Despite DTC Push, Wholesale Might Be More Profitable in the Long Run, Analysts Say

Brands are leaning into their direct-to-consumer businesses. But a new report suggests that doing so might limit profitability in the long run. According a new report from BMO Capital Markets analysts, DTC channels can offer retailers lower profit margins than wholesale channels before taxes and interest. The report points out a possible downside to the current retail industry trend of brands like Nike, Adidas and Crocs nixing partnerships with different wholesalers to focus on key accounts and direct-to-consumer channels. Analysts observed an inverse relationship between DTC penetration and reported revenues in the retail companies surveyed in the report over the last five years. In other words, companies that had a decline in DTC penetration also saw meaningful sales growth. The opposite was true as well. “This appears to suggest that although revenue per item grows at DTC, the units lost by abandoning wholesale generally overwhelm the unit price lifts at DTC,” analysts said in the report. Overall, the market experts estimated that DTC gross margins are about 1,000 basis points lower on average than wholesale gross margins. For many major footwear companies, DTC has been the North Star guiding their brand and merchandising strategies. In the last year, Nike has terminated wholesale accounts with major

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