Omnichannel the Next Frontier For D2C Brands: But, Is It Easy? D2C brands adding offline channels to their business have to face the challenges of distribution, logistics, and inventory management

At the onset of the pandemic, the concept of digital-first direct-to-consumer (D2C) was something that only a few had heard of. However, by the time the world bounced back and entered the new normal life, many D2C brands had become household names. Today, these brands are en route to conquering India's offline market, which to date, was dominated by a handful of players in every segment.

Brands such as SUGAR Cosmetics, boAt, Mamaearth, mCaffeine, Kama Ayurveda, WOW Skin Science and many others have not only leveraged digital penetration to carve a niche for themselves but are trying to give stiff competition to legacy players.

According to a report by Statista, the total addressable D2C market is expected to grow by over 15 times from 2015 to 2025 in India. In 2020, the total addressable D2C market was valued at $33.1 billion. By 2025, the total addressable D2C market is forecast to grow almost threefold and reach $100 billion, with fashion and accessories leading as one of the largest D2C segments in India.

"Commerce across India has changed significantly over the years as business models evolved to keep pace with increased internet usage, infrastructure advancements and the rise of omnichannel, B2B2C and social commerce. Now, internet-first brands are in direct competition with legacy brands across the board as consumers increasingly move online. The current trend suggests an upward growth trajectory for e-commerce, which IBEF predicts will reach $350 billion by 2030 — up from $75 billion in 2022," said Bharati Balakrishnan, Country Head and Director, Southeast Asia and India, Shopify.

One of the key drivers of growth in the space going ahead would be the adoption of an omnichannel approach by D2C brands. An effective omnichannel strategy helps D2C businesses meet customers where they prefer to shop, increase brand awareness, attract new customers, and create multiple touchpoints for existing customers. However, just like any other new endeavor, this also comes with some challenges. Before we dive into it, let's look at some of the advantages of going omnichannel.

Why is omnichannel key?

"An omnichannel approach allows us to collect data and insights from different channels, which we can then use to better understand our customers' behavior and preferences. This information can inform our marketing campaigns, product development, and overall business strategy," said Karan Chowdhary, co-founder, WOW Skin Science. 80 per cent of the brand's revenue comes from online and 20 per cent from offline.

An omnichannel approach has been crucial for any brand's growth strategy. For instance, mCaffeine claims that it played a key role in the brand's rapid expansion. "While online sales have been a major contributor to mCaffeine's success, we recognize that to further scale and reach new heights, channel expansion is needed and the offline market is a key channel where our customers shop. The offline market presents immense opportunities for our brand's growth story. By establishing a strong presence in brick-and-mortar retail, we can tap into a wider customer base, utilizing the brand's awareness, and driving sales," said Vaishali Gupta, co-founder and head of brand marketing, mCaffeine.

The company spends 70 per cent of its total marketing budget on online and the rest for offline. For now, its revenue split between online and offline is 75 per cent and 25 per cent.

Another key reason for brands taking this omnichannel approach is while online shopping has seen significant growth since the pandemic, most consumers in India still prefer purchasing offline. "The main reasons are the touch and feel factor, as well as the overall retail experience in brick-and-mortar stores. Hence, it is essential for startups or D2C brands not to limit themselves to e-commerce. For SUGAR Cosmetics, keeping in line with our omnichannel approach, we have been placing a strong emphasis on the increase of offline distribution," said Vineeta Singh, co-founder and CEO, SUGAR Cosmetics.

The brand's products are offered in about 45,000+ retail touchpoints and 160+ brand-owned stores across 550+ cities and are furthering expansion to international markets such as the US, Russia, GCC, and Nepal. By the end of FY24, it intends to increase this number to 100,000+ touchpoints. "Even during the pandemic, we were extremely bullish on offline expansion over the previous two years, which has given us an advantage over other D2C firms that are just now pursuing offline expansion," she added.

Prominent D2C Brands That Have Taken the Omnichannel Route

Challenges hindering growth

As D2C brands expand to multiple channels, they face several challenges, customer understanding being one. "D2C brands are very strong in their online distribution and have a deep understanding of what our consumers buy online, which might have a slight difference in how the offline customer journey works. Offline is more in-person, location-based, and inventory-based buying, which is something new that the D2C brands need to adapt," said Disha Singh, co-founder, Zouk. The brand has more than 50 retail touchpoints today.

Also, coordinating multiple channels, including online and offline, requires strategic orchestration to ensure consistent branding, pricing, inventory management, and customer experience across all touchpoints. "Adding offline channels to your business adds new challenges to distribution, logistics, and inventory management. D2C brands must make strategic adaptations to their operational processes in order to suit the special requirements of offline channels, which may be different from their online operations," said Gupta.

D2C founders tell us how they have also faced difficulties in collecting and combining data. "Strong data integration and management systems are necessary for D2C brands to effectively gather, analyse, and use data from numerous channels in order to acquire valuable insights and make educated decisions," added Gupta.

The last, but most crucial challenge is the competition in the omnichannel landscape with numerous brands vying for customer attention across various channels. One of the biggest challenges is the limited shelf space available in the market, it is very difficult to initially get your foot in the door, said Singh.

Resolving hurdles

How can brands deal with these challenges? "One of the ways is to start smaller, with focus and getting execution of strategy right and then expanding. Another is to find an offline partner who understands the brand and product to deliver the execution in the offline world," said Ivy Chin, Partner, Inflection Point Ventures.

D2C brands can overcome the challenges of going omnichannel by investing in robust technology, prioritizing inventory management, providing excellent customer service, implementing data management best practices, managing costs, and standing out in a crowded market.

WOW's Chowdhary shares some tips:

• Prioritize investments in technology that will drive the most significant impact.
• Use inventory management software to track inventory levels across channels
• Invest in customer service management software that integrates all channels
• Implement data management best practices and use analytics software to make informed business decisions
• Partner with third-party service providers to reduce costs
• Create unique products
• Offer excellent customer service by providing value-added services
• Leverage customer data to create personalized experiences to differentiate from the competition

"By taking these steps, D2C brands can create a seamless and consistent customer experience across all channels, leading to increased brand loyalty, customer retention, and revenue growth," he said.

"It is essential for brands to keep their consumers at the core of all the decisions they make, and always keep customer feedback in mind. Considering the competition for shelf space in the market, brands need to be able to prove how their brand can add value to their retail touchpoints. This could be very challenging at the beginning, however, can be achieved through trial and learning. Brands need to have a clutter-breaking visual appeal and communicate their USP efficiently with their offline audience, this needs to be backed by market research," added SUGAR's Singh.

D2C brands in India are growing at a Compound Annual Growth Rate (CAGR) of 40 per cent and the combined revenue of D2C brands is expected to hit $60 billion by FY27 from $12 billion in FY22, says Shiprocket report. According to investors in the space and leading D2C founders, this kind of growth will be enabled by many brands in the segment adopting an omnichannel approach.