As consumers spend more and more time shopping online, some brands are foregoing physical retail locations entirely and embracing an online-only model.
E-commerce has hit nearly every industry, from fashion to homegoods to healthcare. Some estimates indicate that retail e-commerce sales are set to reach more than $740 billion by 2023, up from $460 billion in 2017. Companies agile enough to get out in front of the e-commerce wave stand to make a substantial profit, but doing so requires making certain adjustments to their business models.
In response to evolving customer demands, a growing number of direct-to-consumer (D2C) brands have embraced an online-only model. These brands forego brick and mortar locations entirely, instead using their websites as virtual storefronts. There are a number of advantages to this approach for both retailer and customer — for instance, not having to pay rent for physical stores saves costs, and housing inventory in strategically-placed warehouses allows for faster deliveries.
One study reports that a whopping 96 percent of Americans have made purchases online, and for some demographics, e-commerce is already the preferred method of shopping. Warby Parker was one of the first major online-only success stories to come out of the first e-commerce boom. By handling the manufacturing, marketing, sales, and distribution in-house, they were able to institute the “home try-on” model they’re known for, allowing busy customers to choose their glasses frames from the comfort of their own homes.
Other online brands like Barkbox, , Casper, and MVMT have followed suit, disrupting business-as-usual for each of their respective industries. But in order to be successful at the online-only game, these companies have had to upend the supply chain model in the process.
How E-commerce Impacts Supply Chain Management
Customer expectations have grown in tandem with the rise of e-commerce — driven in large part by giants like Amazon that offer two-day shipping. Today’s consumers now expect expedited ship times, prompting many brands to outsource parts of their supply chains in order to meet these demands.
Online-only brands generally rely on third-party logistics (or 3PL) to deliver on their customer service obligations. 3PL logistics refers to outsourcing distribution, warehousing, or fulfillment services to a third party, which provides a greater degree of agility when it comes to order fulfillment. Brands that use a series of third-party distribution centers or 3PL warehouses placed in strategic geographic locations can cut down on ship times to maximize efficiency.
This model has led to the rise of dark stores, warehouses that store a variety of inventory for online orders. These retail facilities often look like their customer-facing counterparts, but are not open to the public. One advantage of dark stores is that they offer a cost-effective approach to warehouse management. Retailers can use intelligent sourcing to determine the most cost-effective way of transporting the inventory to the customer. Along with micro-fulfillment centers, dark stores support the in-store pick-up model that an increasing number of brands — both online-only and traditional — are finding beneficial.
The Future of Online-Only Retail
All this said, some online D2C brands haven’t entirely abandoned the brick and mortar approach. Instead, successful companies like Casper, Everlane, Glossier, and the aforementioned Warby Parker have started opening physical stores in cities like New York and Los Angeles. However, these locations often resemble showrooms more than traditional retail locations.
This approach — dubbed “clicks to bricks” — plays on a challenge that online-only brands face: customers aren’t able to see, touch, or smell a product before buying it. Storefronts allow D2C brands to cast a wider net for different types of consumers while building brand awareness through physical experience. Plus, it’s exciting for customers to visit an exclusive store or showroom for what was previously an online-only brand.
Bonobos is one company using storefronts in innovative ways. The brand launched its “guideshop” model in 2011, which allows customers to make appointments to try on products and order items online while in the store. This novel approach keeps inventory management costs low by essentially making a back room out of the brand’s website.
So far only a few of the extremely successful online D2C brands have opted for the clicks to bricks route, and it’s likely that online shopping will continue to be the norm. Yet in order to succeed in the online-only market, these D2C brands will need to maintain an innovative approach that evolves with customer’s changing expectations.
When it comes to logistics, it’s essential for retailers — both traditional and online-only — to have close 3PL connections, or become big enough to own micro-distribution centers in strategic locations. Ultimately, maintaining efficiency and high-quality customer service all comes down to having the right supply chain in place.