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There’s been much focus on outdoor specialty retailers competing with the likes of Backcountry.com and Amazon.com, but another channel quietly is swallowing more sales online.

The direct-to-consumer business has come a long way since the catalog.

Rapidly expanding through the Internet, mobile apps, and social media, just about every outdoor manufacturer from Adidas to Zeal Optics partakes in some form of direct sales. The growing importance of the channel is evident as more brands announce significant investments to beef up their website’s e-commerce capabilities.

Today’s brand sites are looking a lot more like retail sites, offering every product style and color available, along with official size charts and the best photos and videos. Throw in some holiday sales, free shipping, and one-click shopping, and there’s no hiding the fact that some manufacturers have jumped full force into the retail side of the business.

The question for the specialty retailer: Are these expanded efforts friend or foe?

�����ԹϺ��� Business Journal looks into the latest direct-to-consumer strategies and how brands are attempting to walk the fine line at retail between vendor and competitor.

Outdoor manufacturers going direct-to-consumer isn’t anything new.

Brands like Eddie Bauer and L.L. Bean have bypassed third-party retailers entirely for years, exclusively selling direct-to-consumer through catalogs, stores ,and e-commerce. They’ve been joined by the likes of GoLite — which in 2011, switched to direct-to-consumer — and Stio, founded by former Cloudveil owner Stephen Sullivan in 2012.

What is new in the category is the increasing crop of outdoor vendor brands — those that still primarily rely on third-party retailers — venturing into supplementary direct-to-consumer sales through the ease and reach of e-commerce.

Outdoor manufacturers walk a fine line with retailers when they venture into direct-to-consumer sales. Ultimately retailers frown upon the idea, but if brands feel it necessary to offer their products directly online, here are some best practices retailers say will help forge a healthy relationship.

1. Maintain full MSRP on all products with no discounting or coupons.
2. No free shipping.
3. Collect sales tax on every sale.
4. No aggressive sales marketing campaigns.
5. If a brand does decide to pursue any of the above promotions, inform the retailer ahead of preseason wholesale order deadlines.
6. Display all items, regardless of stock status.
7. Include additional “click-to-buy” or “where-to-buy” links to retailers with inventory.
8. Be transparent with retailers on direct-to-consumer sales data.

“It’s a great platform for us to do some rich storytelling and merchandise all of our product line,” said Lisa Thompson, president of Icebreaker’s U.S. operations in Portland, Oregon. She and other outdoor manufacturers point out that consumers only hear part of a brand’s story, or just see a small portion of its product line at retail. At brand-specific websites, they get the full story, the full product lineup, and the full assortment of colors and sizes.

Marketing Story

Brand officials say their entry into the channel is one primarily of marketing, not sales.

Linking all that product detail to e-commerce — retail or direct — is the logical next step, said Outdoor Research marketing director Charlie Lozer. Whether consumers are drawn to a brand website by email marketing, a cool video, or just checking to see if that jacket comes in “hot sauce red,” the goal for both the manufacturer and retailer is to try and convert that interest into a sale, he said.

Until recently, many sites, such as OutdoorResearch.com, have been feeding those sale requests to retailers via links with the product in stock. But retailers won’t always have everything on hand, and that’s where many brands feel there’s a fair opportunity to step in and save the sale.

In July, Outdoor Research will launch its first direct-to-consumer option — outside pro sales — on its website. It will continue to link products to partner retailers, but also give the option to buy at full price directly from the brand. “The goal is to very much continue supporting our specialty retailers, but at the same time offer the full assortment of our products to the customer,” Lozner said.

Marmot is another big-name name outdoor brand set to debut direct-to-consumer e-commerce sales later this year, along with its continued expansion of Marmot branded stores.

“We are focused on direct-to-consumer opportunities on the Internet and utilizing our brands for direct selling opportunities,” Jarden Corp. (parent to Marmot) CEO James Lillie told investors on a recent conference call. “Obviously the Internet is an important growth tool, especially as we focus on emerging markets.”

The international push for direct-to-consumer sales could be greater than the domestic one, particularly as brands venture their way into China, which according to a recent McKinsey&Co. report, has become the world’s second largest e-tail market.

“Only a small portion of Chinese e-tailing takes place directly between consumers and retailers,” the report stated. “Instead, most occurs on digital marketplaces.”

Test Run

Some brands say they are turning to direct-to-consumer channels to better test and measure marketing campaigns.

“It’s a great learning tool for us to see what’s selling and the trends,” Thompson at Icebreaker said. “We can test marketing stories … and I think we can do a better job sharing those results with retailers.”

So, for example, perhaps a brand notices that product “x,” in size “y,” in color “z,” is selling particularly well direct-to-consumer to consumers in Seattle because few local retailers carry the product in their stores. Brands could share that data with retailers to help shift those sales to their stores.

Retailers OBJ spoke to say that they have yet to see that kind of sharing, but welcome it, if it’s organized and targeted data, rather than just anecdotal stories.

Some manufacturers are also eyeing direct-to-consumer to test limited product launches, particularly those that might carry some risk, such as expanding into a new category.

Two years ago, Nemo Equipment entered the sleeping bag category with a soft launch at Outdoor Retailer Summer Market 2011. It later decided the line needed more work, and turned to its consumers through a limited direct-to-consumer campaign to purchase, test, and provide feedback. In 2012, Nemo returned to Outdoor Retailer with a revamped line, which officials say was better prepared to launch at retail.

“The limited-edition launch helps take the guesswork out of ordering for retailers,” Nemo senior sales director Brent Merriam said at the time. “We’ll know which styles are popular with customers and will be able to show solid numbers to the buyers.”

In a similar tune, dozens of start-up outdoor brands are using a direct-to-consumer product pre-launch strategy via crowdfunding sites such as Kickstarter.

Some brands are willing to involve retailers with these pre-launches efforts too. When Sierra Designs debuted its DriDown technology, it partnered with REI to direct 100 percent of its e-commerce demand for the product to REI for the first ten weeks.

“Every eblast, homepage flipper, and product ‘buy now’ linked to REI’s site,” said Sierra Designs (American Rec) marketing director Sue Timbo. “The partnership was extremely successful and established a platform to pursue future opportunities with additional retailers.”

Overall, brands say they want to better understand what helps complete a sale.

“We’ve learned what’s effective to get people to a website, or into a store, it will also benefit us to learn what are effective strategies to make a sale and ultimately get the product on their back,” Lozner at Outdoor Research said.

Dollars and Sense

All marketing stories aside, greater sales and profits cannot be ignored as a driver for more brands beefing up their direct-consumer businesses. Without the retailer as the middleman, manufacturers can capture a significantly greater share of the profit by selling direct. During the economic downturn, it’s been one go-to remedy to help boost sales.

So what kind of revenues are companies pulling in from their direct-to-consumer businesses? It’s tough to get a clear answer. Most companies are tight-lipped on the figures, but a few public entities give a glimpse into the business:

Deckers Outdoor, parent to Teva, Sanuk, and Ugg footwear brands, reported its e-commerce sales represented 16 percent of total revenue in 2012, plus another 30 percent from its branded stores. In total, nearly half of its business — 46 percent — is now direct-to-consumer. The Ugg brand drives most of those direct sales. Teva’s direct business — of more interest to outdoor retailers — accounts for a more modest 6 percent of the brand’s total sales.

VF Corp., parent to The North Face, Timberland, Vans and numerous other outdoor brands, says direct-to-consumer revenue accounted for 21 percent of its total business in 2012. “E-commerce is our fastest growing direct-to-consumer channel and represents approximately 11 percent of our direct-to-consumer business,” officials said. “We expect our direct-to-consumer business to continue to grow at a faster pace than VF’s overall growth rate as we continue opening stores and expanding our e-commerce presence.”

Columbia Sportswear does not break out its direct-to-consumer sales, but recently noted that its direct-to-consumer sales were up in 2012, despite declines in its wholesale business.

Also muddying the picture is that a company’s direct-to-consumer revenues aren’t included in industry’s monthly sales data from groups like Leisure Trends Group and OIA VantagePoint. Most companies keep the figures so close to the chest that analysts can’t even project the figures, said Scott Jaeger, senior manager of retail analytics at Leisure Trends.

The absence can skew data. Case in point: while much of the industry has noted a greater decline in snowboard retail sales compared to skiing these past few seasons, one snowsports industry official told OBJ the decline isn’t necessarily due to a drop in sport’s popularity. Rather it signals the reality of more snowboard brands — including the biggest, Burton — opening up robust direct-to-consumer e-commerce channels within the past few years. The sites, many with free shipping and easy-to-use “find-your-perfect-board” widgets, are perfectly tailored toward the category’s young and web-savvy customer.

Two Can Play at This Game

Some brands point out that their expansion into retail isn’t unlike several retailers crossing the line into product manufacturing. National outdoor retailers such as REI, EMS, and even Backcountry.com with its new Stoic products, have their own direct-to-consumer brands. Like a generic grocery product, there’s no question these less expensive retail brands steal business from name brands.

“If they’re going to mimic our products and undercut us on price, what choice do we have but to get in and sell direct,” one outdoor manufacturer said off the cuff at a recent event OBJ attended.

Of course, no small, independent outdoor specialty retailer has the resources to start its own brand, beyond perhaps a logoed sweatshirt or hat. They’re left caught in the crossfire.

Retailer Response

The growing number of direct-to-consumer players quickly is becoming a top concern for specialty retailers, said Roanne Miller, president of the Grassroots Outdoor Alliance. The organization represents 43 independent outdoor retailers with more than 90 specialty stores.

“The greatest concern is when a brand’s direct-to-consumer business becomes a competitor to the store that they’re also selling to,” Miller said. “You can’t have your cake and eat it too.”

Miller says Grassroots has been working with more brands to put in place best practices to keep direct-to-consumer businesses from infringing on their retail partners. Tips include (see chart above) maintaining full MSRP, charging for shipping, and keeping communication lines open.

“If a company has plans to significantly change distribution — whether that be direct-to-consumer, opening a brand store or selling to Amazon — we’d love the opportunity to have a conversation,” Miller said.

Some brands are doing better than others walking the fine line of direct-to-consumer sales, said Dana Davis, co-owner of Summit Hut in Tucson, Arizona. While she declined name who’s playing fair and who’s not, she’s concerned that more brands are playing with fire.

“When you land on a brand’s homepage and there are large ‘buy now,’ ‘free shipping,’ and ‘add to cart’ buttons that tells the consumer this is a retail site, not just a marketing one,” Davis said. “Specialty retailers are not only facing competition from big-box stores and Internet-only sites, but now from vendors as well.”

The extra competition has been most evident with Summit Hut’s own e-commerce efforts, denting a particular product’s sales as high as 30 percent, to even 90 percent in one case, after a brand’s new direct-to-consumer channel debuted. In the store itself, there seems to be less of an effect, but it’s harder to measure, Davis said.

The end result, Davis and other retailers told OBJ, when they see a brand ramping up direct-to-consumer sales, particularly with aggressive promotions, discounting, and free shipping, they reduce their orders with that brand.

Back at Outdoor Research, Lozner said the company had gathered plenty of feedback from retailers on the approach to take before it debuts its direct-to-consumer option this summer. In addition to keeping its specialty retailer “click to buy” links, it will charge consumers for shipping and promises to keep items at full MSRP. Plus, Outdoor Research will not list on Google Shopping lists, nor will it invest in other e-commerce search marketing tools, he said.

Similar strategies have been taken on at Cascade Designs, parent to Therm-a-rest, MSR, and Platypus brands.

“Our intention is really to be the last option for consumers,” said Bill Conradt, the company’s director of sales. “Ninety-nine percent of our products are full price, we don’t promote, we charge full freight and taxes … so it’s usually a better deal to go to a specialty retailer.”

It isn’t inherently obvious that consumers can even buy direct from Therm-a-rest, for example. Options to buy from retailers come first and the brand’s prices are hidden until selected on a tab.

While traffic remains high on Cascade Designs’ sites, Conradt admits the company hasn’t met its direct-to-consumer sales goals it put forth after its launch in 2010. “That tells us we’re doing our job in directing sales to authorized retailers,” he said.

Balancing Act

Most retailers �����ԹϺ��� Business Journal spoke to say “free shipping” and “discounting” are their No. 1 quick signs that a brand is crossing the line with direct-to-consumer sales.

“The biggest issue we’ve had is when they have discounting that doesn’t even follow their own MAP (minimum advertised price) polices,” said Mike Donohue, co-owner at Outdoor Gear Exchange in Burlington, Vermont. “It would be great to see them hold prices, at least until the meat of the holiday season is over.”

Direct-to-consumer shipping policies vary, with some brands like The North Face and Patagonia offering it on a minimum order, to Columbia’s $6 flat-rate, to Icebreaker’s free shipping and returns 365 days a year. The free shipping encourages consumers to try the product, Thompson said. The justification is that once the consumer is hooked on the product, they’ll buy more when they see it in stores.

Brands continue to test the boundaries, and some have had to step back when retailers speak up. “We haven’t always gotten it right, Thompson admitted. “The best lesson we’ve learned is to be as transparent as possible with our partners with whatever course we take.”

It involves some trail and error. After Kelty and Sierra Designs offered special combo-item discounts on their e-commerce platforms this past year, officials recently decided to remove the promotions to better support their retail partners. “Moving forward, discounts will only be offered on discontinued, close-out, or obsolete Kelty and Sierra Designs products,” officials said.

“Ultimately, our business is dependent on the retailer,” Timbo said. “Online only gets you so far.”