New fashion and beauty brands are building room for wholesale in their business plan at heightened rates. Famously DTC digital brands like Glossier and Allbirds have signed multi-million dollar deals with worldwide retailers showing an end to the "go-it-alone" era. There is a new generation of brands that are quickly partnering with wholesalers to build brand awareness in the industry and rapidly expand their consumer base at a rate that only wholesale can handle.
Although DTC seems like a sexier business model, brands are actually finding out that they need more of a robust distribution plan complete with wholesale and retail partnerships. Not every brand can have their big break with a viral TikTok as the market becomes more saturated and the prices of digital marketing campaigns continue to skyrocket. There are financial benefits in favor of either plan, but recent research questions if DTC is really a better option.
“Although DTC seems like a sexier business model, brands are actually finding out that they need more of a robust distribution plan complete with wholesale and retail partnerships.”
The main argument with DTC is that while it yields higher marketing expenses, margins are often higher by cutting out the middle-man. However, recent research from BMO Capital Markets challenges the idea that DTC can make brands more money. BMO studied a set of household-name brands and concluded that four out of the top five merchandise margin-getters had thriving wholesale revenues. American Eagle Outfitters and Gap Inc. (two retail companies without key wholesale operations) have merchandise margins below wholesale-heavy players like Ralph Lauren and PVH, according to this report. This further proves that in order for brands not to hit a growth-cieling that have to be open to the idea of partnering with wholesalers in order to scale their business.
