The direct-to-consumer trend did almost exactly what it says on the tin: it removed the intermediaries in a traditional supply chain that all add a price markup before the product gets to the end consumer. Still, the model is often a three-step process: from the manufacturer, the product goes under the wing of a particular brand or retailer, which then becomes the face of the product for the consumer. The factory-to-consumer model, however, is removing the brand from the equation altogether.
It’s a beneficial model for both the manufacturer and the consumer. Usually, when there is a brand name embedded into the process, the added costs of marketing, operations and admin are pushed on to the consumer, and on to the manufacturer by way of squeezed profit margins. But in the factory-to-consumer model, the makers in the factories get to be celebrated for their skills. According to a 2019 Barclays Corporate Banking Manufacturing report, 45% of UK manufacturers that have embraced this model have seen increased revenue, while an additional 32% have been able to get their products out to consumers quicker. And for the end consumer, eliminating the cost that a brand name adds results in a significantly reduced purchase price.
One of the motivating factors for this model taking off has again been the need for greater transparency and traceability across the supply chain. From activist movements like #WhoMadeMyClothes and #PayUp, consumers have been made increasingly aware of the discrepancy between how much effort goes into manufacturing and how much suppliers are paid for their craft – if they are paid at all, that is. With all the tools to make products at their disposal, and online retailing at their fingertips, factories now have the capacity to offer made-to-order services at scale and curb overproduction. And despite the longer lead times, consumers are now more open to receiving an item ‘late’ as long as they know where exactly it has come from and the conditions it has been made in.
A few years ago, the factory-to-consumer model took off in China as the manufacturing industry began to shift away – albeit very slowly – to countries with even lower income thresholds. Today, it is leaps and bounds ahead of the rest of the world, flipping the model on its head to be consumer-to- factory. In this model, consumers can provide insights and data to manufacturers directly, which then have the knowledge they need to drive better product development. Platforms like Pinduoduo and Biyao allow manufacturers to aggregate data on spending patterns and trends.
The rest of the world, however, is still catching up on the factory-to-consumer wave. Singapore-based Wholee Prime is a membership app that gives consumers access to thousands of goods at zero-markup prices. Italic is another membership platform, this time selling luxury items at the same price that it took to manufacture them, promising consumers a refund if its fee doesn’t match the savings people make on their purchases. And, finally, Springkode acts as a sustainable factory-to-consumer marketplace, letting consumers choose from a range of manufacturers and celebrating skilled craftsmanship of garment-makers in particular.
But this isn’t an entirely risk-free model for manufacturers and factories. Since they usually deal in large quantities, they need to be able to sell at scale to make up their margins and shift stock. However, without a solid brand identity and access to consumers – which, traditionally, a manufacturer would rely on a retailer for – factories could be starting at a disadvantage. There’s also a risk that trying to access consumers directly could sour existing relationships with brands and retailers that could perceive the move as undercutting. It’s important for factories to manage all of this communication with various stakeholders if they want to make the shift – so brands and retailers probably won’t be disappearing anytime too soon.
This article was first published in Courier issue 39, February/March 2021. To purchase the issue or become a subscriber, head to our webshop.