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4 September 2018

Are Direct-to-Consumer Brands Safer From Counterfeits? Yes and No.

Streetwear upstarts, heritage luxury brands, and everyone in between are dialing up investments in direct-to-consumer strategies to reach a new consumer generation that is younger, more digitally engaged, and hungry for a direct connection with brands they admire.

There are many reasons for the surge in selling direct-to-consumer: steady growth in online market share, faltering sales in malls and department stores, and the enviable success of digitally-native ‘Instagram brands’ are just a few. The common thread is the desire to retain or regain control over how consumers encounter and experience a brand through its products.

Selling directly to consumers allows brands to regulate the supply of new, authentic products to sales channels they own and control, whether online or in bricks-and-mortar stores. By reducing or cutting out the wholesale middleman, a brand gets more control over how its authentic products are presented and sold. It also closes some — but not all — of the gaps that allow counterfeits to slip into the wholesale supply chain and deceive consumers shopping for authentic goods.

Whether you’re a digitally-native brand hustling to be discovered or an established brand looking to change the balance of wholesale and direct-to-consumer in your commercial strategy, you’ll want to factor in the pros and cons of the DTC model from a brand protection perspective.

Pros

Digitally native brands like Everlane  and Bonobos were among the first to retrofit the direct-to-consumer model for the internet age, beginning by speaking directly to the consumer in their social media and e-commerce sites. This gives them end-to-end control over the consumer experience with their brand and encourages consumers to think of the brand — rather than a multibrand retailer — as a familiar and trusted destination for making their purchases.  

From a brand protection perspective, a pure direct-to-consumer brand teaches consumers to seek out the brand’s products in its own e-commerce sites or brand-owned stores. They spend less time searching online for variations in price or shipping options on new products, which in turn makes them less vulnerable to counterfeiters posing as legitimate retailers.  

Up to a point, the same benefits are available to heritage brands looking to regain control over an unwieldy retail network. Gucci, for example, announced this year that it was rebalancing its commercial portfolio to limit wholesale to less than 10 percent of its overall business. To accomplish this, the brand had to first establish a strong social media voice, which meant refocusing its investments to build an audience rather than simply buying eyeballs with advertising.

As the number of wholesalers selling Gucci decreases, the brand has more power to dictate terms. They’re partnering only with wholesalers that will buy the entire collection, the same strategy now applied to all 500 of its stores. In the first half of 2018, revenue has increased by 44 percent and margins have reached an all-time peak for the brand at 38 percent.

Cons

Of course, not everyone can be Gucci. On one end of the spectrum, emerging brands have traditionally sought out partnerships with respected retailers, both online and offline, to get themselves in front of consumers who are likely to appreciate their offerings, building precious brand awareness. On the other end of spectrum, successful digitally-native brands with a DTC model are hitting a revenue ceiling and finding themselves unable to scale without giving up the control that was central to their success.

In terms of reducing the threat from counterfeiters, it’s important to remember that even a brand with total control over where its new products are sold, and who sells them, has zero protection in secondary markets. As soon as the transaction is complete, the product leaves the brand’s jurisdiction and can be resold by anyone who is adept at finding a buyer. The hotter the brand, and the more tightly it is able to control supply in primary markets, the greater the demand on social media sites and peer-to-peer resale marketplaces like eBay, Grailed, Depop.  

While that may seem like a good thing, counterfeiters have moved in on these channels in force in the last 10 years. This leaves consumers unprotected from the purchase of a fake and they’re looking to brands to do something about it. When a fake, inferior product lands in the hands of a buyer who believes they’ve bought the real-deal, the brand reputation is once again vulnerable to damage.

Get the Best of Both Worlds

By planning ahead, brands investing in direct-to-consumer strategies for new-product sales can ensure their brand promise travels everywhere their authentic products do, including in secondary markets.

The key is adding an anti-counterfeiting solution to the product that is digitally connected, so consumers can use their smartphone or any connected device to quickly and easily confirm that the product is authentic, regardless of where they find and buy it.

The same digital technology that safeguards consumers from counterfeits can deliver brand content to consumers with a product in hand, and can also be easily and efficiently combined with one of the many exciting new options for in-store mobile engagement using RFID chips.

Find out more about how it works by clicking here.

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