The 'Halo Effect': How fashion brands can level up DTC with digital wholesale

The idea that wholesale isn’t a profitable business model is outdated, not to mention untrue.  In DTC, margins are often higher, but brands must also account for fulfillment, logistics, and marketing costs, along with significantly higher return rates—sometimes reaching up to 50%).

For this and many other reasons (which are discussed in Centra’s ‘Guide to wholesale for fashion brands’), more and more fashion brands are choosing to diversify their business models by adopting a digital-first approach to wholesale.

But (and it’s a big but), taking wholesale digital doesn’t mean abandoning DTC, or vice versa. Instead of choosing a single path, businesses can blend DTC and wholesale strategies to maximize the potential of both channels.  

In this blog, we explore how digital wholesale opens significant commercial opportunities for brands, driven by what we like to call ‘the halo effect'.

The ‘halo effect’ in fashion wholesale

In our experience, when brands combine DTC and wholesale channels, it creates a marketing halo effect that extends reach significantly and has a direct impact on sales conversions.

One of the most effective ways brands experience this halo effect is by leveraging wholesale in their cross-border commerce strategy.

Entering a new geographic market is cost-intensive, particularly when it comes to digital marketing. It’s estimated that ecommerce brands invest 15-20% of revenue on marketing, with some spending up to 30% to acquire new customers.

Brand recognition is a critical component of cross-border commerce, and if brands are using search marketing as part of their growth strategy, budget can quickly be swallowed up. The average ecommerce brand spends 10-24% of its budget on SEO and 29-57% on paid search. It’s estimated that businesses generating around $1 million in revenue allocate the biggest chunk (81%) of their advertising funds to SEO and PPC combined, while brands with an average revenue of $100 million dedicate over one-third (39%) of their marketing dollars to SEO and PPC.

Martin Jensen, CEO at Centra, believes that fashion brands can utilize wholesale to open up new markets, and make significant marketing cost savings at the same time -

“Wholesale is a powerful, and often overlooked go-to-market strategy. Building a brand in a new market is challenging, not to mention expensive.  Wholesale offers an efficient way to gain traction: by setting up one week of buyer meetings, brands could close substantial order volumes from local retailers in a new market.

By showcasing their collection, fashion brands can not only make sales but also gain valuable, cost-effective exposure. Sales associates will present your brand directly to local customers and your signage appears in stores, which builds brand recognition and trust. Having products presented in a native language and local currency further strengthens the sense of familiarity among customers. These touchpoints are worth their weight in gold for DTC because they bring a ready-made audience to the brand’s digital flagship store, and wholesale buyers have the digital tools they need to place orders for more stock in a frictionless way.”

Successful DTC brands often see greater profitability in wholesale

On the flip side, DTC brands are experts at creating demand, which lays the groundwork for wholesale success. However,  production volumes are a common challenge for mid-sized brands that produce a large amount of SKUs. Because SKU numbers are so vast, fashion brands typically manufacture smaller batches for their DTC stores, spending approximately one-fifth of their revenue on inventory.

When wholesale is added to the mix, brands have the ability to increase production volumes, which in turn, lowers the cost per unit. Previous sales data, as well as pre-order and reorder volumes help brands accurately forecast DTC sales, reducing surplus inventory as well as preventing stock outs for either sales channel. ​​Pre-orders ensure that units will sell even before production takes place with manufacturers. DTC alone won’t give brands this predictability for sales forecasting. With digital wholesale, brands can also practise optimized inventory planning to determine what their never out-of-stock and carry-over pieces should be, and tap into order data to forecast wholesale volumes from buyers for upcoming collections.

When the balance between DTC ecommerce and fashion wholesale is right, sales grow concurrently in both channels. Neither channel should cannibalize the other but instead, lean on the other to maximize growth and drive profitability. 

Find out everything you need to know about taking wholesale digital. Download your copy of Direct to Buyer: A guide to wholesale for fashion brands.