India hosts more than 600 D2C brands that are projected to reach a $100 billion market by 2025 as D2C offers customized operations and better margins.
India is a young country; we have a population of 1.40 Bn people and our median age is 31 years. We hit our Demographic Dividend window in the early 2000s and will stay there up to the 2050s. What this means for the economy is an abundant supply of young workforce. However, coupled with an estimated rise in per capita income (4000$ by 2030), what that also means is, we as an economy have a higher disposable income than earlier. A younger crowd also implies increased penetration of the internet and more willingness to shop online, which has been further supported by access to cheaper data and penetration of the 5G internet in smaller towns. As per a recent study, India has the third largest digital shopping base after the USA and China.
All these factors along with the pandemic have catapulted the rise and penetration of D2C brands. As of today, India has over 600 D2C brands, and it is likely to become a market of $100 Bn by 2025. Business wise, a D2C model makes sense for many businesses as it offers tailor-made operational solutions and higher margins.
However, in a post-pandemic world, where physical experiences have taken a front seat, the D2C growth story seems to be losing its sheen gradually. The decline may well be attributed to the fact that the pandemic brought over abnormal growth that may not always be sustained. However, that is not the only challenge facing the D2C industry. Some other factors include-
Mounting customer acquisition costs: The cost of advertising on social platforms has steadily been on the rise. The D2C brands largely rely on social and digital ads for their product discoveries, website traffic, sales conversions, etc. The recent privacy updates on different operating systems have also made it costlier to reach the relevant audience on these platforms. Moreover, because the commonplace consumer behaviour of D2C brands is to seek better deals, the brands also end up spending a lot of money in the form of discounts in the mid-funnel stages. This in turn has led to a higher customer acquisition cost for these businesses.
Supply chain challenges: Many of these businesses rely on external shipping vendors for the fulfilment of their orders. It is a known fact that the freight of many carriers has increased significantly over the past 12 months and is likely to go up even more. The mounted shipping and fulfilment costs have also put a significant strain on businesses.
D2C foray into marketplaces, phygital, and traditional retail
Owing to the above-mentioned factors, a sizeable number of D2C brands are now investing their efforts and resources into building and expanding their presence on large e-commerce marketplaces, opening offline stores in conducive locations, and building their presence in exclusive and multi-brand retail outlets.
Why does it make sense to them?
Large e-commerce marketplaces have a much more efficient supply chain and fulfilment infrastructure in place because of the sheer volume they deal with. Moreover, they are always coming up with new solutions and tools to improve the visibility of partner brands and products. This helps brands with the discovery of their products and helps them save on fulfilment costs.
Chief Executive Officer – Consumer Business,
Duroflex.
Many small-ticket sized items that D2C brands sell are often impulse purchases. Unless they sell a product that is used and repurchased at a regular interval, e.g., skincare, the purchases are more often than not impulse purchases. To cut down on their expenses, a consumer might avoid visiting online shopping apps or websites, but what do they do when they run into an offline store of their favourite brand while doing a movie trip to their neighbourhood mall? They are highly likely to visit that store and end up making a purchase. Also, when it comes to a high-ticket sized item, take one of our mattresses or furniture pieces for example, a consumer more often than not will wish to experience that product physically even if they have discovered it online. Building a presence offline also helps brands with discovery beyond the digital mediums.
This is not to say that the D2C industry will not grow. It is here to stay. The global venture capital and private equity firms will keep encouraging the industry. However, in order for them to witness the next spurt of growth, they will have to diversify their offerings as well as build efficient and profitable channels to reach the consumer.
