New DTC toolkit   //   April 2, 2024

Canada Goose, Levi & Nike hit snags in their quest to build bigger DTC businesses

DTC-focused apparel companies are hitting bumps in the road as consumer spending habits change.

Last month, Canada Goose announced it would lay off 17% of its corporate workforce to focus on “achieving efficiency and margin expansion.” The news comes a month after Nike cut more than 1,500 jobs as part of a broader restructuring, and two months after Levi said it would lay off as much as 15% of employees under a two-year “productivity initiative.”

All three companies unveiled ambitious plans over the past few years to generate more of their sales from DTC. In 2023, Canada Goose said it wanted DTC to account for 80% of revenue by 2028. In 2022, Levi said it hoped to triple e-commerce sales by 2027. By 2021, Nike had cut ties with 50% of its retail partners to better focus on its stores and website and keep a greater share of profits.

Some aspects of the companies’ plans have worked; they’ve all managed to grow DTC to account for a bigger part of their businesses. However, they’ve also run into challenges with wholesale and overall demand as cash-strapped consumers pull back on spending on discretionary categories like clothes and shoes.

To try and find a solution, Canada Goose, Nike and Levi have all implemented layoffs or unveiled cost-cutting plans over the last three months. Some are still focusing on DTC, while others are trying to regrow wholesale. The question now remains how well these brands, as well as their counterparts in the space, can balance these channels.

What brands are seeing

The future for DTC brands seemed bright early in the pandemic when big names like Allbirds and Warby Parker went public. At the time, many consumers bought directly from brands through e-commerce channels such as websites and apps. However, as inflation and interest rates grew, consumers started buying from any channel — including wholesale — where they could get a deal. Today, promotions-heavy events like Prime Day continue to post records, even though e-commerce growth remains relatively flat.

Canada Goose, Levi and Nike have reported mixed quarterly earnings over the past couple months. Canada Goose’s revenue was up 6% year-over-year, while Levi’s was up 3%. Nike’s was essentially flat. All saw an increase in their DTC sales, but wholesale was a different story — Canada Goose and Levi’s were both down, meanwhile Nike’s went up.

In February 2023, Canada Goose announced a five-year strategic plan focused on DTC. It hired its first chief digital officer and set out to double its store count. Canada Goose is currently surpassing its goal to have DTC account for four-fifths of the company’s revenue. Last quarter, approximately 84% of its revenue came from direct channels, up from 78% a year earlier.

Still, in a regulatory filing last Tuesday, Canada Goose CEO Dani Reiss said the company was realigning its teams to ensure resources were “fit for purpose to fuel our next phase of growth across geographies, categories and channels.” Reiss called the layoffs “the right decision to put our business in the best position in the future.”

“We are focused on achieving efficiency and margin expansion, while investing in key initiatives — brand, design and best-in-class operations — that will powerfully position our iconic performance luxury brand to deliver long-term growth,” he added.

Canada Goose did not mention cutting back on DTC in its recent announcement, but the business is having issues with wholesale. Canada Goose sells through partners including Nordstrom and Saks Fifth Avenue, and its wholesale sales last quarter dropped 28% year-over-year. Canada Goose attributed this, in part, to “a planned lower order book value resulting from lower orders from existing customers.” The company added in its earnings release, “We estimated higher returns from our wholesale partners as we proactively manage our inventory.”

Like Canada Goose, Levi hasn’t signaled it will ease off of DTC. In fact, its two-year growth plan specifically mentions accelerating “DTC first strategies.” Levi recently appointed its first-ever chief digital officer, and the brand is on the way to having DTC account for 55% of total revenue by 2027. This past quarter, DTC was responsible for 42% of revenue, up from 39% a year earlier.

However, Levi too is seeing a slowdown in wholesale, which affects its entire operations. Its wholesale net revenue declined 2% on a reported basis. Still, the company remained positive it can turn things around, even as it plows ahead on DTC. “Efforts to stabilize our wholesale business are working,” CEO Michelle Gass said in January. “As we look to 2024, while we’re continuing to plan the wholesale business prudently, we are cautiously optimistic on this important channel.”

Nike, on the other hand, is seeing its wholesale sales rise 3% year-over-year after trying to grow that part of its business. Its layoffs are part of a larger $2 billion cost-cutting program it announced in December to “fuel future growth, accelerate innovation and speed and scale and drive greater long-term profitability,” according to the company.

Nike — which has 8,000 brick-and-mortar stores, five global concepts and four apps — has begun seeing cracks in its DTC strategy. Its Nike brand digital sales dropped for the first time since 2015 last quarter, even though overall DTC sales were up slightly. And last year, Nike resumed wholesale relationships with Foot Locker, DSW and Macy’s — relationships it had put on pause under its DTC-first strategy.

In March, Nike CEO John Donahoe announced that Nike needed to “lean in” even more with wholesale partners. “We know Nike’s not performing at our potential,” Donahoe said. “While our Consumer Direct Acceleration strategy has driven growth and direct connections with consumers, it’s been clear that we need to make some important adjustments.”

A balancing act

For some businesses, going all-in on direct-to-consumer is the ideal move. They can keep distribution, marketing and promotions in-house, while also owning and overseeing all customer data. They can staff their own stores and monitor their own web traffic.

Brands like Levi and Canada Goose that are hard-set on DTC need to fully commit to that strategy, said Sam Vise, CEO and co-founder of the in-store management solutions provider Optimum Retailing. “If you’re doing DTC, then you have to just do DTC,” he told Modern Retail. “The challenge is, if you don’t do just DTC and I can also buy products at other locations, that’s where I struggle a little bit as a consumer… I’ve never really understood the wholesale strategy. I find it’s something that takes away from brands.”

DTC certainly benefits strong brands, Ant Duffin, senior director analyst at Gartner, told Modern Retail. On the other hand, he added, there can be limitations to DTC. “There can be a bit of a glass ceiling,” he said, especially when consumers are interested in buying products from department stores or malls or other third parties.

“I think many [DTC-focused] brands are now starting to look at this and say, ‘Do we really care where the sale comes from, as long as we get the sale? Obviously, DTC is greater in terms of profitability, but if we can make a sale through one of our wholesale partners, it’s better than one of our competitors capturing that sale,'” Duffin said. “I think that’s changed the dynamic of what that good constitution of balance looks like, which is essentially, are you growing holistically?”

Many brands like Canada Goose are making progress on upping their DTC sales. But having lofty goals around what percent of a business comes from DTC can be challenging, Duffin said. There needs to be a “recalibration of expectations” as brands track where and how their customers are interacting with their products, he explained.

“I think if you have a brand that has high price point, high exclusivity and, in certain cases, pretty high distribution, I still think there is a role for direct. But the question then becomes: What is that evolved proposition?” Duffin said. “And actually, what does it look like for the brand? So instead of them saying, ‘Hypothetically, we want direct to be 70% of our business,’ actually, ‘good’ might look like 30% of the business.”