At Glossy’s E-Commerce Summit in Miami this week, executives discussed the rising costs of doing business on e-commerce.
“With DTC, there are the shipping costs, the logistics costs, the employee costs, retention, acquisition — the list goes on,” said a brand executive during a town hall discussion.
While brands are used to seeing higher margins on the direct-to-consumer side of the business, which has so far worked to balance out lower wholesale margins, that’s no longer the case, according to event attendees.
“We entered a lot of retailers when we were super green and new and honored to be approached,” another executive said during the town hall. “And now, a couple of years down the line, with shipping and manufacturing [costs] going up [on the DTC] side, I’m wondering if I should revisit the terms with our retailer partners.”
Meanwhile, others reported seeing better margins on wholesale sales, compared to DTC.
“Retail is more profitable at scale — it’s harder in smaller increments,” an executive said. “Online is very, very expensive. We actually make more margin at wholesale than in our own channels. But we’re at scale — we’re in all Target stores.”
While speaking onstage, Scott Lux, global evp of e-commerce, technology and innovation at Esprit, broke down the changing state of e-commerce costs, calling their rise “one of the biggest challenges with direct-to-consumer.”:
“When I was at Intermix about five years ago, direct-to-consumer was hot. … Hitting 40% comps [in the e-commerce channel] was the expectation for me and my industry peers. This was pre-Covid, and a lot of the smaller brands that would take investment were looking to fuel that growth. At the time, the mindset was, ‘If we don’t have funding, we can’t scale tech. Tech will come in and save the day, and light that fuse to get us at that runway and that hockey stick growth.’ But in reality, the tech costs to do that only make sense if you’re growing at 30-40%. Covid pulled forward a lot of [e-commerce] demand, and now there’s a bit of a reckoning. A lot of brands will have to be happy with a 10% comp. And with a 10% comp for e-commerce, it is challenging to operate under the same mindset you had when you had 40% comps — because the math just doesn’t work.”
For his part, Lux is working to combat e-commerce costs by streamlining the number of tech partners Esprit works with. “I oversee direct-to-consumer, B2B and infrastructure, and we probably have about 35 technology partners in the portfolio. My goal is to get that down to about 15,” he said. “It’s about looking at what else is out there that’s a more modern technology player that, one, understands how to build purposefully for retail and brands and, two, gives us that lower cost and operational efficiency.”
