Retail Vs Direct To Consumer

Accountant Explains: Retailer vs. Selling Direct to Consumer

Today, I want to share my thoughts on a common dilemma for e-commerce entrepreneurs: whether it's better to be a retailer or to sell directly to consumers. My name is Rob, and I'm a chartered accountant, as well as a director of an accountancy practice. I've also had firsthand experience in the e-commerce world, generating around £50,000 in annual sales as a retailer.

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In this article, I'll provide you with insights into the key factors to consider when making this crucial decision for your business.

Flexibility

Let's kick things off by talking about flexibility. As a retailer, I've found that you tend to have more flexibility compared to selling directly to consumers. If you have products that aren't selling well, you can swiftly change your inventory by sourcing different items or even using drop shipping to minimize warehousing issues. However, as a direct-to-consumer seller, altering your product can be a more cumbersome and time-consuming process.

Time to Market

Next, let's discuss the time it takes to bring a product from inception to the hands of consumers. Retailers often have an advantage here because they can source products from existing brands, getting them into their warehouses quickly. In contrast, direct-to-consumer businesses will likely face much longer lead times due to the design and manufacturing process of their own products.

Margins

Profit margins are a crucial consideration. Selling directly to consumers allows you to have more control over pricing, within reason. As a retailer, you might have to contend with competition from other sellers offering the same branded products, potentially limiting your pricing flexibility.

Types of Marketing

The type of marketing you choose should align with your business model. Direct-to-consumer businesses often focus on building brand awareness and may use strategies like affiliate marketing and Facebook ads. Retailers, on the other hand, might have more luck with Google Ads and SEO. SEO provides a broader range of entry points for customers, which can work well for Retailers with a large number of SKUs (products).

Affiliate and Influencer Marketing

Speaking of marketing, let's touch on affiliate and influencer marketing. I've found that direct-to-consumer businesses may find influencer marketing more effective due to the control they have over their brand and product. Retailers, on the other hand, could utilize affiliate marketing as a viable option.

Wholesale and Outbound Marketing

While retail has many advantages, you don't have as many options for wholesale or outbound, unless you want to move towards being a distributor (which have even lower margins!). In DTC, expanding your reach through wholesale can be an effective strategy, particularly for direct-to-consumer businesses looking to grow. An essential part of this strategy is targeted email campaigns to potential retailers. It's crucial to approach this with persistence and a well-defined and executed strategy to make it work (i.e., send way more emails than you think!).

Risk

Lastly, let's talk about risk. Direct-to-consumer businesses often face higher risks, especially when dealing with custom products that may not have a resale/residual value. As a retailer, I've typically dealt with established brands and products, reducing the risk associated with holding inventory.

Conclusion

In conclusion, the decision between becoming a retailer or selling directly to consumers depends on various factors, including your product, marketing strategy, and risk tolerance. These insights (drawn from my own successes and failures!), should help you make an informed choice for your business. Whether you choose to be a retailer or focus on direct-to-consumer sales, remember that both paths have their unique advantages and challenges.

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