Why Designers Are Cutting Out Middlemen in Favor of Direct-to-Consumer Sales



When Elizabeth Glanville opened DeVille Fine Jewelry & Diamonds in December 2009, she decided against selling her proprietary designs through wholesale channels, instead opting to offer them at wholesale prices directly to end clients. She says she was motivated by her established relationships with consumers, but there was another reason for the decision.

“Retailers are focused on carrying memo goods with minimal cash investment and not buying the entire line from designers,” says Glanville, whose Houston-based store also retails jewelry from KC Designs and The Mazza Co. She adds that getting proper representation in stores and training staff on how to sell the product is a whole other headache. “When you go direct to the consumer, you can provide a better experience and provide them with exactly what they want.”

Selling directly to customers is an idea that many designers are warming to because they’re finding it more difficult to rely on wholesale relationships with retailers. Brands like Roberto Coin have been going direct for years, based on the understanding that their own retail outfits are a smart next step to growth, but now emerging jewelers are taking a similar route—both online and off. 

The business-to-consumer landscape is rife with examples of companies going direct, from eyeglass maker Warby Parker to drug giant Eli Lilly and Co. of Cialis fame. It’s important for jewelers to understand the reasons behind this phenomenon.

“Retailers are failing to attract consumers or to have enough demand for existing products, so they just don’t have the means or clarity to know what newness to add,” says Andrea Hansen, founder of Luxe Intelligence, a New York City–based jewelry-specific consulting and branding firm. “The failure starts with consumer engagement and ends up with a rejection of new products and brands.”

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Long Bar earrings in 18k gold vermeil; $250; AUrate, NYC; auratenewyork.com

Vicious Cycle

A combination of underlying factors has changed the nature of wholesale relationships in the jewelry trade. To start, frustrated shoppers, not finding what they want in stores, search online instead of relying on a retailer’s limited inventory. By doing so, they feel empowered to connect with their favorite designers, while merchants who haven’t kept up with quickly evolving best practices are left out in the cold. 

In an op-ed on The Business of Fashion titled “The Future of Retail Is the End of Wholesale,” Doug Stephens, founder of Retail Prophet, attributes the shift to technology, and e-commerce in particular. “It’s entirely likely that upwards of 30 percent or more of the total retail economy will be transacted online by 2025,” Stephens writes. Data back him up: According to the Commerce Department, U.S. e-commerce sales in 2015 totaled $341.7 billion, an increase of 14.6 percent over the previous year, while Forrester Research says U.S. online retail sales will grow 57 percent by 2018.

“A lot of categories said, ‘E-commerce might apply to electronics but not us,’ and the market is consistently proving them wrong with extreme levels of consumer comfort buying anything online—even autos in the tens of thousands of dollars,” Stephens says.

He isn’t alone in his thinking. In April, 81-year-old New York City jeweler Michael C. Fina announced plans to shutter its physical store in favor of an online-only model, citing the fact that 85 percent of its sales were from Internet shoppers. Jewelry newbies Sophie Kahn and Bouchra Ezzahraoui, cofounders of online fine jeweler AUrate, are also fans of the e-commerce model. “We both believe that the future of retail will be online and value driven,” they say in an email.

Further complicating matters are the retailers who refuse to buy merchandise. When a three-store West Coast specialty store phoned New York City–based Catherine Angiel last fall expressing interest in her jewelry, she experienced a familiar sense of short-lived joy. The merchant wanted upward of 20 pieces of Angiel’s gold and diamond jewels in all three of its locations, but would take them only on consignment.

“I would love to be in their stores, but I can’t afford to bankroll them,” says the longtime designer. “Consignment has become an epidemic.”

Plenty of designers feel her pain. Marla Aaron built her three-and-a-half-year-old eponymous jewelry line with direct sales to consumers, many of whom discovered her on Instagram. When she began to build her wholesale business, retailers were initially reluctant to stock her styles, with some asking for consignment. That changed as they realized the consumer awareness she had accrued for herself; over time, Aaron found that stores were pursuing her for sales. She also stopped accepting consignment arrangements and addressed the subject head-on on her website: “While we would love to be in every store in the world, we can only be in the ones that pay us.”

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Cuffs in sterling silver with enamel in regular and large sizes; $625–$650; Marla Aaron, NYC; 646-263-7642; marlaaaron.com

B2C in Action

Many B2C brands know the importance of great websites and active social media accounts because those are among the biggest ways to create a presence, reach a wide audience, and sell at full retail. Storefronts, too, can help build followings (Angiel has had one in Greenwich Village in New York City for 22 years), but those alone, as evidenced in Michael C. Fina’s decision, aren’t always enough. “You have to have an updated user-friendly website with images that load quickly in order to become a destination,” Angiel says.

Aggressive and transparent pricing can also be part of the B2C equation. AUrate and Vrai & Oro, both online purveyors of gold staples like bar necklaces and stacking bands, claim to offer jewelry at wholesale prices. AUrate says it “cuts out the middleman and in-store costs” through online-only sales, thereby eliminating margins and allowing for a “discount of more than half the price” one might typically pay at retail. 

Vrai & Oro also says it aims to cut out middlemen. “There are so many direct touch points now available between brands and consumers that middlemen are no longer always necessary,” says cofounder Chelsea Nicholson. Her business partner, Vanessa Stofenmacher, meanwhile, says retail markups and a lack of transparency among store owners are helping drive the direct-to-consumer trend.

“With so much information available, consumers are more educated about their purchases,” says Stofenmacher. “Our designs are everyday basics, but because we value quality, simplicity, and transparency over everything else, our clients know they can come to us for quality essentials at an attainable price.”

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Bar necklace in 14k gold; $280; Vrai & Oro, Los Angeles; vraiandoro.com

A Work in Progress

Despite the benefits of B2C, it’s certainly not for everybody, nor is it without flaws. Store owners can help share a brand’s story and obtain direct feedback from clients, which is tough to do in the online space, where conversations are limited to emails.

“With a store, a brand may have the opportunity to meet with their customers in person and have that one-on-one interaction,” say AUrate’s Kahn and Ezzahraoui. They’re so convinced brick and mortar still matters that, after a series of pop-up shops, they recently opened an appointment-only showroom in Manhattan to better engage with their customers.

Retailers who want to continue to be important to consumers need to make benchmarking a priority—the key, however, is comparing themselves not with others in the jewelry industry but against the experiences consumers want, as offered by easy-to-use websites such as Airbnb (which lets people find and rent lodgings).

“The fact that you’re a little better than the jewelry store down the street just means that you’ll go out of business a little later,” says Stephens, who sees retail bifurcating into two camps: vertically integrated retailers like Cartier and Nike, and a new breed of experiential merchants that sell across brands and categories.

In order to thrive during this transition, retailers must take even greater care of their relationships with vendors, or risk losing their favorite partners to the direct-to-consumer phenomenon. 

Angiel says she has considered abandoning wholesale and selling her jewelry direct, but ultimately, she wants a wide audience to appreciate her work. “I hope things will change,” she says. “It would be such a drag to walk into Barneys and not see any jewelry.” 

 

Inset: Love wedding band in 14k white gold with black rhodium and 0.7 ct. t.w. diamonds; $4,900Catherine Angiel, NYC; 212-924-4314; catherineangiel.com
 

(Top: Martin Paul/Getty Images)

 

Happy Together

Five ways retailers and designers can improve their partnerships:

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Acknowledge shared goals. Retailers can help strike a mutually beneficial relationship with designers by offering reasonable buy-ins and staff training, paying for designers’ inventories, and spreading the word about them on social media.

Embrace technology. Both sides of the counter need to keep up with changing modes of communication. Think Instagram, email marketing, content marketing, and more. 

Create an addictive experience. Retailers of the future will need to offer great experiences to maintain consumer interest. “Goods are being purchased online while experiences happen in physical environments,” says retail analyst Doug Stephens.

Use consignment sparingly. More retailers are turning to memo, forcing designers desperate for exposure to finance their partners’ businesses. If the retailer-artist agreement truly is a relationship, view this variety as an abusive one.

Meet expectations. Both parties should state expectations up front and then deliver as promised. For designers, this can mean honoring exclusivity arrangements, while retailers should pay on time and communicate problems ASAP. —JH

(Above: Commerce and Culture Agency/Getty Images)