Expansion Tips
Wholesale vs. Direct-to-Consumer: Finding the Right Balance for Your Brand
Choosing between wholesale and DTC is key to growing your brand. Learn how each model works, their pros and cons, and why a hybrid approach could be your best strategy.
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When it comes to growing a fashion brand, one of the most critical decisions you’ll face is choosing your sales model. The two most common routes are wholesale and direct-to-consumer (DTC), and each comes with its own set of advantages and challenges. So, how do you know which one (or combination of both) is right for your brand?
In this blog post, we’ll break down the differences between wholesale and direct-to-consumer sales, analyse the pros and cons of each, and help you determine how to find the right balance for your brand’s long-term growth and success.
Understanding Wholesale and Direct-to-Consumer Models
Wholesale: Selling Through Retail Partners
Wholesale is the model where your brand sells products in bulk to retailers, who then sell those products to their customers at a markup. In this model, you act as the supplier, and the retailer handles the sale to the consumer.
How It Works:
- You manufacture and supply your products to a retailer (either physical or online).
- The retailer then marks up the price and sells the products to the end customer, often focusing on reaching a wide audience.
- Retailers may purchase in large quantities, which can mean more immediate cash flow for your brand, but they control how your products are marketed and sold.
Direct-to-Consumer: Selling Directly to Your Customers
The direct-to-consumer model, often abbreviated as DTC, means your brand sells directly to customers through your own channels—whether that’s through your website, a flagship store, or social media platforms. In this model, you handle all aspects of the sales process, from marketing to distribution.
How It Works:
- You sell your products directly to consumers through your e-commerce website or retail stores.
- You control all customer touchpoints, including marketing, customer service, pricing, and inventory management.
- Without middlemen like retailers, you have more control over the customer experience and higher profit margins, but you also bear the burden of attracting and converting customers.
Pros and Cons of Wholesale
Pros of Wholesale
- Reach a Larger Audience:
- Wholesale allows you to tap into retailers’ established customer bases, making reaching a large, diverse audience easier. Your brand can quickly gain visibility in multiple markets and demographics by partnering with reputable retailers.
- Faster Growth:
- With retailers carrying your brand, your products can be in multiple locations (both physical and online), allowing for rapid scaling. Retailers handle their end’s marketing, sales, and logistics so that you can focus more on design and product development.
- Reduced Marketing Efforts:
- Since the retailer handles the sales and promotions, you don’t have to spend as much on direct marketing. This can save time, money, and effort, allowing you to concentrate on what you do best: creating and manufacturing high-quality products.
- Bulk Orders and Immediate Cash Flow:
- Wholesale typically involves bulk purchasing, so you can quickly generate cash flow from large orders. This can be especially useful for brands looking to scale and increase production volume.
Note: when talking about the pros of wholesale, we can’t go without mentioning that the positive side of this model is enhanced when you use a wholesale platform.
Cons of Wholesale
- Lower Profit Margins:
- Retailers often mark up your products, which means your profit margin will be lower than if you were selling directly to consumers. Since you’re selling at a wholesale price, your revenue per unit sold will be significantly less than if you were selling directly.
- Less Control Over Branding and Customer Experience:
- When you sell wholesale, retailers control how your products are marketed, displayed, and sold. This means you have less control over the branding, customer experience, and pricing strategy. Your brand’s image may not align with the retailer’s approach, potentially diluting your message.
- Dependence on Retailers:
- Relying on retail partners for sales means your success is closely tied to their performance. Your revenue can suffer if a retailer experiences a downturn or discontinues carrying your brand.
- Inventory Management:
- With wholesale, you’re often required to produce a large inventory upfront. This means a significant cash investment in production, with the risk that products may not sell as quickly as anticipated.
Pros and Cons of Direct-to-Consumer
Pros of Direct-to-Consumer
- Higher Profit Margins:
- When you sell directly to consumers, you eliminate the middleman (the retailer) and retain a larger share of the profits. You set your own pricing strategy, leading to higher margins per product sold.
- Complete Control Over Brand and Customer Experience:
- Selling DTC gives you complete control over every aspect of the customer journey—from how your products are presented online to the unboxing experience. You can tailor the customer experience to align with your brand’s values and aesthetics, which can foster stronger brand loyalty.
- Direct Customer Relationships:
- With DTC, you can directly access customer data, allowing you to understand their behaviour and preferences. This insight can be invaluable for making data-driven decisions and improving your products, marketing strategies, and customer service.
- Flexibility in Marketing and Promotions:
- DTC brands have the flexibility to run targeted marketing campaigns, offer promotions, and build customer loyalty programs based on their own needs. You can quickly pivot and test different approaches without needing approval from external parties like retailers.
- Better Control Over Pricing:
- Unlike wholesale, where the retailer dictates pricing, you have complete control over your pricing strategy. This allows you to experiment with pricing models, seasonal discounts, and promotions.
Cons of Direct-to-Consumer
- Higher Marketing and Acquisition Costs:
- Without the support of retailers, you must take on the responsibility of attracting customers to your site or store. This often involves significant investments in digital marketing, SEO, social media advertising, and influencer partnerships. Acquiring customers can be expensive and time-consuming, especially when starting.
- Logistics and Fulfilment Challenges:
- Selling directly to consumers requires you to manage your own logistics and fulfilment. This includes everything from managing stock levels to handling returns and shipping. As your brand grows, these logistics can become increasingly complex and costly.
- Slower Growth:
- While you control the customer experience, growing your direct-to-consumer brand often takes more time. You must build a loyal customer base from scratch, which can be slower than leveraging retailers with an existing customer base.
- Higher Operational Costs:
- From website maintenance and customer service to inventory management and shipping, operating a direct-to-consumer brand requires more hands-on involvement and higher operational costs than wholesale.
Finding the Right Balance: Wholesale + Direct-to-Consumer
Many brands today are choosing a hybrid approach, balancing wholesale and direct-to-consumer sales models to capitalise on the advantages of each. Here’s how to find the right balance for your brand:
- Test Both Models:
- If you’re starting out, you might want to test wholesale and DTC models to see which works best for your products. Some brands begin with wholesale to quickly build awareness and generate cash flow, then transition to DTC once they have a loyal customer base.
- Start with Wholesale for Rapid Growth, Then Add DTC:
- If you want to scale quickly, wholesale can help get your products into a wide range of retailers. As your brand grows and your marketing efforts strengthen, you can shift focus to DTC, giving you more control over your branding and customer relationships.
- Use DTC to Supplement Wholesale:
- If your wholesale business is already established, consider using DTC to supplement sales. For example, you can offer exclusive products, limited editions, or personalised items on your website that aren’t available through retailers. This creates a sense of exclusivity and strengthens your brand.
- Leverage DTC Data for Wholesale Strategy:
- The data you collect through direct-to-consumer sales can be valuable for optimising your wholesale strategy. By analysing customer preferences, purchasing behaviours, and popular products, you can tailor your wholesale offerings to meet the needs of retailers and their customers.
Choosing between wholesale and direct-to-consumer isn’t an “either-or” decision. Both models offer unique benefits that can be leveraged depending on your brand’s goals and growth stage. A hybrid approach incorporating wholesale and DTC sales can be a strategic way to maximise exposure, grow your customer base, and optimise profit margins.
The McKinsey and Company fashion report of predictions for 2023 talked about the advantages of a hybrid approach: “although brands across price segments and categories have embraced digital direct-to-consumer channels, mounting digital marketing costs and e-commerce readjustments have put the viability of the model into question. To grow, brands will likely need to diversify their channel mix, including wholesale and third-party marketplaces, alongside direct-to-consumer models.”
Designer Sander Lak talked to Vogue about the importance of balancing wholesale and DTC: “You need wholesale for starting a business. You need [customer] eyeballs and hands touching the fabrics and the garments. And I have a really great relationship with all the best stores from all of my experience with Sies Marjan. But on the other hand, it’s also really important to have a DTC channel where we can communicate purely in our own interest.”
Ultimately, the key is to remain flexible, continuously analyse your sales data, and adapt to changes in the market. Finding the right balance can ensure long-term success for your fashion brand.
It’s also important to emphasise that a complete and strong online presence is essential for wholesale success. It helps attract the attention of final consumers and wholesale buyers. Social media has assumed a crucial role in building brands, and consumers feel more confident in testing new brands that have high online engagement, which indicates a good fit with their target audience.