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Mar 5, 2020

Sneakernomics: Are Brands’ DTC Efforts Good for the Sports Industry?

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Athletic footwear brands have been posting impressive direct-to-consumer (DTC) results, which have driven up their overall numbers. But is this growth truly good for the sports industry?

According to NPD’s Consumer Tracking Service, brands’ direct sales represented 19% of all athletic shoes sold in the U.S. in 2019. Those sales grew by 17% compared to the previous year,* while all other channels combined grew 2%. So, virtually all the annual growth the industry achieved came from DTC. We see this same story playing out at the brand level, with DTC driving the growth for some of the biggest players.

Brands are happy to grow their DTC business because it affords them greater margin (offset somewhat by greater costs). Through DTC, brands can better control their assortments and brand message than they can with their wholesale partners.

But is this true growth for the brand or simply a shift in retail margin dollars from their wholesale partners? The answer is, both. Some of the growth comes from additional units sold, but a major portion is simply retail margin that is shifted from one channel to another.

As I’ve noted, some brands have been very aggressive in their promotional strategies. Brands know that a shoe sold in DTC at 40% off provides greater margin than a shoe sold to their wholesale partners. So, they can afford to be aggressive in pricing without hurting margins. But of course, these promotions weigh heavily on the brands wholesale partners, who do not have the extra margin cushion.

Promotions are never a brand building tool. The sports industry has always been one based on aspiration and inspiration. For those who do it, playing the price game is poison for the industry.

In many ways, brand DTC has not been good for the industry, and driving that business through promotions is especially unhealthy. Brands must be very deliberate in their DTC strategies.

 

*DTC defined here as full price brand stores, brand outlets, and brand.com’s


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