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Capture and defend margin

Channel shift and going direct to consumer

Examples checked

In one minute

Selling straight to customers (online or in your own stores) instead of through retailers.

The big idea: Going direct swaps the retailer's margin for your own costs of winning, serving and delivering to each customer. It pays when the brand pulls customers in cheaply; it fails when you must buy every customer with advertising.

Works when
When customers seek out the brand, buy again, and the cost of winning each one stays below the margin you gain.
Fails when
When the cost of winning customers climbs, retailers you left fill their shelves with rivals, and returns and delivery eat the margin.
Check this number first
Customer acquisition cost (CAC). What it costs in marketing to win one customer.
In the worked example
Profit per pair sold direct: EUR 28 (EUR per pair sold direct). See it add up

What it is

A channel is the route a product takes to the customer: a supermarket, a department store, a marketplace, your own website. A channel shift moves sales from one route to another. Going direct to consumer (often called D2C or DTC) means selling through your own website, app or stores.

  • Own website and app. Online sales delivered to the customer's door.
  • Own stores. Flagship or outlet stores run by the brand.
  • Hybrid. Direct for some products and markets, retailers for the rest.

Why companies do it

The economic logic, most important first. A move usually rests on one or two of these.

  • Margin capture. The brand keeps the retailer's share of the price.
  • Customer relationship. The brand owns the customer data, sets the price and controls how the product is shown.
  • Pricing power. Fewer discount-driven retailers means fewer markdowns of the brand.

When it creates value, and when it destroys it

Creates value when

  • The brand is strong enough that customers come to it without heavy paid advertising.
  • Customers buy again and again, so the cost of winning them is spread over many orders.
  • Basket sizes are high enough to cover delivery and returns.
  • The brand keeps the retailers that bring new customers, rather than walking away from them.

Destroys value when

  • Advertising costs rise and each new customer costs more than they will ever bring.
  • Retailers you cut back give the shelf space to rivals, and you lose shoppers you cannot reach directly.
  • Returns and delivery, especially in fashion, eat the margin gained.

The numbers to check

Ask for these, in this order, before you recommend the move.

  1. Customer acquisition cost (CAC). What it costs in marketing to win one customer.
  2. Lifetime value of a customer. Profit from a customer over all their orders; must be well above CAC.
  3. Margin per order after delivery and returns. Direct margin is not the retailer's margin plus yours; fulfilment costs eat into it.
  4. Sales at risk with retail partners. What you lose if retailers pull back.

Worked example (illustrative)

Rounded numbers for a made-up business, shaped like real ones. Positive lines add to profit; negative lines are costs.

A shoe brand sells a pair that retails at EUR 100. Through a retailer it gets a EUR 50 wholesale price, pays EUR 30 to make the pair and EUR 5 to sell to the retailer. Selling direct, it keeps the full price but pays for delivery, returns, marketing and its own website.

Worked example for Channel shift and going direct to consumer, in EUR per pair sold direct. Illustrative figures.
LineEUR per pair sold direct
Price the customer pays onlineEUR 100
Making the pairminus EUR 30
Delivery and returnsminus EUR 12
Marketing to win the customer, per pairminus EUR 20
Website, warehouse and customer serviceminus EUR 10
Profit per pair sold directEUR 28

Check: the lines above add up to the total.

The numbers that decide it

Profit per pair through a retailer: EUR 50 minus EUR 30 minus EUR 5
EUR 15
Extra profit per pair from going direct
EUR 13
Profit per pair direct if marketing per pair doubles to EUR 40
EUR 8

So what: Going direct earns EUR 13 more per pair, almost double. But it depends on marketing: if winning customers costs twice as much, direct profit falls to EUR 8, below the EUR 15 through a retailer. The number to watch is marketing cost per order.

Real examples

Companies that made this move, by region, with what happened and a source checked on the date shown.

  • Nike

    United StatesDestroyed value

    Nike pushed sales through its own stores and apps, then reversed course. Sales through NIKE Direct fell from USD 21.5 billion in fiscal 2024 to USD 17.7 billion in fiscal 2026, and Nike says it is reinvesting in wholesale partners.

    The lesson: Leaving retailers too fast handed shelf space to rivals; direct selling works best alongside the retailers that bring new customers.

    Source 1: NIKE, Inc., annual report on Form 10-K for fiscal 2026 (US SEC) (opens in a new tab), checked .

  • adidas

    EuropeCreated value

    adidas keeps a balanced mix: in 2025 direct to consumer sales (own stores and online) were 40 percent of net sales and wholesale 60 percent, the same split as in 2024, while operating profit rose 54 percent to EUR 2,056 million.

    The lesson: A stable mix keeps retailers on side while the brand still owns part of the customer relationship.

    Source 2: adidas, Annual Report 2025, "Markets and sales channels" (opens in a new tab), checked .

    Also 3: adidas, Annual Report 2025, "Financial Highlights 2025" (opens in a new tab), checked .

  • Honasa Consumer (Mamaearth)

    IndiaMixed

    A brand built online, Honasa rebuilt its network of shops. Online fell from 72.4 percent of revenue in 2024-25 to 68.0 percent in 2025-26; EBITDA dropped to Rs 685 million in 2024-25 during the rebuild, then rose to Rs 2,312 million.

    The lesson: Online-only brands hit a ceiling; reaching shoppers in shops costs money and time before it pays.

    Source 4: Honasa Consumer, Annual Report 2025-26 (NSE filing) (opens in a new tab), checked .

How to recommend it in a case

Answer first, then the reasons with numbers, then the risk and the next step. Three sentences, said out loud.

I recommend growing direct sales for our best-known lines while keeping our main retailers, because direct earns EUR 28 a pair against EUR 15 through a retailer.

The gain holds only while marketing stays near EUR 20 a pair; our repeat customers make that likely for core lines but not for new ones.

The risk is rising advertising costs and retailers cutting our space; next I would check customer acquisition cost and repeat rates by product line.

The numbers to quote: Profit per order direct versus wholesale; Customer acquisition cost; Repeat rate and lifetime value; Sales at risk with retailers.

The figures in the answer come from the illustrative worked example above. In a case, use the client's own numbers.

Classic interview traps

  • Adding the retailer's whole margin to yours. Direct selling has its own costs: delivery, returns, marketing, stores.
  • Ignoring channel conflict. Retailers still bring most new customers for most brands.
  • Looking at the first order only. Direct works when customers come back.

Where it is common

Sources

Every source was opened and the example confirmed on the date shown. Worked examples are illustrative and use no company's figures.

  1. 1.NIKE, Inc., annual report on Form 10-K for fiscal 2026 (US SEC) (opens in a new tab)Checked
  2. 2.adidas, Annual Report 2025, "Markets and sales channels" (opens in a new tab)Checked
  3. 3.adidas, Annual Report 2025, "Financial Highlights 2025" (opens in a new tab)Checked
  4. 4.Honasa Consumer, Annual Report 2025-26 (NSE filing) (opens in a new tab)Checked

Practise it

Where this move comes up in cases

Related moves