Wholesale and DTC (Direct-to-Consumer) are two different business models for distributing products to consumers. With the rise of e-commerce and digital marketing, many brands have adopted DTC strategies to establish a direct relationship with their customers. However, for many brands like Triarchy, wholesale continues to be a primary distribution channel. Adam Taubenfligel, co-founder and Creative Director of Triarchy shares how the iconic denim brand has found success doing both, including the pros and cons of the balance.
Remind me again, which is which?
Wholesale refers to the process of selling goods in large quantities to retailers or other businesses at a discounted price. The products are then resold to end consumers at a higher price, often through brick-and-mortar stores or online platforms. Wholesalers make money on this markup.
DTC is a business model in which companies sell their products directly to consumers without involving intermediaries like retailers or wholesalers, and has entirely altered the way people shop. Nearly 6 in 10 shoppers buy direct from a brand once per week.
Wholesale Upsides
- Established Customer Base. When retailing in an existing establishment, you have access to its established clientele. Customers come in to shop for other stuff and in turn, discover your brand, catapulting each wholesale storefront as a platform for brand discovery and awareness. “It's an established business that has been there forever, which is why some people don't like it, but it’s exactly why I like it. You know what you’re getting yourself into, you get weekly sell-through reports, it's black and white,” advocates Adam.
- Bulk Orders. Wholesale transactions usually involve larger order quantities, which can lead to economies of scale and reduced production costs. Taubenfligel cautions that this can be an unromantic side of the business – “It's a business. It's numbers. So when things (sales) are not happening the way they should be, the product is getting sent back.” And this varies per account., so something that performs well at one place may struggle at another–there’s no rhyme or reason to it.
- Focus on Production. Manufacturers can focus on producing goods without having to invest heavily in marketing and retail infrastructure. For the eco-friendly denim brand, a focus on production is non-negotiable. “To us, responsibility means building a business that can operate sustainably as well as create responsible products. If we aren’t paying a living wage and supporting human and animal rights then we aren’t responsible,” shares Taubenfligel. By using organic and recycled cotton, focusing on reducing the overconsumption of water that is traditionally used to make jeans, and eliminating the use of hazardous chemicals and plastics that have also been a mainstay in the denim industry, Triarchy has earned numerous awards and built a lasting brand for the future.
- Natural Retention. Wholesale brands value consistency. When your products demonstrate a strong sell-through rate in their locations, buyers are more likely to become repeat purchasers in turn becoming a reliable revenue stream for your business.
Potential Drawbacks of Wholesale
- Hands Off. Brands have less control over the retail experience and how their products are presented to consumers. However, by taking a page out of Adam’s book, you can still maintain a presence at your retail locations. “I really love our wholesale partners and take a lot of personal visits–I love seeing people shopping on the floor, I talk to people a lot” shares Adam about his personalized approach. He recalls the reaction many customers have after being approached by the founder, but champions the effectiveness of personalization, by giving customers a sense of who the brand is.
- Lower Profit Margins. Since wholesalers buy at a discounted price and in bulk, manufacturers typically earn lower profit margins per unit compared to selling directly to consumers.
All in Favor of DTC
- Control. Companies have more control over their brand image, customer experience, and product presentation. However, this control doesn’t come without cost. “In direct-to-consumer, you have to have so much available capital,” says Adam. As an initially direct-to-consumer denim brand, the spending required to find success on the DTC side was what led Triarchy to lean primarily toward wholesale for distribution, taking the brand offline in 2016 and reallocating funds to production in order to find a better way to make jeans.
- Customer Data. Selling directly to consumers allows companies to gather valuable customer data, which can be used to personalize marketing efforts and improve products. This presents a significant opportunity to generate revenue as customers are as much as 69% more inclined to make purchases from retailers offering personalized/customized products.
- Higher Profit Margins. Eliminating intermediary retailers can result in higher profit margins per sale.
DTC Struggles (To Name A Few)
- Marketing Challenges. Without the reach of established wholesalers and retailers, companies need to invest more in marketing and customer acquisition strategies to build a customer base. The Triarchy team recalls the number of hours spent on Zoom with digital marketing partners who thought they had cracked the code for the wholesale first brand with not a lot of luck. The need to stand out is also critical–your positioning and differentiator between competitors must be crystal clear without the reputation of a retail partner to lean on.
- Logistical Complexities. Managing inventory, shipping, and customer service can be more complex for DTC companies, especially as they scale.
Which Approach Is Right For Me?
Deciding between a wholesale or DTC approach depends on several factors specific to your business and goals. Here are a few considerations to help you determine which model might be better for you:
- Product Type and Brand Identity: If you have a unique brand identity and want to control how your products are presented to consumers, DTC might be more suitable. If your product fits well within the offerings of target retailers and doesn't require a strong brand presence or robust product education, wholesale could be a better fit.
- Financial Considerations: DTC generally offers higher profit margins per sale since you're selling directly to consumers without intermediaries. Wholesale might involve lower upfront costs since you're leveraging existing distribution channels
- Scale and Reach: Wholesale can provide quicker access to a broader customer base through established distribution networks of wholesalers and retailers. DTC requires more time and investment in marketing to build a customer base but allows for a direct relationship with consumers.
- Customer Data and Insights: DTC allows you to gather valuable customer data, enabling better personalization, marketing, and product improvements while wholesale transactions might not provide as much direct access to customer insights.
- Logistics and Operations: Wholesale might involve larger, less frequent orders, streamlining production, and logistics while DTC can lead to smaller, more frequent orders, requiring efficient inventory management and fulfillment processes.
Ultimately, there is no one-size-fits-all answer. Consider your long-term vision for your brand—do you want to build a strong direct relationship with consumers? Or do you want to focus on producing products and leaving distribution to others? Some businesses opt for a hybrid strategy, combining both wholesale and DTC models to tap into different market segments effectively. As exemplified by Triarchy, it's also possible to start with one model and transition to another as your business evolves.