ENTREPRENEURIAL Scottish manufacturers are expected to benefit from a massive £1,014bn boost as they increasingly cut out retailers and wholesalers and sell their products direct to consumers in one of the biggest shake-ups the industry has seen in generations, according to a new Barclays Corporate Banking Manufacturing report, Going direct: Is direct to consumer selling set to revolutionise the manufacturing sector?
The traditional model of selling goods via wholesalers and retailers is under pressure like never before, as Scottish companies embrace technology to sell and distribute their own goods via social media and the internet.
Four out of five Scottish companies now sell direct to consumers (82%) and over the last five years, Scotland’s direct to consumer sales have soared by 62%. DTC now accounts for 16% of all manufacturing sales in the UK, an in-depth industry survey of 500 manufacturing companies across the UK found.
UK manufacturers who have invested in a DTC sales strategy said they had benefited from increased revenue (45%), growth in their customer base (38%) and increased speed to market (32%).
Sportswear giant Nike became the latest big brand to launch their own direct sales channel last year, ‘Nike Direct’, whereas start-ups such as Eve Mattresses and Harry’s razors began as DTC brands and have now expanded to selling into shops.
The value of goods sold through DTC is forecast to continue to expand rapidly as both well-established global brands and start-ups invest in the potential around selling direct to customers.
Economic modelling commissioned by Barclays, which analysed current growth rates, customer demand and investment in DTC channels, estimates that value of the DTC market in Scotland will boom to £1,014bn by 2025. Beyond the manufacturing sector, DTC activity could also provide a much-needed boost to the wider UK economy by up to £32.5bn in the next five years.
Andy Hall, Head of Corporate Banking, Central Scotland at Barclays, comments:
“The rise in businesses selling direct to customers is one of the biggest changes the manufacturing industry has seen in generations. As companies go it alone, bypassing wholesalers and retailers, they are increasingly embracing social media and digital channels to advertise and sell their products direct from the factory and then managing the sales, distribution and after-care themselves.
“It’s a massive shift and the rewards are potentially huge, with companies selling DTC in Scotland reporting an increase in revenue as a result, along with a bigger customer base and increased employee and business productivity.
“Wholesalers and retailers are aware of the challenge and will need to continue to find ways to adapt and flex their approach. DTC comes with its own challenges and requires investment in services, training and IT. The future is likely to involve a mix of DTC, wholesale and retail and there will still be a role for all three channels.”
The role of technology
Technology has been a key driver in the adoption of DTC with nearly all manufacturers (96%) across the UK now selling directly through their own websites. Social media is also of increasing importance to manufacturers with over three-quarters (79%) currently using or planning to sell via Facebook and nearly three-quarters (72%) currently using or planning to sell via Instagram. This comes as over half of manufacturers in Scotland (52%) plan to digitalise their distribution processes in the next five years.
Disruption to the retail model
Manufacturers are increasingly confident about the potential DTC represents with almost seven in ten (68%) in Scotland agreeing that selling direct to consumers cuts out the middleman and is good news for both consumers and manufacturers.
Challenge to manufacturers going on their own
Adopting a DTC strategy does not come without its challenges. One in five (21%) UK companies said they had not launched a DTC channel because they feared the impact it would have on their relationship with wholesalers, with a similar number (19%) concerned about the response from retailers.
Businesses that also increase their responsibility for distributing products cite a number of new challenges with this approach, including building brand loyalty (41%), having increased responsibility for every touchpoint within the supply chain (32%) as well as managing customer interaction (31%).