Common Pitfalls in Retail Expansion for DTC Brands—and 5 Ways to Avoid Them

Last Updated: October 07, 2024

Expanding from Direct-to-Consumer (DTC) into retail is a significant step for many consumer brands. This journey can be both exciting and challenging, particularly for startups looking to scale operations effectively. Here’s a guide to help brands navigate the complexities of retail expansion and avoid common pitfalls.

1. Synchronizing DTC and Retail Strategies

A common misconception is that retail can rescue a struggling DTC business. This couldn’t be further from the truth. DTC and retail operations must work in tandem, each reinforcing the other. If the DTC flywheel isn’t spinning efficiently, retail efforts are likely to falter as well. Prioritizing a strong DTC foundation is essential before venturing into retail.

Key Elements of a Strong DTC Business:

• Profitable First Orders: Ensuring initial sales are profitable builds a sustainable business model.
• Reasonable and Consistent Customer Acquisition Cost (CAC): Maintaining a steady and manageable CAC is crucial.
• Selective Growth Channels: Focusing on growth marketing channels that resonate with the target audience, such as podcasts or social media platforms like Meta, is beneficial.
• Clear Narrative and Audience Targeting: Developing a compelling brand story that appeals to a distinct demographic is vital.

Once DTC operations are solid, successful strategies can be extrapolated to retail. For example, if a product is popular among women in their 30s, seeking retail partnerships with stores that attract this demographic, such as SoulCycle or Goop, can be effective.

2. Gradual Expansion Is Key

Unlike DTC, which often scales using a standard toolkit, retail expansion requires a more nuanced approach. The infrastructure that supports a DTC business from $1M to $100M in revenue may not suffice in the retail landscape.

Starting Small and Scaling Up:

• Specialty Retailers: Begin with smaller, specialty retailers who typically have more flexible requirements. They often order prepaid via B2B portals or platforms like Faire.
• Larger Retailers: Larger retailers come with stringent shipping guidelines, penalties for chargebacks, EDI requirements, and payment terms (e.g., N30 or N60). Skipping smaller retailers and jumping straight to big-box stores can lead to failure. 

Building a retail presence gradually, gaining experience, and refining processes with smaller partners before tackling larger accounts is crucial.

3. Investing in Retail Partnerships

Initial retail partnerships should not be viewed solely as profit centers. Early retailers are taking a chance on new brands, and investing in these relationships is crucial for building a strong foundation. 

Strategies for Successful Partnerships:

• Offer Generous Margins: Ensuring retail partners have healthy margins incentivizes them to promote products. 
• Drive Traffic: Working hard to direct customers to retail partners’ stores is essential. Founders should show up at their locations, capture user-generated content (UGC), and encourage loyal customers to do the same.
• Promote Partnerships: Discussing these collaborations across owned channels, even if it doesn’t drive immediate sales, enhances visibility and perceived value.

4. Perception Matters

The perception of successful partnerships can be as important as actual sales. If retail traction is slow initially, offering products to local retailers, restaurants, gyms, etc., for free in exchange for content and promotion can be beneficial.

Benefits of Creating Perception:

1. Drive Traffic: Successful traffic generation can eventually lead to sales for partners.
2. Build Credibility: Demonstrating to a passive audience that a brand is worth investing in by aligning with reputable partners.
3. Attract Prospective Retailers: Showing potential retailers that other businesses are working with the brand makes it a more attractive proposition.
4. Motivate Internal Teams: Keeping the internal team excited and motivated by showcasing partnerships with elevated brands.

5. Focus on Margin and Traffic

Retailers primarily care about two things: margin and traffic. Most operate at around a 50% margin, making traffic generation the main value proposition for a brand.

Securing Major Retail Partnerships:

• Prove Traffic Generation: Before approaching major retailers like Target, ensuring the ability to promise significant traffic through viral marketing, celebrity endorsements, or a strong DTC customer base is crucial.
• Avoid Premature Launches: Launching in major retail before being able to deliver on traffic promises can result in poor first-year sales, delisting, and a lengthy recovery period before securing another meeting.

Retail expansion for DTC brands is a complex but rewarding journey. By prioritizing a strong DTC foundation, expanding gradually, investing in early retail partnerships, creating a positive perception, and focusing on margin and traffic, brands can navigate common pitfalls and set themselves up for success. A strategic approach ensures that a DTC brand can thrive both online and on the shelves of select retailers.

Tags: DTC, Omnichannel Fulfillment, Retail Fulfillment