The Direct To Consumer Model… Is There More Value Here Than Meets The Eye?
Over the next five to ten years the way we consume/shop will continue to be influenced by the use of technology. You do not have to be a rocket scientist to figure this out. This idea though has somewhat rocked the investment community as the “professionals” ascertain the impact technology will have on companies. More to the point, will companies be able to navigate this transition from their existing sales structure to a new direct to consumer model while maintaining their sales and/or profits? Remember, stock market participants do not like uncertainty and this is definitely causing some consternation.
Well, with our long-term view on all things investing, maybe the market pros are missing something here…. Something BIG! Well, actually, they are missing two BIG positives of a direct to consumer model that will far outweigh any “loss” in customers due to a change in sales channel. First, needless to say, if a manufacturer is selling their wares to the end consumer directly, they cut out the middleman and should earn more money. This, we are sure, most people (investors or not) realize. But the second positive seems to be lost on many. It is the direct connection the manufacturer now has with you, the consumer, when they sell their product directly to you.
Take a company like Nike. They currently sell their apparel via retailers, Nike stores, and online (both Nike.com and other websites). When they sell through a retailer, all they know is that they sold a pair of shoes through that retailer. Great, Nike made a couple of bucks. Now, when Nike sells that same pair of shoes directly to you, they now have the potential to know who you are, where you live, your age, your shoe preference, etc. And as you continue to buy from Nike directly, they will know your purchase history!
The value the direct approach brings to a company that has a long-term vision / plan is somewhat immeasurable at this point. In a nutshell, when Nike sells a pair of shoes via a retailer, they’ve sold some shoes and now have to find who to sell the next pair to. When they sell those same shoes directly to you, they now have the opportunity to develop a relationship with you and figure out how to sell to you specifically, your next pair of shoes. This should be easier as they will have more data on you and will also have many more triggers they can pull to get you to buy more Nike gear.
Technology is only going to get smarter and make it easier for companies to harness a direct relationship with their customers. Quite frankly, it’s a gamechanger when you see it with a wide lens. Nike is just one example. There are many more across a number of industries. A company with a loyal customer base and a differentiating product has immense opportunity to build a better business.