These days, if your brand isn’t selling products online, you are missing out on many customers. Ten years ago, online stores accounted for 5% of products sold. Now they are at a staggering 21%. This number is only anticipated to grow more prominent in the next decade.
How New Direct-To-Consumer Brands Are Competing With Amazon And Walmart
Among the online retailing community, Amazon and Walmart have the firmest grip on the U.S. market. Both retail giants have subscription programs that incentivize consumers to buy more products and even shop casually online.
With all the DTC programs available for these well-established brands, it’s hard to imagine a DTC brand that could compete with either of these two giants. However, if we analyze the market and see the opportunities available for DTC businesses, it might just be possible.
This article will describe the DTC programs offered by Walmart and Amazon, including their positives and negatives. Then we’ll move on to see whether your DTC brand can compete with Walmart or Amazon and how to succeed in doing so.
What Is A DTC Brand?
Before the 2000s, almost all brands were utterly reliant on retailers and wholesalers. These companies had a monopoly on the consumers, and if you wanted to reach them, it had to be through one of their stores.
These all changed dramatically when the internet became a necessity. Suddenly, the internet allowed brands to reach their consumers directly. These new businesses were called direct-to-consumer (DTC) companies and found instant success through platforms like social media.
Today, you can see DTC brands everywhere. Whether it’s your friend’s custom jewelry e-shop or a booming clothing brand, everyone encounters these businesses daily. Other large companies are beginning to sell directly to the consumers as well.
These brands will act as a hybrid model, selling both through retail stores and directly to their customers. Some of the most recognized exclusively DTC brands include Dollar Shave Club, Everlane, and Bonobos.
Amazon has quickly grown into the largest online marketplace in the world. Since 2004, their revenue has grown from USD$6.9 to USD$386 billion. One of their biggest jumps occurred from 2019 to 2020 after the COVID-19 pandemic. Their revenue grew by more than USD$100 billion.
The majority of Amazon’s revenue comes from their e-commerce and the sale of new and used products. Their widespread reach and infrastructure allowed them to undercut local retailers.
They became even more competitive with the Amazon subscription by eliminating shipping costs. They also have products they manufacture and sell on their website and a media streaming service called Amazon Prime.
In 2020, Amazon was awarded the title of the most dominant retailer on the market. Their brand recognition totals to more than USD$400 billion, outranking Walmart and several other competitors. The majority of this money comes from the U.S. and Canada, but they also ship worldwide.
So just how many people use Amazon? As of 2021, there are more than 200 million people who pay monthly Prime subscriptions. That only covers prime members. Amazon also took in 51.2% of all U.S. digital retail sales in 2020.
Walmart is much older than Amazon. They have been in business since 1962 when Sam Walton opened his first store in Rogers, Arkansas. For decades, they functioned with a solely in-person operation. Today, they have more than 10,500 stores in 24 countries.
Recently, Walmart has been trying to infiltrate the e-commerce game to compete with the company that’s been taking all the people out of their stores: Amazon. They plan to invest over USD$14 billion to expand their online network after seeing a 79% growth in 2020.
Walmart now retails almost anything you can buy in its physical stores online. Everything is available at over 3,750 stores for pick-up and 3000 locations for same-day delivery from groceries to clothes. The addition and success of this online marketplace saw their overall revenue go up to 6.7% from 2019-2020 from USD$523 billion to USD$559 billion.
Their e-commerce service is called Walmart+. It launched in September 2020 and has now up to more than nine million members. Estimates state that around 14% of Walmart’s customers have signed up for a Walmart+ subscription. These numbers are expected to grow because the service is still in its fetal stages.
A shocking statistic reveals that 20% of Walmart+ users have migrated from Amazon Prime, proving that some people prefer the service. They also don’t have the long history of the infamous worker mistreatment that Amazon has.
Amazon’s Opportunities For DTC Brands
Amazon has a massive customer base that can grow any small business. By simply having your product there, you receive invaluable validation and a brand-new, giant pool of clientele. Currently, Amazon controls 49% of online commerce and will also contribute to 80% of its growth.
While some companies may think that the market is big enough to fit Amazon and them, that may be wishful thinking. As the company continues to grow, the other portions of the market will shrink. Not to mention that third-party sellers may have already listed your product on Amazon.
Since Amazon is an open marketplace, just about anybody can buy one of your products and list it there. There are no rules against this, and when they sell it, they’ll fully benefit from your product. For many brand developers, this is enough reason to establish a small presence on Amazon. If nothing else, then to deter people trying to resell your products.
Amazon can also make life easier for merchandisers. Instead of creating a personal brand, following up on social media, and finding the best way to advertise, you can just track your Amazon metrics. You won’t have to find a way to better forecast demand, except of course when uncertainties require. If that’s the case, then forecasting and inventory planning are the best means to go.
By seeing what people like to buy and which products work, you can develop an effective marketing strategy.
Walmart’s Opportunities For DTC Brands
Historically, DTC brands and Walmart have always competed. Walmart had a massive share of the consumer market throughout most of the 20th century, and if your products weren’t there, you would’ve lost out on many sales. Nowadays, they are entering the online marketplace, and DTC brands are again at a crossroads of remaining independent or hopping on the bandwagon.
The pandemic was the first step to a strong partnership between DTC brands and Walmart. The U.S. government labeled Walmart as an essential store, so when many DTC brands closed their physical shops, they turned to Walmart for help.
In terms of Walmart+, Walmart doesn’t have much more to offer than Amazon. Its online customer base is relatively small, and they don’t have the same flexibility as Amazon. However, DTC brands beginning to retail in large outlet stores might become an integral part of the DTC growth strategy.
As we’ve seen with major DTC brands in the past (i.e., Harry’s beginning to sell at Target), partnering with a major retailer could be the final step in a fully successful DTC company. You can still maintain your inventory process and sell independently, but selling through a larger store almost always means more customers and more money.
Can DTC Brands Compete With Walmart And Amazon?
There is a clear winner in this David and Goliath battle, and this time it isn’t David. Some brands have had success. For example, Casper Mattresses sold over $100 million in sales by having a simple and effective model that conquered a flawed market.
However, when you think about it, it’s difficult to imagine a business that could stand toe to toe with either of these giants. First of all, you need a unique service that doesn’t already have a cheaper alternative on either site. A massive means of production is also required to distribute your product on the same scale as either of these companies.
We see them winning the war repeatedly. The most recent example of this is Walmart’s $310 million acquisition of Bonobos. Even successful brands like Casper and Harry’s offer their products on the Amazon marketplace.
As these brands grow larger, it will be harder for smaller companies to stand out, and most people don’t even refer to them as third-party retailers anymore. They are simply considered a necessary aspect of the DTC market. Once your DTC brand meets a certain threshold, the only logical next step is to partner with one of these larger marketplaces.
The good news is that neither Walmart nor Amazon want to eliminate the DTC market. They want to keep these brands unique and profitable and continue to sell them on their marketplaces. The only thing they might do is outcompete your small online E-shop.
There are, however, a few things you can try to keep up with them. The first is to maintain innovation. If you’re constantly developing new and exciting designs, then the giants might not have the agility to keep up. You can also monitor the marketplaces for ideas on products and pricing. Casper tries to stay ahead by offering additional discounts on their mattresses that are sold on their site rather than Amazon. However, they get a lot more exposure on Amazon.
Other than that, in this industry, adapting seems like much less of a headache than beating the odds.
Thus, by far, no one can win the war with Amazon and Walmart yet. However, you can use them to become successful. Don’t let the presence of a retail giant intimidate you. Make use of their services wisely, and you will be able to build a successful DTC brand.
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