Athletic Brands Have Captured The DTC Landscape
Photos courtesy of Adidas
DTC or direct-to-consumer brands aren’t just doing well these days, they’re beating out traditional retailers left and right. 10, 20, or 30 years ago it would have been hard to imagine a landscape without department stores leading the industry, but advancing social platforms and the e-commerce boom brought on by the pandemic puts retailers in a unique position.
Brands across the spectrum have taken a liking to the higher margins and improved traffic promised by selling directly to the consumer. Think Nike, whose 2010 DTC sales made up just 15% of the company’s total revenue. By 2021, that percentage had jumped up to 40% as their DTC sales raked in $44.5 billion.
Other brands that were once strictly brick-and-mortar are also in the process of capitalizing on DTC, but establishing strong social channels isn’t as easy as some make it out to be. While Ikea and Nordstrom may struggle to reach online audiences, athletic brands at-large are making the most of a consumer-driven opportunity.
The DTC athletics space is growing incredibly fast
What makes the athletics space so appealing for DTC? First and foremost, it’s a bright spot in an otherwise challenged apparel sector. Second, “athleisure” is a booming trend that retailers across the spectrum are looking to jump on. And third, there’s ample opportunity for brands to capitalize on that popularity through numerous social channels.
There are certainly DTC startups in the athletics space like Sweaty Betty and Vuori, but the market is increasingly saturated with traditional brands like Nike and Adidas that are looking to take back some of their sales from wholesalers.
Sonal Gandhi, chief product officer at The Lead, argues sneaker brands across sectors have been pushing towards a DTC model for years—including all of VF Corp’s brands: Timberland, Vans, and The North Face, among others. After doing wholesale for decades, making the transition involves “rewiring the internal structure to sort of cater to that business model,” Gandhi said.
According to Cristina Fernández, a senior equity analyst at Telsey Advisory Group, athletic brands don’t have the same reliance on wholesale channels that other apparel sectors do. Uniquely, they’ve been able to build connections with customers through social media platforms and their own e-commerce sites.
“I’d say Nike and Adidas are probably a little bit more aggressive, but they’re all moving in the same direction,” said Fernández. But being aggressive isn’t automatic, as brands must maintain data-driven strategies that digitalize supply their supply chains while staying clear of the seasonal wholesale calendar.
Why the surging popularity of activewear?
Imbedded in the athletics sector is athleisure, a concept of clothing that can be worn both casually and for athletic endeavors without sacrificing style. Consumer preferences have shifted significantly towards athleisure in recent years and that’s prompted top athletic brands to offer more lifestyle-focused streetwear in an attempt to capture more of the market.
Back in January 2020, Target launched its own activewear private label which surpassed over $1 billion in sales in its first year. Kohl’s and J.C. Penney have since followed suit, but there continues to be a long road ahead for these department stores should they pursue DTC further.
Furthermore, success is not a given when it comes to making activewear that consumers will be excited about. “…Athleisure activewear still has a real hold on the consumer’s mind. And that’s why you see more of these brands getting into it,” said Matt Powell, senior industry adviser for sports with the NPD Group. “[But] many of them didn’t know how to make activewear and the product really wasn’t right, and a lot of those brands have gone by the wayside.”
“…Fashion brands recognize that activewear remains a very hot category and a very hot activity, so I think more and more brands want to try to get into it. You’re seeing products that traditionally, you would not have thought would have anything to do with activewear now starting to have activewear attributes,” said Powell after pointing to the rise in stretch dress shirts, denim, suits, and other products.
To lessen the risk of going all-in with DTC, figureheads like Jon Kossow, the Managing Partner at Norwest Venture Partners, suggest implementing a balanced approach that includes both e-commerce and wholesale solutions (a strategy that also brings down acquisition costs for brands) is key.
Areas of inequality
Brands have a lot to gain from entering the athletics market, but many agree that women’s athletics aren’t receiving as much of the market share as they should. The largest brands in the space including Adidas, Nike, and Under Armour have “continued to fail female athletes” argues Powell.
According to him, brands like Lululemon, Title Nine, and Athleta have a strong foothold on women’s athletics because the above traditional retailers have failed to figure that out. ‘Women’s business should be at least equal to the size of the men’s business, which could mean “virtually a 50% increase in the women’s business overall.”’
DTC brands have also targeted activewear as upscale and higher-priced than traditional streetwear. Take Outdoor Voices, which sells leggings that cost nearly $80 a pair. Of course, these margins could be lowered, but consumers who can afford these products have come to expect a higher price tag.
Many, including Powell, agree that luxury athletic brands will continue increasing their price points. “We buy activewear because we want to get fit, or we want to lose 10 pounds. And so to be an athletic brand and carry somewhat of an aspirational price point as well—it seems like a logical conclusion.”
Here, conspicuous consumption comes into play as shoppers wearing Lululemon or Outdoor Voices want others to know they spent more than what competitors offer. However, there’s certainly room for smaller athletic brands to jump in the market with more competitive prices—particularly when there’s an opportunity to push women’s athletics towards greater equity.
Agile brands will find long-term success
Success in DTC, athletic wear, and the greater retail industry remains a moving target as the market continues to adapt to changing consumer behaviors and evolving social channels. Digital-first brands undoubtedly have a leg-up when it comes to securing DTC platforms, but the battle for relevance between DTC and traditional brands won’t be over anytime soon.
In the end, brands will need to prove agile enough to provide online customers with a seamless experience from the point of contact to the point of purchase. Athletic retailers are making a name for themselves by streamlining digital supply chains and engaging social channels, but they’ll need to continue reacting quickly to an evolving landscape.