1、0Enlighten Fashion Brands Routes to the DTC ModelBuilding eight pillars to enable DTC transformation for continued growth1Editorial Board:Tiger ShanLead Partner,PwC Strategy&ChinaEmail:Steven JiangPartner,Digital Growth Services,PwC Strategy&ChinaEmail: Jerry HuaPartner,Consumer Markets,PwC Strategy

2、&ChinaEmail:Contact us:Contributors:Ryan Ding,Rose Chen and Patrick Pan,Senior Associates of Strategy&ChinaConsumer Markets Leadership:Michael Cheng Asia Pacific,Mainland China and Hong KongConsumer Markets Leader,PwC ChinaEmail:Jennifer YeMainland China Consumer Markets Leader,PwC ChinaEmail:Jane W

3、angLead Partner for Consumer Markets,PwC Advisory ChinaEmail:1Strategy&|Enlighten Fashion Brands Routes to the DTC Model2ContentsForeword03I.Key success factors for DTC fashion brands to achieve profitable growth06II.Five constraints to growth during DTC transformation16III.Eight pillars for DTC fas

4、hion brands to unleash growth23Conclusion37Enlighten Fashion Brands Routes to the DTC Model|Strategy&23The way people socialize and work has beenreshapedduetotheepidemicandotheruncertainties,leading to dramatic shrinkage ofpopulation flow and offline shopping.It bringsnegativeeffecttobricks-and-mort

5、arretailindustries in terms of consumer flow dropped,offline shopping flumped,and social activitiesdecreased.Thus,unprecedented challenges arepresented to fashion brands for business growth,especiallyinthefootwear,apparel,andcosmetics sectors.Meanwhile,given that China has a vast marketand complex d

6、istribution systems,traditionalplayersoffashionconsumergoodsoftenconnect to terminal retailers or final consumersvia regional distributors.In the past,this couldreduce inventory and capital pressure,as well asthecomplexityandinvestmentneededforexpanding the sales network and managingsales in differe

7、nt regional markets.However,alongsidea backdropofupgradeddemandamong the main customer segments,intensifiedindustry competition,and digital transformationof the value chain,the drawbacks of relyingsolely on distributors to reach the market areconstantly exposing.Typical challenges includelagging res

8、ponse to market competition andchanges in consumption,long process to launchnew products,brand damage by hunting short-termyield,inflatedterminalpricesandimbalance in consumer valueperception.The pandemic has made those worse,butconsumers demands still need to be met,so theclick-and-mortar retail mo

9、del,whereby offlinestoresserveaswarehousesanddeliverycentresandonlineonestakeorders,hasbecomemorepopular.Benefitingfromthismodel,some brands are embracing the Direct toConsumer(DTC)model.Strategy&subscribesto the view that,unlike traditional direct retail,DTCconnectsthebrandandconsumersdirectly.By d

10、elivering personalized products,services,experiences,communication and valuetransfer via digital insights on customers,DTChighlyfacilitatesconsumersacquisitionandretention,as well as market expansion.It should be noted that Covid-19 is just one ofthe factors that make DTC model under heateddiscussio

11、n.Many of Chinas leading fashioncompanies had plans for DTC transformationbeforethepandemic.Byanalyzingtheperformance in the past three years(2019-2021)of 19 major DTC fashion brands(including DTC-oriented ones)in China and North America,wespotted an increasing number of Chinese brandsachievinghighn

12、etprofitmarginswhilemaintaininghigh revenue growth.In summary,many fashion companies haveencountered unprecedented challenges underthe post-pandemic era.Therefore,it is of highsignificance to dig into the early adopters of theDTC model that have sustained healthy growth.This white paper aims to anal

13、yze the keysuccess factors for fashion brands who adoptthe DTC model,as well as the five challengesfor growth-seeking players.Finally,it proposeseight pillars for DTC transformation to unleashgrowth potential.ForewordStrategy&|Enlighten Fashion Brands Routes to the DTC Model34DTC model has developed

14、 for a long time inEuropeandAmericafashionindustries,while several new DTC brands sprung uprecently.Some traditional worldwide brandshave announced transformation strategies,striving to boost their DTC revenue to half,oreven 60%of the total revenue in the next 3to 5 years.“DTC revenue over60%Against

15、 the backdrop of the pandemic,it is meaningful to analyze how typical DTC brands(includingcompanies for which DTC accounts for the majority of revenue,hereinafter referred to as DTC brands)at home and abroad have performed in the past three years,and summarize the useful experience ofoutstanding pla

16、yers.This white paper singles out 19 fashion DTC brands,of which 9 are in China and10 in North America,covering 6 sub-industries,including apparels,footwear,skincare,jewellery anddesigner toys(see Figure 1).Source:Strategy&analysis711352ApparelsDesignertoyJewelrySkincareHomesFootwearFigure 1:Sub-Ind

17、ustry and geographic distribution of the sampled DTC fashion brandsChinaNorth America47%53%Enlighten Fashion Brands Routes to the DTC Model|Strategy&4Sub-industry distribution of the sampled DTC brands in China and North America N=19Geographic distribution of the sampled DTC brands in China and Nort

18、h AmericaN=195The sampled companies have managed to re-construct their relations to consumers as directconnections through digital technology and data insight applications,enabling them to capture usersneeds and meet them perfectly,to deliver differentiated consumer experiences.Figure 2 shows thedif

19、ferences between the traditional retail model and DTC models in terms of consumer insights,business model,marketing,and distribution channels.Figure 2:Traditional model versus emerging DTC model*Note:Spray and Pray here means to randomly send out a large amount of marketing information,praying to ge

20、t orders.Source:Strategy&analysisConsumer InsightsData-driven,real-time insights about individual consumers through digital technologiesBusiness modelProduct,price and promotion determined at an individual customer level(or micro-segments)MarketingMarketing across multiple digital media,but increasi

21、ngly targeted at individual consumers based on insight and preferencesChannelsIncreasing use of several direct channels Owned e-commerce,owned physical retail,1-to-1 social selling,in-store shopsEmerging DTC ModelConsumer InsightsAd-hoc research(focus groups,panels,surveys)dominated by third-partyag

22、enciesBusiness model Product,price and promotion determined at a general customer level MarketingOnline advertisement driven.Spray and Pray model*with no clear approach for customer acquisition,conversionChannels Reliance on retailers to sell products to the consumer.Limited direct interaction with

23、consumersTraditional ModelStrategy&|Enlighten Fashion Brands Routes to the DTC Model56I.Key success factorsfor DTC fashion brandstoachieveprofitablegrowthEnlighten Fashion Brands Routes to the DTC Model|Strategy&67To identify high-performance DTC fashion brands,Strategy&tracked these 19 sampled comp

24、anies inChina and North America in the past three years.We constructed a two-dimension performance matrixwith two core indicators,i.e.,the Compound Annual Growth Rate of Revenue(CAGR)and the netprofit margin(using 2021 figures as a baseline),between 2019 and 2021.Based on the median of thetwo indica

25、tors,the matrix was divided into four quadrants,i.e.,high-performance quadrant,high-growthquadrant,high-profit margin quadrant,and relatively low-performance quadrant.As shown in Figure 3,about two-thirds of the samples have sustained both high revenue and positiveprofitability.More importantly,with

26、in the high-performance quadrant,i.e.,the range with revenue growth and profitmargin both above the median,China has more companies than North America does(red dotsrepresent Chinese brands,and grey dots represent North American brands).It indicates that duringthe pandemic in recent years,China has m

27、ore DTC brands with higher revenue growth and higherprofit margin.Now the question is why they stand out.Figure 3:Revenue growth and profit margin in recent 3 years of the sampled DTC fashion brands*in China and North America117-16-14-2-0116-- 220230-10-8-54

28、-9--1160708-12140--2021 Revenue CAGR2021 Profit MarginDABLCChinaNorth AmericaMedian=6.9%Median=19.7%N=19(%)(%)High PerformanceHigh GrowthHigh Profit MarginRelatively Low PerformanceNote:Brands in the above diagram are 19 sampled DTC-oriented brands,which are desensitized as

29、A,B,C,D,L,etc.Sources:Annual Reports,Strategy&analysisStrategy&|Enlighten Fashion Brands Routes to the DTC Model78It was not easy for the top performers to make achievements in the past three years,as the overallbusiness environment in China was experiencing uncertainties and weak growth.Here,take a

30、pparel&footwear sub-industry and the skincare sub-industry as two examples.Since the end of 2019,the twosegments had dropped to the bottom of the MoM growth rate at least twice,in January 2020 andFebruary 2022 respectively.But January 2021,the MoM growth rate witnessed a high peak in nearly adecade,

31、quickly rebounding from the first trough with a booster of the recovery of the pandemic.Puttingthese extremes aside,the two sub-industries endured lower growth during the pandemic,comparedwith the pre-covidlevels(see Figure 4).Figure 4:Month-to-month sales growth rate of apparels&footwear and skinca

32、re in ChinaNote:Jan to Feb data for 2012 and subsequent years are not disclosed by the National Bureau of Statistics,thus not includedin this figure.Source:National Bureau of Statistics-40-30-20-5060702014.122011.12011.122013.122012.122016.122015.122017.122018.122019.122020.122021.122022.

33、7MoM Growth Rate(%)SkincareApparels&footwear2011.1-2022.7Enlighten Fashion Brands Routes to the DTC Model|Strategy&89In this context,it is even more valuable to further analyse andidentify how these outperformers sustained growth.Analyzing thefourChineseDTCbrandswithexcellentperformance,andeliminati

34、ng covid-related factors(such as business disruptions dueto social isolation policies,non-habitual buying in e-commence dueto blocked shopping in stores and etc.),we summarize three keyfactors for their success:Even negatively impacted by COVID-19,both online and offlinestores of outperforming DTC p

35、layers have experienced double-digit growth,whereas online stores have achieved much highergrowth.ThosechannelsintheDTCmodeldonotoperateindependently.Offline stores function as experience centersandprovideexcellentexperience,whichencouragesconsumers to share posts on social media for word-of-mouthco

36、mmunication.Then,these user-generated contents(UGC)will guide potential customers to online stores.01Offline brand-owned stores guide potential customers to online storesThis white paper will dig deeper into the above three key factorsfrom the perspectiveof data insights.Consumers of outperforming D

37、TC brands are more willing torepurchase.High consumer retention rate is not only driven by the superiorexperience and customer satisfaction from both online andoffline brand-owned stores,but also by membership systemsand operation targeting existing customers.02Repurchase contributes more to the sal

38、es growth High-performance DTC brands have balanced product portfolio,which providesa more obvious long-tail effectin sales.Assisted with direct consumer connection,DTC brands candynamically perceive consumers preferences and feedback,torespond to consumers needs,iterate new products,andupgrade exis

39、ting products at a faster pace.03Product portfolio driven by real-time market insights contributes to balanced sales growthStrategy&|Enlighten Fashion Brands Routes to the DTC Model10As shown in Figure 3,four of the nine DTC fashion brands in China arewithin the high-performance quadrant,and the res

40、t are distributed acrossthe other quadrants.These four companies will be referred to as the“outperformers”(desensitized as A,B,C and D)and the rest as“othercompanies”(X1,X2,X3,X4 and X5)respectively.In comparison,wetrack the changes in their revenue CAGR in the recent three years of theDTC channels,

41、including brand-owned stores online and offline.Ouranalysis shows that,for the four outperformers,both online and offlinestores have sustained revenue growth(except for company B,a lateadopter of DTC,whose offline stores were under self-adjustment),andonline stores have maintained a rate much higher

42、 than offline storesdoes.For the other companies,the revenue growth rate of online andoffline stores is different.For example,the offline stores of company X1record a much higher growth rate than its online stores does.So,are there synergies between the revenue growth of online and offlinebrand-owne

43、d stores of the outperformers?From the perspective of thecustomer journey,more and more fashion goods consumers,especiallythe younger generation,wont buy a product without being deeplyattracted to it at first.Frankly speaking,if there are no effectivetouchpoints for a fashion brand or new product to

44、 establish consumerrecognition,consumers are likely not to purchase.We also notice thatthe brand-owned stores of outperformers have both merchandising andexperience functions,and there are many posts related to theirexperience centers on social media.Based on the number of posts in a leading lifesty

45、le social mediaplatform,outperformers have on average more than twice of posts as theother companies.Besides,not all of these posts are released by thebrands official account,instead,most are created by users after theyvisited experience stores,i.e.,user-generated contents(UGC).Eventhough such store

46、s are usually located in a few first-and second-tiercities and a large number of consumers in other cities cannot becovered,these online contents are able to attract online customers anddrive potential customers to make purchases online.This business loopis creating greater opportunities for brands

47、to improve user conversionon e-commerce platforms.Similarly,considering the popularity of shortvideos,we also look into the user traces of a well-known short-videoplatform and find out a similar result.The offline experience centersignite numerous UGC short videos,and these contents attract morepote

48、ntial consumers to watch and give a like.We count the number oflikes,and find out that outperformers receive more than four times ofpositivereviews than the other companies.1.Offline brand-owned stores guide potential customers to online storesEnlighten Fashion Brands Routes to the DTC Model|Strateg

49、y&1011Therefore,it can be seen that the outperformers online and offline channels do notoperate separately;bricks-and-mortar stores are no longer solely for sales,but alsodouble up as key touchpoints that offer interaction,experience,service valueextension,digital perception and application to consu

50、mers.Meanwhile,to make thestores popular on social media to attract more users,outperformers often designinteractions,activities and integrated experience to target users demands and usingscenarios.In addition,they produce banners,slogans or visual hammers to resonatewith users based on their value

51、proposition.In this way,they could acquire newcustomersorpurchasesthroughusersrecommendations.Inconclusion,outperformers achieve growth in both offline and online stores,while the formerprovidesleverage valuefor the latter.A fashion clothing brand leverages its offline stores to directtraffic to its

52、 online.In 2021,the brand opened the firstexperience store that integrated coffee+customization+clothing retail in a popular business district in Beijing.Combining clothing products with coffee,the store allowedconsumerstotastespecialcoffeeanddessertswhileshopping,creating a fashionable lifestyle.Th

53、e newly opened store quickly attracted a large number ofpotential customers.Within a month,more than 300 postshave been posted on a leading lifestyle social platform,andreceived more than 10,000 likes,favorites and comments intotal.A large number of non-Beijingers asked how to buy theproducts via co

54、mments,and the bloggers replied to them,telling them that the items could be bought in the brandsonline flagship store.According to sales data,in the first month when the storeopened,the online flagship store reported a double-digitgrowth in sales compared with the previous month,and sawsustained gr

55、owth of this scale in the following months.Itdemonstrates how offline store is valuable in the surroundingarea,as well as how offline store boosts online exposure ande-commerce conversion as the young generation has apreference for online shopping.“Case study:A fashion brand opened a strong experien

56、ce store to boost e-commerce salesStrategy&|Enlighten Fashion Brands Routes to the DTC Model1112By tracking the performance of the 9 Chinese DTC companies self-owned flagship stores on animportant e-commerce platform in China,we identified two noteworthy dimensions of data:one is thetotal sales in t

57、he past 12 months,and the other is the number of the stores existing fans.We tried toillustrate the retention rate through the linear relations between these two dimensions.It should benoted that flagship stores fans are usually more than actual customers,which means that it is almostimpossible to h

58、ave each fan purchase at least once.As shown in Figure 5,axis X notifies the numberof fans”and axis Y refers to the total sales in the past 12 months“.If YX,i.e.,the intersection of Xand Y is on,or in the upper left of,the line Y=X(the slope=1),it means a fan-converted customermakes multiple purchas

59、es on average.It is worth noting that three of the outperformers(A,B,D)fall on or in the upper left of the line Y=X,while most of the other companies(X2,X4,X5)fall in the lower right of the line.It indicates that theoutperformers attracted more repurchasers(defined as those who made two or more purc

60、hases in thepast 12 months),reflectinga higher rate of customer retention.2.Repurchase contributes more to the sales growthFigure 5:Linear relationship between the number of fans of self-owned flagship stores and the total sales in the past 12 months of DTC fashion brands in ChinaNote:The total sale

61、s in the past 12 months refer to those of the Tmall flagship store of respective brands between July 2021and June 2022;and the number of fans is based on the data of the Tmall flagship store of respective brands in early July 2022Source:Tracker of e-commerce flagship stores,Strategy&analysis05,000,0

62、0010,000,00015,000,00020,000,00005,000,00010,000,00015,000,00020,000,00025,000,00030,000,000X3Number of fansTotal sales in the past 12 monthsX1X2ADBX4X5Y=xJuly 2021-June 2022;N=9Dots on or in the upper left of the line Y=X(the slope is 1)represents a higher repurchase rate(since the number of fans t

63、he number of e-commerce customers,if Y X,it means that existing customers made multiple purchases)CEnlighten Fashion Brands Routes to the DTC Model|Strategy&1213Given the completely different performance results as described above,why does repurchasecontribute more to the sales growth at the high-pe

64、rformance DTC brands?According to our analysis,itcould be attributed to two factors:First,outperformers attach great weight to the experience of non-member users.They provide betteruser experience perception around products,retail touchpoints,integrated services,etc.Specifically,they not only provid

65、e products that match personalized needs based on customers characteristicsthrough user insights,but also build online and offline retail stores to improve consumers shoppingexperience in all aspects.Therefore,with better experience regarding products,online and offlineshopping and customer services

66、,consumers are more likely to stick to the brand,and are more willingto recommend them to others.Second,they emphasize membership systems and operation strategies targeting existing customers.Traditional fashion brands usually use membership point systems to motivate engagement andspending(i.e.,bran

67、ds allow consumers to redeem points for gifts,thereby encouraging them to makerepurchases and continue to earn points).Compared with them,outperformers know how to betterretain high-value users in a differentiated way.Instead of offering extra benefits like discount couponsor special discounts for m

68、embers,outperformers forge an emotional connection with consumersthrough interest circles and lifestyle circles,and provide exclusive experiences throughout theconsumer journey,thus creating a sense of belonging and value identity among members.Therefore,consumers can interact with the brand,connect

69、 with other members,and attract more potentialcustomers,which in turn drivesrepurchases and sales growth.A designer toy brand has transformed its membership system under the DTCmodel in recent years.In 2017,it had only about 300,000 members.The poorlydesigned membership system failed to attract and

70、engage members,andmembership-based operation created little value.In 2020,the brand decided toupgrade the existing membership system,with the aim of improving customerretention and value contribution through circles of interest.The company startedwith WeChat official account,mini program,storefront

71、and social media to pursueexposure and establish online communities,and set up a community operationdepartment in 2021.With more than 800 online groups,it gathered more than100,000 like-minded designer toy lovers,forming a foundation for customeracquisition and retention.Therefore,the brands number

72、of members hasincreased by tens of millions since 2020;and,by 2021,members contributed 92%of its total sales,with a repurchase rate of 56%.“Case study:A designer toy brand re-designed its membershipsystem to drive repurchasesStrategy&|Enlighten Fashion Brands Routes to the DTC Model1314We tracked th

73、e sales of the above-mentioned 9 DTC companies Standard Product Units(SPUs)fromtheir self-owned online flagship stores,trying to identify how the sales contribution of SPUs differs fromoutperformers and other companies under the DTC model.We divided the SPUs of flagship stores intothree groups based

74、 on their sales:the top 5 SPUs,the top 5 to the top 5%SPUs,and the bottom 95%SPUs.According to statistics(see Figure 6),more than half of the other companies rely heavily on afew of hot selling products that their top 5 SPUs account for more than 50%of the total sales;whileoutperformers are with obv

75、ious long-tail effect,that their non-top 5 SPUs contribute a large share ofsales.Here outperformers C and D are taken as examples.Each of them has more than 2,000 SKUs.Among these SKUs,their top 100 SKUs contribute 50%and 51%of total sales respectively,and thetop 500 SKUs contribute 83%and 85%respec

76、tively.Compared with the other companies,theoutperformers are better at creating popular products.Instead of relying on a few hit products,theyusually scale up the sales with variousproduct portfoliosto balance SPUs sales contribution.Abundant SKUs are required for a brand to scale up.But if they ar

77、e not recognized by the market,thestock of long-tail SKUs will pile up,resulting in a waste of resources and costs.Therefore,companiesneed to make more popular products,to achievesales synergy and driverevenue growth.3.Product portfolio driven by real-time market insights contributes to balanced sal

78、es growthFigure 6:The outperformers versus the other companies-Sales contribution of SPUs at online flagship storesSource:Tracker of e-commerce flagship stores,Strategy&analysis27%51%12%10%51%13%69%13%54%29%10%38%41%26%14%42%9%44%39%50%49%49%61%17%45%37%ABTop 5 SPUsCBottom 95%SPUs100%X5DX1X2X3X40%Th

79、e high-performance DTC brands havemore balanced product portfolios in terms of sales contribution,achieving a long-tail effectMore than half of the other DTC brands overly relied on a few hit products-the top 5 SPUs contribute more than half of salesJune 2022;N=950%Top 5 totop 5%SPUsEnlighten Fashio

80、n Brands Routes to the DTC Model|Strategy&1415As mentioned above,an important lever for companies to create a morebalanced product portfolio is to better understand and respond to changes inmarket trends and demands,so that products can be converted to revenuerather than become useless stock.Then,ho

81、w to realize that?We find thatoutperformers attach more weight to their capability of grasping market trends,and try to improve their products marketability from the perspective of users(outside-in)rather than the designer(inside-out).More specifically,the DTCoutperformers are better at perceiving c

82、hanges in market trends and consumerdemands using big data,the Internet of Things and other digital technology.They can understand the market performance and consumer feedback of theirnewproductsmoreefficiently.Accordingly,theycanimproveproductportfolios,adjust clothes design and materials,andoptimi

83、ze customerexperience,thus,driving sales synergy via product portfolios.These explainwhy outperformers can maintain strong competitiveness despite their variety ofSPUs and the complexityof the business.Lets look into the womens apparel industry.By trackingthe popular trends of silhouette dresses in

84、the spring andsummer of 2022,we find that X-shaped and A-shapeddresses account for a relatively large share of sales,while S-shaped,T-shaped and O-shaped dresses salesalso grow rapidly at a rate of 30%50%.It indicates thatthesetypesaremorepopularinthemarket.Outperformers tend to perceive the latest

85、trends in time.For example,a womens wear brand launched a varietyof silhouette dresses in this years product portfolio,especially A-shaped,S-shaped and T-shaped dresses,each of which accounted for about 30%of the totalnumber of SPUs.This move was largely consistent withmarket trends.In contrast,its

86、competitors relied more onthe designers experience and value proposition whendesigningproducts.Theirportfoliowasmainlyconcentrated on A-shaped and H-shaped dresses,whoseSPUsaccountedfor80%and20%respectively.Unsurprisingly,due to the difference in their ability toperceive changes in market demand,the

87、ir sales werevery different-the womens wear brands top 1 SPU atthe flagship store sold nearly 10,000 pieces per month,and other SPUs also achieved good sales results.Incomparison,the top 1 SPU of its rivals only sold 200pieces in the same period,let alone other SPUs sales.“Case study:A womens appare

88、l brand usedmarket insights to improve marketabilityStrategy&|Enlighten Fashion Brands Routes to the DTC Model1516II.Five constraints togrowthduringDTCtransformationEnlighten Fashion Brands Routes to the DTC Model|Strategy&1617Figure 7:Five typical factors challenging fashion companies DTC transform

89、ationHomogeneous user operations:Undifferentiated management of existing customers/membershipLack of synergy:Online and offline channels compete with each other and compromise profitsPoor experience:Separated design and management of online and offline experienceSingle data source:Focusing on intern

90、al data only and ignoring exterior data analysisUnresponsive supply chains:Failure to coordinate design,procurement,manufacturing and distributionFive typical factors challenging fashion companies DTC transformationOffline brand-owned stores guide potential customers to online stores01Product portfo

91、lio driven by real-time market insights contributes to balanced sales growth03Repurchase contributes more to the sales growth02Key success factors of the high-performance DTC brandsSource:Strategy&analysis12345To realize DTC transformation,fashion companies not only need to possess the three success

92、factors of outperformers mentioned above,but also overcome the challenges caused by differencesin business and operation models,managerial and digital capabilities,etc.There are five typicalchallenges:lack of synergy,poor experience,homogeneous user operation,single data source,andan unresponsive su

93、pply chain(see Figure 7).Strategy&|Enlighten Fashion Brands Routes to the DTC Model1718Companies often face conflicts when distributing product portfolios bothonline and offline.Some may adopt a very simple business logicmoveoffline best-selling products online in the hope of maximizing sales.Asonli

94、ne stores often have to reduce prices under the pressure of e-commerce platforms for promotion,a product may sell for different priceson online and offline channels,leading to competition between the twochannels and limitedprofits.Here a womens shoe brand is taken as an example.The overlappedSPUs be

95、tween its online and offline are up to 72%;half of the best-selling SPUs online can be found in offline stores;among the overlappedSPUs,nearly 70%also sell well offline.Furthermore,as the brands self-own e-commerce channel adopts the low-pricing strategy to attractpotential customers,the average dif

96、ference between online and offlineprices is up to 42%.In this case,rational consumers prefer to“kick thetires offline and purchase online,which has caused huge profit losses tocompanies.In other words,the more the brand sells online,the greaterthe overall profit loss will be.Therefore,the lack of sy

97、nergies betweenonline and offline channels and the“same product with different prices”strategy is obviously bad for companies.In the long term,it would bedifficult for them to maintainmarket competitiveness.Will a company be competitive if it adopts the“same product with sameprice”strategy?If a prod

98、uct sells for the same price everywhere,price-sensitive customers may choose where to buy more randomly.Forexample,they may buy a product in offline stores because of thechances to try it out,or go online considering the efficiency of delivery.However,it is worth noting that Chinas online and offlin

99、e consumershave fundamentally different profiles,preferences and needs.For onlinebuyers,women,especially those women aged under 30,make up alarge share.Online buyers are more likely to make their own judgmentsand decisions based on product reviews given by other consumers oreven strangers,while offl

100、ine buyers are more willing to talk with shopassistants and accept their recommendations.Therefore,adopting the“same product with same price”strategy alone is unlikely to improve theattractiveness and drive synergistic growth between online and offlinechannels.Here the scene of buying cosmetics is t

101、aken as an example.There is asignificant demographic difference between people who like shoppingoffline and those who prefer shopping online.Users in different channelsmay have fundamentally different preferences and needs in terms ofbrands,categories,packaging,andproductcombinationswhenpurchasing c

102、osmetics.1.Lack of synergy:Online and offline channels compete with each other and compromise profitsEnlighten Fashion Brands Routes to the DTC Model|Strategy&1819Different from the first-hand experience”provided by brick-and-mortar stores,only second-handexperience such as fine-tuned pictures or vi

103、deos is available for online shoppers.As a result,how toimprove potential customers awareness of the brand before they make a purchase decision isparticularly important for companies,especially for fashion categories such as clothing&shoes,andhome furnishing.However,many companies do not have effect

104、ive means of managing userexperience and online and offlinecoordination.With the example of underwear products,when shopping online,consumers may wonder whether thesize is suitable or whether there are differences in size between different brands even if the brandsadopt the standard size measurement

105、.Bad experiences such as size issues and mismatches cause alarge proportion of underwear return orders,which is one of the core pain points for online sales in thisindustry.Some brands have solved this problem to a certain extent by opening offline experiencestores,allowing users to try on them and

106、find the most suitable size.But not all online users will visitofflinestores for this purpose.Apart from product selection,a big gap also exists between traditional brands and DTC brands inconsumer experience management.A typical example is the unboxing experience.Before receivingthe delivery,the us

107、ers awareness of the brand and product is virtual(often gained through pictures,videos,etc.).The moment when the user opens the package is the first time consumers establishphysical perception,so the experience is very important.However,this point is ignored by manybrands,which dents the users value

108、 perception and satisfaction.Therefore,users will be less willing topost pictures of the product and recommend the brand to others.Some might even give a negativereview.Moreover,the consumer journey is becoming more and more randomized.In the past,consumersoften had a clear idea of what to buy,such

109、as a pair of shoes and a piece of clothing.They often askedfriends for recommendations or searched for related information in forums,and then bought theproducts in department stores,shopping malls or other offline channels.However,as Gen Z andmillennials have become the main consumer group,they can

110、be very random when choosing where tobuy,online or offline.Besides,they wont buy a product without being deeply attracted to it at first.Iffashion companies can not manage these user touchpoints well,they will be unable to providedifferentiated experiencesfor consumers,and,as a result,likely to lose

111、 potential customers.2.Poor experience:Separated design and management of online and offline experienceStrategy&|Enlighten Fashion Brands Routes to the DTC Model1920Although many fashion brands have increasingly valued customer repurchases and introducedmembership programs,they often fall into a hom

112、ogeneous competition.Many brands set up pointaccumulation and redemption rules with basic membership levels and benefits.These membershipsystems are roughly similar and are often separate for online and offline stores,which fails to attractcustomers.In the absence of a differentiated loyalty program

113、,the customer retention rate and the share ofrepurchase sales decline(see Figure 8).If a brand simply labels its customers based on basic userprofiles,and pushes coupons and point redemption notifications accordingly,it barely boosts theincrease in customer repurchase.3.Homogeneous user operation:Un

114、differentiated management of existing customers/membershipFigure 8:Number of repurchase consumers and repurchase sales contribution of brands without differentiated user operation 42%Customers52%SalesCustomerdistributionSales distributionCustomer and sales distribution of Tmall stores for a certain

115、brand in the Year X+1Customer distributionSales distributionCustomer and sales distribution of Tmall stores for a certain brand in the Year X30%35%ExampleLabel customers by user profilePush coupons and point redemption notifications based on label screening What do customers expect from a brand?How

116、to interact with customers based on their expectations?Is there continuous improvement in product and customer experience?More than onepurchaseOne purchaseMore than onepurchaseOne purchaseCustomersSalesSource:Strategy&analysisEnlighten Fashion Brands Routes to the DTC Model|Strategy&2021As most fash

117、ion companies relied on distributors for sales in the past,who only recorded point-of-sale(POS)data,details such as customer purchase behavior,customer profile and customer preferencewere often unavailable.Meanwhile,since brand-owned channels are new to most brands,they are stillunable to systematic

118、ally acquire,integrate and utilize the data from these channels,resulting ininsufficient understanding of final consumers.Quite a number of brands collect the POS data andproduct category data from major e-commerce platforms,and use them to analyze owned businessesand competitors.However,due to requ

119、irements on data asset protection and data desensitization,thebrands cannot obtain detailed basic user data.Therefore,even if the brands have comprehensive data analysis teams and tools,they can hardlyperceive in-depth consumer insights and accurate demand forecasting due to the limited data sharedb

120、y the distributors or e-commerce platforms.In other words,knowing what customers have purchasedand how often they purchase is not enough for the brands to engage customers,meet their demandsand retain them.Furthermore,for self-owned channel or private traffic,brands can hardly leverage data to boost

121、sustainable sales growth from products upgrade if they only focus on their own products and salesdata,and ignore market and competitor data.For example,designers and consumers often have different tastes in Martin boots.Designers tend tomake masculine Martin boots with sharp lines,in a way different

122、 from the ideal boots for women usersof e-commerce platforms.Martin boots that sell well have small and round toes,and are streamlinedrather than angular heels.In summary,only brands that utilize both internal and external data canrealize data-driven valuecreation.4.Single data source:Focusing on in

123、ternal data only and ignoring exterior data analysisStrategy&|Enlighten Fashion Brands Routes to the DTC Model2122Traditionally,the supply chain of apparel&footwear is driven by order-placing conferences andpersonal experience instead of the market.In a typical supply chain lifecycle of this industr

124、y,forexample,the preparation for the launch of new spring products in February-March of 2023,often startsin August-September of 2022.At first,the designer needs to decide new products to be developed(e.g.,selecting 300-500 prototypes from 1,000 proposed ones).Then,the brands will hold order-placing

125、conferences with distributors,sales teams and operation teams in advance where participantsselect new products based on their understanding of user preference,popular trends and customercharacteristics in their own sales areas.After that,the brands decide which new products to launchand how many qua

126、ntities to produce based on distributors and regional sales teams order placement.Finally,the brands inform procurement and manufacturing departments to initiate their work.It takesabout 5-6 months for the new products to be officiallylaunched(see Figure 9).5.Unresponsive supply chains:Failure to co

127、ordinate design,procurement,manufacturing and distributionFigure 9:Four stages of typical supply chain lifecycle in the apparel&footwear industryCurrentfashion trendStoreStoreStore.About 170 daysDesign and development90-120 daysProcurement15-20 daysManufacturing60-90 daysDeliveryabout 7 days20-30 da

128、ys for inventory replenishmentAbout 80 days for reproductionHow to deal with stockout during the short online hot-selling period?Typical supply chain challengesIn case of offshore outsourcing production,the preparation needs to start earlier to ensure sufficient shipping time(e.g.around 1 month is r

129、equired from China to the United States by ocean shipping)Source:Strategy&analysisOn theone hand,competition is getting fiercer on the supply side.To win the competition,brands haveto stand out both in efficiency and differentiated product innovation.On the other hand,fashion trendsvary according to

130、 market dynamics on the demand side.For example,weak economic growth leads tothe“lipstick effect”,and the colors of new smartphones may affect the fashion trend.It is incredibly hardto forecast fashion trends or hot-selling elements in a relatively distant future.Therefore,it is verychallenging to b

131、oost sales by taking the DTC model only as a way of changing sales channels,if thefashion industry fails to build shorter supply chains that are more responsive in terms of speed andflexibility.Enlighten Fashion Brands Routes to the DTC Model|Strategy&2223III.Eight pillars forDTC fashion brands to u

132、nleash growthStrategy&|Enlighten Fashion Brands Routes to the DTC Model2324Figure 10:Eight pillars for building new capabilities of DTC fashion brandsPrioritize user segmentationLeverage key cities as retail touchpointsCoordinate online and offline product portfoliosDeliver superior customer experie

133、nce and interactionFront-end strategies of DTC modelBack-end coordination of DTC modelReshape business processUtilise digitalsystems and toolsHarness computing power and algorithmsRejuvenate organizationsReach more customers with fewer touchpoints:leverage the metropolitan areas role in driving cons

134、umption of surrounding areas,achieving synergistic growth in DTC model through fewer experience stores in central citiesMeet the demands and preferences of different online and offline customers,make online and offline products complement each other,and balance product portfolios salesMake the most

135、of data insights to further segment target customers,both online and offline,and identify their divergent demands,preferences,as well as expectations on value propositions“Surpass customer expectations”:brand owned stores need to provide not only excellent product and service experience,but also del

136、iver surprises in the customer journeyFor example,the DTC model of the apparel&footwear industry requires more accurate understanding of customer demand,more intelligent decision-making process and quicker responses,which will reshape the traditional OTC processAdvanced Internet-of-Things(IoT)applic

137、ations and application management systems(e.g.,ERP and MES)are necessary for the front end to connect with users and perceive their needs,and for the supply chain at the back end to respond and collaborate effectively.As business complexity and response speed increase,computing power and algorithm n

138、eed to be upgraded via cloud computing,big data and AI.To enhance market insights perception,response speed and seamless collaboration,enterprises should break internal and external boundaries,ensure high flexibility and vitality in decision-making and implementation,and reform organizational struct

139、ures12453687Based on our practice of empowering fashion companies,we suggest that DTC fashion brands rollout a slew of consistent business strategies to enable organic growth.Furthermore,efforts should bemade in coordinating the 8 key factors through front-end strategies and back-end coordination.As

140、 forthe 8 key factors of building new DTC capabilities,we call them“eight pillars”(see Figure 10).Enlighten Fashion Brands Routes to the DTC Model|Strategy&2425Pillar 1:Prioritize user segmentationEven in an era of personalized and diversified consumption,the rule of birds of a feather flocktogether

141、 remains unchanged,especially in the fashion industry.Fashion consumption represents thepursuit of specific popular elements and value propositions shared among a particular group of people.For DTC retail,consumers of different channels,online or offline,are diverging.Yet,it is impossible forenterpr

142、ises to use digital technologies to satisfy the unique needs of every customer,considering thesubstantial operation cost and the inherent collectivity of fashion consumption.Therefore,to realize DTC transformation,fashion brands should further segment existing and potentialcustomers to developdiffer

143、entiated strategies and tactics(see Figure 11).1.Front-end strategies of DTC modelFigure 11:Examples of user segmentation at different marketing levelsStrategic perspective(4-16 segments)DemographyRegionCustomer valuexxxTactical perspective(16-70 segments)Attitude/psychologyPraxiologyMicro perspecti

144、ve(10-100 segments)Adoption of several methods togetherMacro perspective(2-6 segments)Enterprise and consumerOpportunity related to wealthOne-on-one perspective(100 1,000,000 segments)Individual customer Business strategy Branding/mass marketing Retail/consultancy Overall marketing strategy Business

145、 and resource allocation Direct mail marketing campaign High-level product development Typical product development Direct marketing via low/medium-cost channels“Pocket”behavior identification Product differentiation/customization Direct marketing via low-cost channels Marketing driven by realtime re

146、asoning High-value/highly interactive activity Supply and marketing of highly automated/large-scale customized productsLevel of wealthLevel of wealth:Rich,fairly well-off,average,etc.Categories of investable assets or financial assetsTendency to increase or decrease financial assetsGeographyRegion:c

147、ontinent,country,state,community,etc.Scale of metropolitan cityDensity of population:downtown,suburb,rural area,etc.Population statisticsAge,generationGenderFamily sizeMarriage statusFamily informationIncomeOccupationEducationAttitude/psychologicalcharacteristicsActivity/interestOpinion/demandAttitu

148、deValueProfitability/customer valueRevenue,cost,profitability,customer lifetime valueProfit contribution of individual customers or familiesTendency to increase profit margin/or valueEach segment can be defined from aspects below:Prefered purchase/interaction channelsPreference for online or offline

149、 purchaseKnowledge sharing platformShort video platformSocial media platforms such as WeChatTypical segmentation:Source:Strategy&resource libraryStrategy&|Enlighten Fashion Brands Routes to the DTC Model2526For example,when evaluating market opportunities and positioning anew self-owned store for ma

150、rket entry under DTC model,enterprisesare more concerned about macro factors such as regional demographiccharacteristics,consumption level and demand.However,from the pointof brand marketing,it is impossible to impress all target groups identifiedby marketing strategies.Therefore,enterprises should

151、further segmentconsumers from the perspectives of attitude,motivation,etc.,therebylocating further segmented customers that highly identify with their brandvalue propositions.Then,it is much easier to acquire a wider range ofconsumers with the influence of these precisely reached and deeplyimpressed

152、 groups of consumers.As mentioned above,online and offline consumers of DTC brands aredifferentiated and diversified.It is inevitable that online and offline storeshave overlapped customers in regard to customer convenience andcoordination between channels.However,considering complementarityand diff

153、erentiated competition,online stores need to target differentcustomers from offline stores.In particular,to avoid the phenomena ofprice is everything or online stores compete for offline hot products,itis crucial for the brands to engage differentiated and segmented onlinecustomers,and closely conne

154、ct them with brands valuepropositions.Overall,to meet granularity requirements for customer segmentation atdifferent business levels,the brands should collect multi-dimensionalcustomer data for DTC transformation by leveraging digital technologiesand direct connection with customers.This requires th

155、e brands to collectand update the data through more customer interactions.Furthermore,on the premise of data security and privacy protection,the brandsshould effectively integrate and utilize the data to explore segmentedand extended consumer behavior insights.Enlighten Fashion Brands Routes to the

156、DTC Model|Strategy&2627Pillar 2:Coordinate online and offline product portfoliosMany offline shoppers have turned to online stores due to the recurrent outbreaks of Covid-19.In thethird year of the pandemic,these new online customers have become regular ones.Therefore,theDTC channels have seen a gro

157、wing number of customers shopping both online and offline,besidesthose that switch between online and offline channels for price differences.In light of this,fashionbrands should provide a certain proportion of SPUs to sell both online and offline to meet the demandsof overlappedcustomers,considerin

158、g trafficdirection,availabilityand convenience.In 2022,there were over 840 million online shoppers in China,of which Millennials and Gen Z made upthe majority.They are willing to pay premiums for the appearance,experience,quality and reputationof products.Meanwhile,young online shoppers are more wil

159、ling to evaluate products through variousonline social platforms,search engines and e-commerce platforms.Then they can make independentpurchase decisions rather than just take the advice of salespeople at physical stores.This brings newopportunitiesfor DTC brands to develop online SPUs with differen

160、tiatedexperience and quality.To build more responsive supply chains,it is practical and effective to provide a certain portion of thesame SPUs for all channels,and develop differentiated product portfolios for different channels.Interms of traditional procurement and production,scale is a top priori

161、ty.Keeping an appropriateproportion of SPUs to sell both online and offline can expand production scale,improve capacityutilization and reduce unit production cost.Moreover,the scale of differentiated online SPUs will berelatively small,hence,more flexible production and inventory management are req

162、uired.Althoughflexible production and inventory might increase the overall cost of the supply chain,these productshigh gross profitsrate can cover the extra cost of the supply chain,making sustainable profits.In conclusion,brands should meet the demands and preferences of differentiated online and o

163、fflinecustomers with product portfolios for complementarity and differentiated competition,and balanceproduct portfoliosfor sales growth according to market trends.Strategy&|Enlighten Fashion Brands Routes to the DTC Model2728Pillar 3:Leverage key cities as retail touchpointsTo leverage the consumpt

164、ion-boosting effect of city clusters(metropolitan areas),fashion DTC brandsoften open a limited number of experience stores in first-and second-tier cities to drive theconsumption of surrounding areas and the sales growth of online channels.Unlike linear growthachieved by adding the number of stores

165、,this model helps to gain strong growth momentum and ahigh conversionrate.PwC recently released Cities of Opportunity 2022.The report analyzed 47 cities,covering central andnode(“radiated”)cities of Chinas major city clusters in the Beijing-Tianjin-Hebei region,the YangtzeRiver Delta,the Guangdong-H

166、ong Kong-Macao Greater Bay Area,the Chengdu-Chongqing economiccircle,the middle reaches of the Yangtze River,the central Henan province,the Guanzhong Plain,etc.Three noteworthy features of city clusters strongly support us to leverage key cities for consumption-boosting effect:cities within the clus

167、ter are closely linked in terms of economy and infrastructure(about1-hour travel by high-speed railway between cities);culture and customer preferences are similar in theregion;the brands of central cities have dominant advantages in leading and driving the consumptionof surrounding cities.Leveragin

168、g key cities as retail touchpoints,the DTC brands can invest resources for stores in centralcities and rely on these stores to reach customers of surrounding cities.But if the brand operates astore in the central city with a traditional model,the store cannot deliver a leverage effect.As previouslym

169、entioned,more and more high-performance DTC brands are opening experience stores,so as torealize multi-dimensional interactionwith customers.We have summarized the major functionsof experience stores as“RCES”:Diversified interactions in the store will further enhance customer acquisition and convers

170、ion.Meanwhile,user-generated content(UGC)and media communication will strengthen the role of centralcities in driving surrounding cities:on the one hand,a rising number of visitors from satellite cities willbe attracted to visit the offline experience stores;on the other hand,more online followers c

171、an beconverted into fans and purchasers directly through the shortest link”(i.e.,DTC e-commerce stores).Therefore,brands should stick to enhancing customer acquisition and conversion by establishingtouchpoints for a close-loop business,so as to provideleveragefor the DTC retail model.Retail:Customiz

172、ation:Experience:Service:Sell core products and their spin-offsProvide offline body-measurement service,booking fortailored and personalized product customizationProvidebrand,product and lifestyleexperienceProvide fashion outfit advice,personalized productselection,membership service,etc.Enlighten F

173、ashion Brands Routes to the DTC Model|Strategy&2829Pillar 4:Deliver superior customer experience and interactionWe have described the importance of experience and interaction for self-owned stores.The storesshould deliver not only products and experiences with high quality,but also surprises in the

174、customerjourney,so as to outperform their competitors.Above all,we suggest that brands“build omni-channel service platform”(see“a”in Figure 12).Onlineand offline stores are not separate but sharing customers.It is essential for these stores to renderconsistent online and offline DTC experiences,e.g.

175、offline store pickup for online orders,delivery fromnearby stores,online booking for in-store fitting,and other services.Even the simplest coordinatedservices require the brands to realize system integration,enable data sharing and align salesmanagement at front-and back-ends(we will discuss it from

176、 the aspect of back-end coordination later).Otherwise,no progress will be made.Figure 12:How to deliver consistent DTC experienceDifferentiated online customer journeyLocalized content for the homepage of brand and storePersonalized search resultCustomized online productAR/VR(virtual fitting room,et

177、c.)AI(personalized recommendation,chatbot,virtual agent,etc.)Differentiated offline store experienceUnique characteristics of the storeAR and 3D holographic product categoryIntelligent in-store fitting room mirrorCustomized product displayScanning by mobile APP to add to favorites,search,buy and sha

178、reBooking for in-store fittingIn-store experience of presale itemsDigital service areaHome delivery for in-store purchaseOmni-channel retail platformAdequate in-store stockIn-store return and replacementHome deliveryLoyaltyReal-time customer supportBuild omni-channel service platformbaDeliver differ

179、entiated and customized experienceStrategy&|Enlighten Fashion Brands Routes to the DTC Model2930Moreover,brands should deliver differentiated and customized experience for online and offlinecustomers(see part“b”in Figure 12).The key is to overcome the limitations of online and offlineshopping experi

180、ence.For example,virtual reality(VR)and augmented reality(AR)technologies,suchas virtual fitting rooms,can provide highly immersive and multisensory customer experiences andfacilitate more informed decisions.A home-furnishing retailer integrates AR technology into its App tohelp shoppers visualize p

181、roducts in their homes,which contributes to positive consumer reviews and ahigher conversion rate.Digital technologies can also be used by brick-and-mortar stores to improve product selectionexperience and service efficiency.On the one hand,due to the limited shelf space of traditional fashionshops,

182、most of the products are stacked on the shelves instead of being fully displayed to attractconsumers.Also,apart from product appearance,consumers are increasingly concerned about detailssuch as fabric,material source,design philosophy,etc.If users can scan the display shelves and seethe 3D presentat

183、ion of related products via AR technology,they will get extraordinary experience anddetailed information for product selection.On the other hand,processes such as payment,productreturn and replacement in fashion shops used to be handled manually.At peak hours,customerscannot be served in time,result

184、ing in long waiting time.Based on the application of radio frequencyidentification(RFID)and other smart label technologies,brand-owned stores can install self-servicecashiers,which can improve payment and packaging efficiency and collect user profiles and dataseamlessly,leading to further digitaliza

185、tion.Enlighten Fashion Brands Routes to the DTC Model|Strategy&3031Pillar 5:Reshape business processDTC brands need more agile business processes to stay ahead of the competition and meet fast-changing customer demands.For example,to adopt the DTC model,apparel&footwear companiesneed to have more ac

186、curate understanding of customer demand,more intelligent decision-makingprocess and quicker response to the market.They should also reshape the core business processregarding the order-placing conferences(i.e.,45 the process from order-placing to cash flowgenerating)to better match the business stra

187、tegy at the front end.Enabled by digital technologies,DTC brands should establish an agile supply chain that candynamically perceive demands and market changes to optimize product design,procurement andproduction,making product portfolio and production more flexible.Brands can adjust product design

188、and procurement according to the changes in consumer demand,while adopting the flexible production principle of“multiple batches and small quantities”.For hotproducts,brands should follow up existing orders and arrange production for additional orders in atimely manner,while utilizing materials of u

189、npopular products to manufacture popular ones.This cangreatly reduce unsaleable inventoriesand increase the profitsof best-selling products.As is shown in Figure 13,if the business process can be reshaped based on customer demand ratherthan the traditional order placing meeting,the production cycle

190、of the initial order for new products canbe shortened to 1-2 months.Brands can lower the proportion of products manufactured for the initialorder(for certain brands,the ratio is 50%20%Digital supply chain 2 monthsTraditional supply chain10%25%Note:We do not include factors such as brand diversificat

191、ion,product and regional market penetration in the business growthstrategyStrategy&|Enlighten Fashion Brands Routes to the DTC Model3132Pillar 6:Utilise digital systems and toolsEnterprises need systems and tools for continuous DTC empowerment after reshaping businessprocess.Application of IoT appli

192、cations and management systems,such as ERP(enterprise resourceplanning)and MES(manufacturing execution system),is necessary for the front end to perceiveconsumers demands,and for the supply chain to respond and collaborate at the back end.Notably,the traditional front-end digital systems are fragmen

193、ted and isolated,as different channels andregional teams may have their own digital systems and platforms.It creates difficulties for front-andback-end coordination.Besides,it is detrimental to business expansion due to the lack ofresponsiveness to market changes,and is challenging to improve operat

194、ional efficiency due toinsufficient data sharing(e.g.,membership management,inventory,orders and products).Therefore,a digital platform is attached with great importance to utilize digital systems and tools.It canmake data links shorter and operational response quicker,and facilitate efficient and c

195、oordinated digitalmanagement,as well as continuous innovation(see Figure 14).Essential functions of a digital platforminclude:Figure 14:The digital platform for DTCFront-endusers:staff and customerDigital systems that support the DTC modelIT systemB2C/B2B e-commerceO+OservicePOSIntelligence retail t

196、erminalFacial recognitionAPPMini programsTouchpoints across the value chainDashboardROI-based marketingPublic opinionanalysis.Open service|APP registration|Service call|Product serviceInventory serviceOrder serviceMembership serviceReporting service.Business systemBusinessapplicationCRMSCRMDMSTPM.Bu

197、sinesscenterOrder centerMember centerBenefits centerDistribution centerContent centerProduct centerCustomer service centerPoints centerERPPLMWMS/TMSSCMOAFINMESOthersData systemDataplatformCDPMA.Data integrationData governanceData warehouseAlgorithm modelData lineageOneIDDataassetQuickly adapt to dif

198、ferent channels and customer service platformsFlexibly manage business lifecyclesQuickly integrate multi-source heterogeneous and discrete information and share business dataInnovate for flexible expansion,and simplify the logic of back-end developmentBroadly utilize realtime computing,big data anal

199、ysis and coordinated planningSource:Strategy&analysisEnlighten Fashion Brands Routes to the DTC Model|Strategy&3233Pillar7:HarnesscomputingpowerandalgorithmsIt is impossible for an analyst to constantly generate front-endinsights through one-time data analysis.Instead,algorithms arerequired to disco

200、ver,respond to and solve problems.In addition,large-scale computing relies on computing power.Due to thecomplexity of business and the demand for quicker response,computing power and algorithm need to be iterated and upgraded,with the help of cloud computing,big data and AI.Fashion brands can use cl

201、oud computing,big data and AI to makethe DTC model more intelligent,with respect to users,productsand services.Analyze customer preference and behaviors through big data,segment customers according to brand strategy,and forecastcustomer behaviorsfor products recommendation.Realize data harmonization

202、 and integration among differentplatforms,develop360customerprofiles,andidentifycustomers pain points and insights through multi-channelcollaborationfor experience optimization.01User level Track sales of goods,forecast shelf sales ratio and adjustsupply chains in a timelymanner.Develop new products

203、 by digging into trending products fromdifferent dimensions such as color,silhouette and fashiontrend.02Products level Deliver excellent in-store experience with technologies.Forexample,use robots to interact with consumers and serve asshopping guides.Realize omni-channel customer interaction,connec

204、tion andtransfer,such as differentiated membership management,andmutual traffic-direction of customers between online and offlinechannels.03Service levelStrategy&|Enlighten Fashion Brands Routes to the DTC Model3334Pillar 8:Rejuvenate organizationsToenhancemarketinsights,responsespeedandseamlesscoll

205、aboration,enterprises should break both internal and externalorganizational boundaries,build flexibility and vitality into decision-making and implementation,and reform organizational structures.Asthe DTC model functions via organizational arrangements,it is crucialfor brands to optimize organizatio

206、nal structure and make it compatiblewith the DTC model to realize cross-sector coordination.Wehavetworecommendationsforcompaniestooptimizeorganizational structure:1Builduser-centricorganizations.Generally,businessunitsaredividedbasedonstaffsfunctionsandspecialization.For a complex business that requ

207、irescross-function coordination,it sets positions like productmanagers and brand managers to coordinate differentteams,e.g.product design team,marketing team andsales team(see Figure 15).However,the DTC modelimposes new management challenges.For example,aspecializeduserexperiencemanagementteamisnece

208、ssary for the whole customer journey(i.e.,beingattracted purchasing promoting products to others-interacting with brands becoming loyal customers),which is ignored by many brands.Under the DTC model,organizationsneeduser-centricandresults-orientedmanagement across multiple functions.Therefore,a newo

209、rganizational structure is needed to promote seamlessinternal coordination and execution.Enlighten Fashion Brands Routes to the DTC Model|Strategy&3435Figure 15:Transform into a user-centric organizationFunctionCapability-based organizationTraditional function-based organizationSenior executivesBoar

210、d of DirectorsBusiness units/regionResults-oriented teamSolution developmentHuman resourcesFinanceMarketing.Total quality managementCustomer experience managementInnovation.Business units/regionFunction/shared serviceHuman resourcesFinanceLegalMarketing.Business units/regionBusiness units/region.Sen

211、ior executivesBoard of DirectorsBusiness units/regionBusiness units/region.Headquarters functionCorporate strategyCorporate financePublic relations.Headquarters functionCorporate strategyCorporate financePublic relations.Focus more on users and marketsto meet customer demands by integrating differen

212、t capabilitiesNarrow the scope of work and focus more on core functions such as investor relations managementStrategy&|Enlighten Fashion Brands Routes to the DTC Model35362Alignorganizationalgoalswithperformancemanagement.DTCpracticedoesnotmeansimplifyingitsorganizationalstructure.Ifenterprises only

213、 divide sales teams based on onlineand offline channels and set separate goals forthem,these teams can easily become potentialcompetitors of each other.DTC brands can setconsistent goals for sales teams and help themgain a holistic view.On the one hand,brandsshould develop a top-down holistic strate

214、gy tofacilitatefront-endcoordination,includingthecoordination between product portfolios,touchpointcities,and delivery of the experience.On the otherhand,brands should break the overall goal intoseveralsub-goalsforbettercoordination.Forexample,all the online and offline sales teamsshould have two KP

215、Isthe revenue goal of theirown channel and their contribution to the revenueof other channels.As for performance evaluationand incentive mechanism,brands can evaluatebusiness units and staff based on these KPIs andtheir weights,and use them as key indicators forperformancerewards and other variablei

216、ncentives.Enlighten Fashion Brands Routes to the DTC Model|Strategy&3637ConclusionFashion brands,and even all consumer goods companies,cannotimprovetheirsalesperformanceovernightviaDTCtransformation.They should respond agilely to market dynamicsregarding emerging consumer segments,consumption paradi

217、gms,channels,and marketing approaches,while making trade-offsbasedontheirexistingbusinessmodels,organizationalcapabilities and digital technologies.Therefore,we suggest fashion brands strengthen the top-leveldesign,make a clearer strategic positioning,and transform step-by-step under the guidance of

218、 a business roadmap,to betterimplementtheaforementioned“eightpillars”forDTCtransformation.Realize front-and back-end transformation andbusiness coordination at a fast but steady pace;rely on digitaltechnologies,computing power and algorithms;pivot on userexperience management,membership-specific ope

219、ration and datainsights;andcreatenewcompetitivemoatsbyconstantlyaccumulating and utilizing user pool and data assets.All of theseenable companies to outperform their competitors in the surgingwave of digital transformation.Strategy&|Enlighten Fashion Brands Routes to the DTC Model3738Strategy&is a g

220、lobal strategy consulting business uniquelypositioned to help deliver your best future:one that is built ondifferentiationfrom the inside out and tailored exactlyto you.As part of PwC,every day were building the winning systems thatare at the heart of growth.We combine our powerful foresight withthi

221、s tangible know-how,technology,and scale to help you createa better,more transformative strategy from day one.As the only at-scale strategy business thats part of a globalprofessional services network,we embed our strategy capabilitieswith frontline teams across PwC to show you where you need togo,t

222、he choices youll need to make to get there,and how to get itright.The result is an authentic strategy process powerful enough tocapture possibility,while pragmatic enough to ensure effectivedelivery.Its the strategy that gets an organization through thechanges of today and drives results that redefi

223、ne tomorrow.Itsthe strategy that turns vision into reality.Its strategy,made real.Please see for further details.Strategy&Enlighten Fashion Brands Routes to the DTC Model|Strategy&3839 2023 PwC.All rights reserved.PwC refers to the PwC network and/or one or more of its member firms,each of which is

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