As the coronavirus crisis prompts a fresh wave of brands in the health, beauty and fragrance sectors to consider their Direct to Consumer (D2C) options, we've been thinking back to Biglight's very first project in 2006 - helping Burberry create their first ecommerce channel - to understand how different the challenges are for brands in a similar position today.
Whilst on one hand the value of moving D2C is more obvious now than it was back then and a lot has changed to make the process smoother the crisis, itself the catalyst for the decision, brings with it new challenges that these brands will need to overcome.
To explain what I mean, Let me take you back to the Burberry project, to a time when the success of the ecommerce channel and the role digital would eventually play in the business were really not obvious and to the three key questions that we - as part of the project team - had to grapple with.
What were these questions and what's different for wholesale brands today?
Old Challenges
Question 1 - How could we build a robust business case?
What would the numbers look like? What could we expect in terms of average order values and order volumes? What aspects of the infrastructure needed to be created and what could be re-used? What would the channel cost to build and operate and would this make for a profitable ecommerce proposition?
You see, although the principles of creating ecommerce businesses were already well established, we were in uncharted waters - nobody was selling luxury goods at scale. Would customers have the desire and confidence to buy and would they do this in volume? We just didn't know.
What happened?
We worked out various scenarios based on the percentages business that might move online, we modelled the impact of higher margins for the wholesale component and mapped out potential outcomes for the business case. But we still didn't really know.
The truth is we were involved in creating one huge proof of concept. It had to be credible and scalable but, by keeping the initial investment tight - for example by choosing mid-market rather than enterprise technologies - we got to a point where only a modest proportion of revenue needed to move online for the numbers to stack-up.
So it was a managed risk that paid-off. We found out that people would buy luxury goods online and, within a year, were extending shipping to 26 countries. With the case proven - Burberry quickly started thinking about investing in a second generation platform.
What's different for wholesale brands today?
Today, wholesale brands face a much more benign technology landscape, with cloud-based platforms that are easier to implement than their ancestors, off-the-shelf integrations and revenue-based pricing - reducing risks in the proof of concept stage, when revenues are unknowable. They also provide an opportunity to scale without starting all over again - without having to replace the infrastructure.
Question 2. How would this impact the wholesale business?
What would be the reaction and potential fallout from the business' wholesale partners? At the time of the project, Burberry already had a significant retail business, but it only represented 42% of revenue*. There were concerns about the extent to which an upscaling of the business' D2C proposition would upset wholesale relationships and damage the overall business.
What happened?
Well, thankfully this wasn't a question for the project team, but went to the very top. Angela Ahrendts had recently become CEO of Burberry and declared that Retail was going to be the predominant distribution channel in the future and that - based on this strategy - overall revenue would grow, so the trajectory had already been established.
The result? Burberry's retail revenues grew to 68% of the business by 2012*, in part fuelled by the growth of ecommerce, But wholesale also grew by 42% over the same period*. The brand just got bigger and of course has continued to grow every year since.
What's different for wholesale brands today?
The situation has become a lot clearer. A dramatically changed retail landscape has prompted many wholesale brands to create D2C businesses - allowing them to control their own destiny and engage directly with their customers. So for brands looking at D2C today, the success of those that have gone before gives some indication of the outcomes they can expect.
Fast forward to today and the coronavirus crisis, with its (hopefully temporary) devastating impact on retail, is driving brands that have not so far made the move to consider their D2C options very quickly. The question has shifted from; should we do this?, to; can we afford not to?
Question 3 - How could we create a luxury experience online?
At the time (as now), everything about the Burberry store experience oozed premium from the moment you stepped through the door, with beautiful store designs, perfect product merchandising and impeccable personal service.
How could we possibly replicate anything close to this experience in the ecommerce channel to ensure we enhanced the brand using the tools we had? One thing was for certain - we would not be allowed to damage it.
What happened?
By 2006, Burberry had been delivering a luxury experiences to its customers for 150 years, so the processes to do this were embedded in the DNA of the organisation and were supported by well-resourced specialist teams. This is what the business knew how to do well.
So, by engaging these teams in the project, we were able to ensure that every aspect of the experience, from the site design, content strategy, delivery services, order packaging and customer service was adapted to meet the stringent standards the brand demanded.
Other teams provided services direct to customers to support the offline business, such as personal shopping and product alterations and their activities were extended to support the new channel, ensuring the quality of service could approximate the offline experience.
What's different for wholesale brands today?
Successful wholesale brands are masters at providing services to support their customers and their brand experience through existing channels and these capabilities can be applied - with some adaptation - to create and support an equivalent experience in a D2C channel. We learned this at Burberry all those years ago and we've found it to be the case in every project since.
There are also a lot of people out there who have helped wholesale businesses create and grow on-brand ecommerce experience over the years, so plentiful resources are on-hand to help them do this.
New Challenges
So, in many respects, at least compared to the situation in 2006, the conditions for wholesale brands considering the creation of a D2C ecommerce channel are more favourable - the technological environment is less complex, with lower costs and risks, the potential for channel conflict is less pronounced and there is plenty of evidence and experience to help them deliver something they can be proud of.
But the situation is far, far more challenging today in two important aspects, both caused by the extraordinary times in which we find ourselves:
The loss of the physical environment
The reality is that, those brands that haven't yet made the move to D2C are in that position because the imperative to do so hasn't been obvious to them up until now.
Taking the health, beauty and fragrance sectors as an example, the nature of their products means that they are sold much more effectively in a physical environment, where customers can see, touch, smell and test them. They involve the delivery of highly-personal and highly-sensory experiences - so the decision to create D2C ecommerce businesses has been far from self-evident.
But fast-forward to today, when these environments are not currently available and where we have to contemplate a future when they may remain closed or undesirable for some time to come, brands in these sectors will not only need to consider creating channels to sell their products direct to their customers, but also find ways to compensate for the loss of the physical environment, by creating deep, engaging, personal and near-sensory experiences in the digital realm.
This means that we're going to have to go so much further when we shape and design the digital experiences these brands will offer their customers. These have to do so much more than provide a faithful representation of the brand online, with a reliable transactional component, but require us to stretch our thinking and our innovation far further than we ever even envisaged might be possible.
In a sense this is the challenge now facing every retail brand in the current era. In the absence of stores, or in the event that customers don't want to visit them - we will all have to find new ways to deliver so many more aspects of the experiences customers want, need and expect via digital platforms, this may well herald a new era in digital transformation.
As a retailer told me the other day - we're going to have to reimagine what our digital channels are capable of.
The uncertain economics of the future
But there's no doubt that the biggest challenge of all will be presented by the economic wake left behind by the crisis itself. We know little about what this will mean, but it's bound to make for a challenging time to create and grow a new business of any type, adding uncertainty and risk.
However, from the conversations I've had recently , there appears to be a strong desire amongst wholesale brands to face this future with more control over their own destinies and the flexibility to respond to whatever our uncertain future throws at us. Having a D2C ecommerce channel appears to be part of this.
*Burberry PLC Annual Report 2005/06 and 2011/12