Direct to consumer will dominate retail future: IAB

Man working at a laptop at a coffee shop
Consumers are looking more and more to brands than indirect sources for products. (Public Domain)

The industry is seeing a shift from the previous indirect brand-dominated U.S. economy to one ruled by direct brands. According to recent research by the Interactive Advertising Bureau (IAB) titled "The Rise of the 21st Century Brand Economy," along with IAB 250 Powered by Dun & Bradstreet.

With the permeation of high-bandwidth internet, two revolutions were born: A shift to low-barrier, leased or rented supply chains, opening access to new market entrants, and the ability of consumers and companies to communicate directly without third-party intermediaries. 

The latter factor has carried so much influence that the J.D. Power research showed that two-thirds of all U.S consumers expect to be able to converse directly with companies from whom they buy goods. 

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The results: the erosion of physical retailing and a boom in nonstore retailing, both in e-commerce and no-store. Although the nonstore share of retail is still a small percentage of overall retail sales, it is growing quickly, up from 4% in 1992 to almost 10% in 2015. 

IAB CEO Randall Rothenberg, in a recent speech in front of industry executives at the IAB's annual leadership meeting in Palm Desert, California, said all of these changes have paved the way for successful startup, direct brands such as Birchbox, Casper, Dollar Shave Club and Warby Parker. 

Although Rothenberg noted that many of these startups make less than $1 billion a year, they are garnering big shares of the marketplace. For example, Gillette's share of the U.S. men's razors business fell from 70% to 54% between 2010 and 2016, mostly due to the success of Dollar Shave Club and Harry's. 

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Even previously traditional retailers are turning to DTC sales. For example, Nike says that its DTC sales will grow by almost 2.5 times in the next five years. 

Therefore, there is no escaping the role of direct brands in the future of retail, IAB projected.

"You must watch them. You must know them. You must partner with them,” Rothenberg told the crowd.