When a manufacturer creates a direct-to-consumer (DTC) channel, the prevailing theory is that it can strengthen the brand in ways that also benefits its retail partners.
But a study published in the Journal of the Academy of Marketing Science has found that retailers view direct channel entry as a threat. This vertical entry shifts suppliers from partners to competitors, and in response, many retailers reduce the brand’s shelf presence, raise prices and, as a result, lose sales.
Researchers Michiel Van Crombrugge, Els Breugelmans, Kathleen Cleeren and Scott Neslin tracked what happened when a leading consumer electronics manufacturer launched its first branded DTC site in a European market.
Using data from 19 retailers across 34 small domestic appliance categories, like vacuum cleaners and coffee makers, they measured key changes in their marketing mix — specifically assortment (the number of brand products stocked) and price — over a two-year period: one year before and after the DTC launch went live in Q1 2009.
On average, the DTC launch led to measurable withdrawal from retail partners. Assortment dropped by 4.27% and prices increased by 0.86%. Sales of the brand through retailers declined by 14.7%; a loss of roughly €10 million.
Retailers didn’t try to undercut or out-merchandise the brand’s direct offering. They reduced their exposure to the brand quietly, and across the board. The study emphasises that these actions weren’t random. Retailers’ responses varied based on their characteristics, capabilities and reliance on the brand.
Smaller, offline-only retailers were the most exposed. These businesses — referred to as ‘mom-and-pop stores’ — were often family-owned or single-location, and carried a wide selection of the manufacturer’s products pre-DTC launch.
‘Mom-and-pop electronics stores react most strongly to the direct channel entry; they also lose the most,’ the researchers wrote. ‘Despite being specialists, mom-and-pop electronics stores are small, rely a lot on the focal brand in terms of share, charge high prices, and are vested in the brand through a large assortment. They do not have the resources to outdo the direct channel.’
Post-launch, this segment saw sales drop by 35.84%, alongside a 14.03% reduction in assortment and a 4.82% increase in prices. Lacking digital infrastructure and unable to benefit from increased brand visibility, they protected margin by scaling back.
Retailers with a high dependence on the brand, where the manufacturer represented a large share of their sales, similarly pulled away. Rather than defend their volume or negotiate harder, they de-emphasised the brand altogether, reducing assortment more than retailers where the brand was a minor player.
According to the researchers, this reflects a shift in perceived value. As the brand diversified its routes to market, it became less central to the retailer’s business — and less worth defending.
Not all retailers retreated. Electronics chains increased their assortment by 1.87%, raised prices modestly and recorded a 6.05% increase in brand sales. These players had scale, infrastructure and digital visibility. They were also better positioned to benefit from what the study calls value creation effects: increased brand awareness, stronger demand, and a price umbrella created by the manufacturer’s premium positioning on its own site.
The study identified six retailer characteristics that shaped their response: ‘size, specialist, multichannel, focal brand share, price level, and assortment level.’
Together, these traits explained whether a retailer pulled back, held firm or gained ground. Across the board, the study shows that DTC launches aren’t just supply-side moves.
A direct channel might improve margin, visibility or control for manufacturers — but it also shifts bargaining power. Retailers, whether consciously or not, rebalance that shift. Some lean in; others disengage.
The research suggests that manufacturers should avoid assuming DTC is a frictionless addition. Instead, it recommends a segmented rollout approach: supporting smaller retailers who risk becoming disengaged, maintaining disciplined pricing online to avoid downstream inflation and strengthening strategic partnerships with multichannel retailers who can benefit from shared visibility.
Main image: by Sigmund on Unsplash
