A new report compiled by the analyst Simeon Siegel for BMO Capital Markets suggests that the recent focus among sports brands on direct-to-consumer (DTC) channels has its drawbacks. In particular, wholesale appears to offer higher profit margins before taxes and interest. Major footwear brands like Nike, Adidas, Under Armour and Crocs have been pulling out of deals with some retail clients while boosting their DTC operations. Even so, the report observes rising revenues among companies that have increased or decreased their DTC penetration. At the same time, however, it observes an average gap in the gross margin between wholesale and DTC, with the former winning out. As BMO explains it, DTC revenues are usually generated online and therefore involve additional expenses in fulfillment, logistics, marketing and technology. That said, DTC’s advantages in control over branding, distribution and pricing are, according to Siegel, “perhaps reason enough to pivot from wholesale to DTC.”
