Brands today have little choice but to increasingly sell their products directly to consumers.
Two major trends are forcing this shift. The biggest one is the decline of the retail stores that have been the primary sales channel for consumer goods manufacturers. With fewer and smaller stores, there is less bricks-and-mortar shelf space for manufacturers’ goods, which means retailers often don’t show the full line of a brand or may drop a manufacturer’s products altogether.
Name brands also have been forced to go direct to compete with a new generation of manufacturers that got their start selling online, often targeting younger consumers with innovative products, edgy social-focused marketing and promises to respect the environment and make donations to the needy.
The shift in strategy to direct selling shows up in the rapid growth in online sales in this category: The 127 consumer brand manufacturers in the 2019 Internet Retailer Top 500 of North America’s leading online retailers increased their web sales on average by 17.9%, faster than any other merchant group other than web-only retailers, which increased their web sales 19.8%.
Sales move online
Brands are not just investing in selling more on their own ecommerce sites, they also are selling more through other direct channels, including company-owned stores—and on Amazon.com Inc., No. 1 in the 2019 Internet Retailer Top 500.
A prime example of that shift is jeans maker Levi Strauss & Co. (No. 228), which generated 62% of its revenue selling wholesale to retailers in 2015 but only 57% in 2018. At the same time, its direct sales increased 18% over the same three-year period. Levi Strauss includes direct sales in three channels: ecommerce, company-owned stores and departments it operates within other retailers’ stores. Early in 2019, the company announced it would begin offering pickup of online orders at its 3,000 stores later in the year.
Levi Strauss also disclosed that its ecommerce sales increased 24% in its fiscal first quarter ending Feb. 24, 2019. But those direct sales come with a cost. The company said it increased its advertising spend by 23.8% during its most recent full fiscal year as it tried to directly woo consumers, instead of relying on retailers to bring shoppers to their stores to buy Levi jeans. Investing more in direct marketing is likely to cut into profits for many brands as they sell more online.
In addition to selling on its own ecommerce site, Levi Strauss also has opened a branded storefront on Amazon.com. That section of Amazon features just Levi Strauss products, instead of a list of jeans and other apparel from several brands.
Nike Inc. (No. 34) increased its online sales by a robust 25.0% to $2.75 billion in 2018 and has set a goal of hitting $20 billion in web sales by 2020. In 2017, the athletic shoe maker reversed course and began selling a limited selection of mid-tier products on Amazon, and in 2018 added a storefront on Jet.com, the web marketplace owned by Walmart Inc. (No. 3).
Competitor adidas AG (No. 36) reported a 36% increase in online sales in 2018 to more than 2 billion euros—Internet Retailer’s estimate for adidas’s ecommerce revenue is $2.56 billion. The manufacturer has projected hitting 4 billion euros ($4.5 billion) by 2020, which would be roughly 12% of total sales. CEO Kasper Rorsted says he expects ecommerce ultimately will represent 25% of revenue.
Lululemon Athletica Inc. (No. 81) announced in April 2019 plans to double digital revenue by 2023, while projecting overall growth in the “low teens.” That digital goal seems well within reach, given that the athletic apparel retailer increased its online sales 48.5% in 2018 and has averaged 27% ecommerce growth over the past five years.
Ecommerce is becoming a bigger part of sales for many other brands as well, even many that have started selling online only recently. While online sales accounted for only 5% of purchases of consumer packaged goods in the 12 months leading up to August 2018, they accounted for 40% of the growth, according to a study by market research firms Nielsen and Rakuten Intelligence.
Not surprisingly, many of the brands not yet selling online plan to launch their own websites, according to a 2018 survey by AdWeek Insights and Internet Retailer. Of the 118 consumer brand manufacturers who responded, 80% said they already sell via their own ecommerce sites, and 62.5% of the rest said they were likely to do so within two years. For those not planning to sell online, the biggest reason for steering clear of ecommerce is to avoid competing with the retailers that sell their products.
One of the big stories of post-Great Recession online retailing has been the emergence of companies that design their own products and then, at least at first, sell them exclusively online. These companies are often called digitally native, vertically integrated brands, or DNVBs, and they’ve had a big impact on the Top 500.
Such companies make up 31 of the 2019 Top 500 retailers based on 2018 online sales. And they continue to out-perform their competitors, growing collectively by 29.5% online in 2018 over 2017. 11 new DNVBs made the Top 500 for the first time this year, but they’re not rank beginners: Almost all of them had been ranked previously in Internet Retailer’s Top 1000, which includes more midsized firms.
This article is based on a section of the Internet Retailer Top 500 report, which analyzes the sales of North America’s leading online retailers. The 139-page report includes more than 50 charts and tables, comparisons of which retailers and merchandise categories are growing the fastest online, exclusive consumer survey data and an in-depth look at Amazon’s ecommerce initiatives. You can learn how to obtain the 2019 Internet Retailer Top 500 report here.
In addition, detailed data about each of the 500 retailers ranked in the Top 500 is available in an online database, which is offered in three membership tiers: Basic, Basic Plus, and a more inclusive Pro version for corporate clients wanting multiple user licenses, more extensive data and data download capabilities. Learn more about what’s included in each Top 500 Online Database tier.