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How D2C is changing contract negotiation.

With focus on fashion retail brands

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Senior partner, ASEAN CEO , CW1 Group

Senior partner, Public procurement & global compliance, CW1 Group

Junior associate, Public procurement & global compliance, CW1 Group


Jun 2023


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How D2C is changing contract negotiation.

The fashion industry has undergone a significant transformation in recent years with the rise of Direct-to-Consumer (D2C) business models. D2C brands have disrupted the traditional retail landscape, enabling fashion companies to establish a direct connection with their customers. This shift has not only altered the way consumers shop but has also brought about substantial changes in contract negotiation processes for fashion-retail brands.

Transformation through D2C

D2C brands have gained popularity due to their ability to cut out intermediaries and sell products directly to consumers. By bypassing wholesalers and retailers, fashion-retail brands can exercise greater control over their sales channel. This newfound control impacts contract negotiations in several ways. Firstly, brands may negotiate more favorable terms with suppliers, thanks to reduced reliance on third-party distributors. Secondly, brands can prioritize their own retail channels and negotiate exclusivity clauses to restrict competition with their D2C operations. However, it is crucial for fashion-retail brands to strike a balance to ensure continued relationships with existing retail partners and avoid alienating them through exclusive D2C endeavors.

Importance of Optimized Contract Negotiation in D2C Fashion Retail

D2C brands have harnessed the power of data to understand their customers better than ever before. By collecting and analyzing consumer data directly, fashion-retail brands gain valuable insights into customer preferences, shopping habits, and trends. This data-driven approach allows brands to tailor marketing strategies and product offerings to individual consumers, enhancing the overall customer experience. In contract negotiations, this data advantage enables brands to demand more customized and targeted marketing support from partners, ensuring that collaborative efforts align with the brand's D2C strategies. Brands may also negotiate access to customer data sharing to facilitate seamless integration between D2C and retail partners.

Strategies for Effective Contract Negotiation in D2C Fashion Retail

D2C brands often adopt a lean supply chain model, leveraging just-in-time manufacturing and fulfillment strategies to reduce inventory costs and waste. This shift in supply chain dynamics influences contract negotiation processes for fashion-retail brands. Brands can negotiate shorter lead times, flexible order quantities, and more efficient inventory management terms with suppliers, allowing them to respond quickly to consumer demands and reduce excess inventory. Conversely, brands may also face challenges when negotiating with suppliers accustomed to larger volume orders, as D2C brands often require smaller, more frequent shipments.

One of the defining features of D2C brands is their ability to offer competitive pricing by eliminating intermediaries. By selling directly to consumers, fashion-retail brands can potentially increase their profit margins. However, this pricing advantage also impacts contract negotiation dynamics. Brands may need to renegotiate pricing terms with suppliers and manufacturers to ensure they can maintain their competitive pricing strategy. Additionally, negotiating favorable payment terms, such as extended payment schedules or revenue-sharing agreements, becomes crucial for D2C brands to manage cash flow effectively.

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