Dusseldorf The shampoo from the “House of Schwarzkopf” in the elegant black-green bottle is not available on the supermarket shelf, but only on Schwarzkopf.de. The premium product, which the manufacturer Henkel offers in its own online shop, costs twelve euros, bypassing traditional retailers. This distribution channel is called Direct-to-Consumer (D2C).
“The pandemic accelerates the fact that customers also want to buy everyday care products online,” says Nils Daecke, who works in Henkel’s DX digital department. This year, the Dax group therefore wants to offer further products via direct sales.
Like Henkel, all consumer goods companies are increasingly experimenting with their own online shops – and are responding to increasing demand, especially from younger customers. 41 percent of consumers worldwide ordered products directly from manufacturers in the past six months. The proportion was particularly high at 68 percent among 18 to 24-year-olds, shows a study by the Capgemini consultancy.
Apple, Adidas and Tesla, who have successfully operated their own online stores for years, have led the way. As a result of the store closings during the lockdowns, the consumer goods industry has also moved online. A reversal of this trend is not expected after the pandemic.
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Customers have got used to it, manufacturers see advantages: They open up a new sales channel, save on the retail margin and strengthen customer loyalty.
However, it is often not financially worthwhile for the corporations. And D2C is still a niche. According to the research company Euromonitor International, almost 88 percent of sales in the body care and beauty industry in this country are made in traditional retail. Twelve percent are digital, only a fraction of it via their own web shop, show data from 2020. Last year, the proportion is likely to have increased further.
For corporations, however, it is already valuable to address their customers via direct sales. “It is a medium to long-term investment to be part of the race for the important customer data,” says Sandra Deutschländer, consumer goods expert at the Boston Consulting Group. Manufacturers can understand so much better why and which customers buy their products – important information that remains hidden from them via traditional retailers.
Henkel: Only personalized and premium products are worthwhile online
Companies have to offer customers special features and additional services so that they do not order from Amazon or in brick-and-mortar stores. No customer would visit a manufacturer’s online store for a classic shampoo.
Henkel has also had this experience. The company therefore sells products via D2C with special ingredients that would be too niche for traditional retail. Another solution: personalization. Under the Aura brand, Henkel sells hair care products that are specifically tailored to the customer’s hair structure. “Such personalization would not be possible in stationary retail,” says Manager Daecke.
Both give consumers incentives to go to the company shop in a targeted manner. For the provider, it has the advantage that they can sell such items at a significantly higher price – and the digital business can pay off.
Manufacturers face the problem that they have to invest a lot of money in online stores, logistics and advertising. Direct sales are only worthwhile with high shopping cart values, as the acquisition costs are only amortized then. Henkel manager Daecke also admits that “the first purchase is rarely profitable”.
Direct sales only become relevant for Henkel and competitors if customers order from them regularly. Once the customer has bought a product, the manufacturers provide them with information about new features, spare parts or maintenance tips.
For example, the Henkel joint venture E-Salon reminds its customers of personalized hair coloring products by email after about six weeks to buy the product again. After this time, the hairline should be visible again.
Henkel makes 20 percent of its sales digital. However, this also includes sales via other online platforms and sales from the industrial adhesives division.
L’Oréal: Online business compensates for losses in traditional retail
L’Oréal is already further there. The French cosmetics giant makes 27 percent of its sales in e-commerce, seven years ago it was five percent.
In the L’Oréal shops, customers have the opportunity to see virtually what their make-up or hair color looks like and to personalize them. There are also videos and advice on offer. The company sells higher-priced premium brands such as Kiehl’s, Biotherm and Lancôme via D2C shops.
With such products, L’Oréal may have an easier time in the D2C business than Handle with everyday cosmetics. High-quality products work better at D2C, also because the higher shopping cart values help cover the costs of logistics or marketing.
The fact that L’Oréal opted for online business early on has paid off in the pandemic. In Germany and Austria, the losses caused by closings in brick-and-mortar retail were more than compensated for by online retail, says e-commerce manager Tim Baert.
In the coming years, L’Oréal aims to generate half of its sales digitally. “Market research shows that, on average, customers change their purchasing behavior permanently after the seventh online purchase,” says Baert. After almost two years of pandemic, many consumers are likely to have reached this number.
At L’Oréal, too, the offers have not yet been profitable. “D2C will pay off financially in the long run,” explains Baert. Achieving high sales is currently not the primary goal. It’s about building a relationship with customers and better understanding their needs.
This is also observed by Klaus Ballas, Head of Consumer Goods and Retail at Bratung EY: “At D2C, the goal of many companies is to retain customers. The large sales continue to come from traditional retail. ”But the customer data obtained would also help the manufacturers with product development for the mass market.
Beiersdorf: Online shoppers with great brand loyalty
The Nivea manufacturer Beiersdorf is also increasingly relying on D2C. The people of Hamburg still only make ten percent of their sales through digital channels. But business is growing, up 38 percent in the first nine months of last year.
This is explained by the fact that the Hamburg-based company launched a purely online brand in February with “Own” (Only What’s Needed). Here, Beiersdorf promises customers can find the right skin care for them using an algorithm from 380,000 combinations.
In February, the Hamburg-based company launched a purely online brand with “Own” (Only What’s Needed).
(Photo: Reuters)
And the group is expanding its knowledge of the needs of its customers. They are increasingly using exclusive and special product ranges online and generally spend more money than in stationary retail. From this one concludes at the corporate headquarters that “the brand experience and the connection to the brand in the online shop are very high”.
In fact, direct selling can have a positive effect on the brand because it is so much more visible than on the supermarket shelf, says brand expert Christopher Spall. “Companies can control their brand perception much better”, says the founder of the consultancy “Spall macht Marke”.
However, brands are also threatened with reputational damage if they fail to meet customer expectations, says Spall. The companies would have to set up reliable logistics and respond quickly to customer inquiries.
More: The right hair color via app – Why cosmetic manufacturers rely on personalization