25 Sep 2023

Vertex Partnership Group

D2C - Twilight or New Dawn?

News & Announcements

Innovation Ecosystem

Tech Insights

Gen Z consumers, those below the age of 27 years, are set to shape the modern business landscape. Every brand wants a piece of this consumer pie and to do that, they are going online first. Social media platforms like Instagram, TikTok and Pinterest may have started as social sites but today they have evolved into social commerce hubs, revolutionising the way brands connect with their target audience. Trending hashtags on social commerce platforms like #tiktokmademebuyit have garnered a staggering 2.3 billion views on TikTok, while #amazonfinds boasts an astonishing 6.7 billion views. 

It is no wonder that brands are adopting the Direct-to-Consumer (D2C) business model. A model where sellers connect with their buyers, cutting out the intermediary. Asia’s multimillion-dollar fashion brand Love, Bonito is one successful player who pioneered e-commerce fashion retailing. The success of Love, Bonito is underpinned by how it stayed close to customers, customised its offering and brand, captured valuable consumer data to keep up with the latest fashion trends and developed apparel that would appeal to the Asian consumer.

D2C Landscape and Today's Challenges

Despite the growing popularity of the D2C model, it faces challenges. One major hurdle is the substantial increase in the cost of digital advertising, particularly on platforms like Facebook. According to measurement firm Measured, Facebook's CPM (cost per thousand impressions) has risen by 61% year on year in 2021. This poses a challenge for D2C brands that used to rely heavily on cost-effective digital advertising.

Secondly, COVID-19 induced supply chain disruptions have caused higher inventory and logistics costs. Many brands have had to rethink their supply chain solutions to ensure greater business resilience. At the same time, D2C companies need to navigate challenges such as intense competition, regulatory uncertainty and logistics issues. Regulatory environments can vary significantly across countries, creating further challenges during expansion.

D2C’s Formula for Success

So why are brands still attracted to the D2C model? The secret lies in consumer data. D2C brands are more effective in collecting information on customer purchasing patterns and buying behaviour. This ensures that a brand can effectively customise and deliver products and services more quickly to its customers.

According to Liu Xiaolu, President and Founder of NEIWAI, China’s leading fashion D2C brand, success lies in the company’s ability to leverage its superior understanding of customers garnered through its own e-commerce platform. This consumer data has allowed NEIWAI to make data-driven strategic decisions, effectively tailoring their product offerings, marketing strategies, and customer experiences to meet the specific needs of their target audience.

Direct management of its own platforms and retail stores is also integral to NEIWAI’s success. Xiaolu aspires for NEIWAI to be the lifestyle brand for women across every life stage. She has focused the company on R&D to innovate, bringing better products including intimate apparel and activewear to the market.  Xiaolu is convinced that the D2C model has reduced the company’s reliance on wholesalers and distributors, allowing it to maintain brand consistency and a seamless customer experience. NEIWAI has also been able to forge stronger relationships with customers by directly engaging with them throughout their buying journey, ultimately fostering loyalty and trust.

Similarly in India, Kapiva, a prominent D2C brand that had taken a 2000-year old Ayurvedic formulation, repackaged and repurposed it for the millennial generation, has demonstrated the power of educating consumers through compelling content as part of its growth strategy. Through a comprehensive D2C approach, Kapiva shares valuable educational content that not only enhances customer engagement but also fosters a deeper understanding of their diverse customer demographics. By empowering customers with knowledge, Kapiva builds a strong connection and trust, positioning themselves as a reliable source of information.

The Future of D2C

Consumer preferences are constantly evolving and successful D2C models must be able to adapt and cater to evolving preferences. As Gen Z and Millennial consumers display a stronger consciousness towards sustainability and sustainably-sourced products, D2C brands are better positioned to communicate their sustainability credentials compared to traditional models.

Both NEIWAI and Kapiva have embraced the commitment to sustainability. For Kapiva, integrating sustainable practices throughout their operations and ensuring responsible sourcing of ingredients are a key focus for the company. In the case of NEIWAI, some of its initiatives include a collaboration with the Woolmark company to develop a new collection using traceable Merino wool which is sourced from eco-friendly suppliers like PrimaLoft®, VITA, Carbon Zero by TENCEL™. NEIWAI is also relooking their  packaging designs that use 40% fewer materials than packaging used by traditional fashion brands.

While maintaining a strong D2C-first approach, Kapiva also embraces an omni-channel strategy to expand their reach and cater to diverse consumer preferences. This omni-channel approach enables them to capture a broader customer base and enhance their market presence.

Likewise, following their success in China as a D2C-first brand, NEIWAI has adopted an omni-channel approach by opening their first brick-and-mortar store in Singapore. This strategic move integrates their online presence with an immersive offline experience allowing them to create authentic touchpoints that boost brand awareness and expand their reach into new markets.understanding of their diverse customer demographics. By empowering customers with knowledge, Kapiva builds a strong connection and trust, positioning themselves as a reliable source of information.

A New Dawn for D2C

“Digital platforms are leading to a democratization of distribution where it is possible to create large D2C online-first consumer brands. Younger consumers look to buy premium products that appeal to their aspirations and we are seeing the emergence of new-age brands that deliver personalized experiences in a way that traditional brands cannot. This has been and will continue to be a large investment theme for us.” said Ben Mathias, Managing Partner at Vertex Ventures Southeast Asia & India.

As the D2C era continues to unfold, brands that prioritise customer engagement, seamless experiences, and unique value propositions will be at the forefront in shaping the future of commerce. Kapiva and NEIWAI have proven that the D2C space can continue to reap success and growth for companies in the digital era.

Building on the success, NEIWAI has begun their next chapter of its expansion in the region with the first store outside of China opening in Singapore (Raffles City).

Watch our D2C video on How Asian brands are proving that D2C is not dead


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