in-store media, or perhaps get a mention on the retailer’s own-brand podcast – brands must bid for visibility.
This undoubtedly reduces the attractiveness of such retailers for new brands. But for mature brands whose cashflow is still heavily reliant on revenue from retailers, this has quickly become part of business as usual. The cost of converting a consumer through a retailer is no longer simply a slim margin, but it now has a very tangible acquisition cost. Meaning that the cost of acquiring and therefore importance of retaining such consumers is heightened.
Irrationality of “Pay-to-Play” Growth
Paid acquisition channels are becoming increasingly costly and inefficient. Whether it be Google or Meta, the economics of “pay-to-play” growth have become increasingly hard to justify in the face of squeezed margins. These channels will, of course, continue to play a role in gaining new customers. But sustainable growth now depends on the less glamorous yet far more valuable art of retention.
Shifting or balancing focus from acquisition to retention is possible for every brand. But for brands with a strong retail footprint and a high proportion of their customers being obtained through retailers, it’s not as simple. After all, most of their customers are not theirs to retain. They rely on a retailer’s geographical reach, pricing strategy, customer experience, and crucially, the products placed besides theirs on the shelf. Meaning that if brands want any meaningful role in retention, they must form a relationship with the consumer directly.
From Migration to Connection
At the heart of customer relationships is data. Whether it be an email address, mobile number, or IP address; first-party data is the facilitator to that first dance. But capturing data from a retailer’s customers is not without risk. Retailers, understandably, are protective of the customers they have spent years nurturing. Any brand seen to be treating them as little more than an acquisition channel is unlikely to be favoured. At best, the response is deprioritisation. At worst, a brand’s shelf space will be eagerly filled by a competitor waiting in line.
Avoiding the friction demands a clear distinction between customer migration and customer connection. The goal is not to pull customers away from the retailer, but to play a role in getting them back in-store. Done well, the retailer will benefit from greater lifetime value without needing to put additional marketing clout behind it. At the same time, the brand gains influence over sell-through and is therefore able to forecast more confidently. It’s win-win.
Some brand leaders may raise an eyebrow at this point. Surely the goal of D2C is, ultimately, to get the consumer buying directly? In part, yes. But treating that as the immediate objective is short-sighted and retailers tend to spot when that is your goal. If they suspect the brand is building a direct channel with their consumerd, the relationship rarely thrives from there.
Instead, you must view the goal as ownership without disruption. Brands need enough first-party data to maintain a connection with the customer should a retailer delist the brand, slash distribution, go bust, or simply lose touch with the consumer. In the immediate future, the focus is on helping the retailer sell more because that improves the brand’s commercial position. In the long term, it is about building a direct relationship with the consumer that can become a buying relationship when the circumstances demand it.
The brands that will thrive are not those treating retail-to-D2C data capture as a quiet rebellion against retailers. Instead it will be those building a clear strategy around it – one that respects both the short and long view. All whilst understanding that success depends as much on how the strategy is sold to retailers as how it is executed internally. Because when data capture is positioned as a shared growth lever rather than a land grab, both brand and retailer have a lot to gain.
