Factory direct to consumer sales channels are exploding globally, particularly among Chinese manufacturers. This trend has been brewing over the last two decades, but it has reached critical mass now.  Although estimates are inexact due to the lack of centralized tracking for new F2C merchants, most industry experts agree that marketplaces like Amazon are seeing 100-200% annual growth in F2C merchants, a growth rate well above other merchant categories. The opportunities and challenges factory direct sales present to the eCommerce industry are massive, and manufacturers, brands, 3PL providers, and agencies all need to be prepared.

Rationale

The motivation for direct selling has been around a long time. A shortened supply chain results in lower end prices to consumers, higher profit margins for manufacturers, or some combination of the two. While the concept of direct selling has always been appealing, the cumbersome nature of marketing, warehousing, and fulfilling individual orders was too big of a barrier to entry for most manufacturers.

The current F2C trend is simply the result of the removal of those barriers that at one time outweighed the benefit of direct to consumer marketing. With the growth of drop shipping and cross border commerce driving innovation, logistics and transportation systems have become increasingly transparent, reliable, and user friendly, and the barriers to direct selling globally have been greatly reduced. At the same time, the emergence of online marketplaces has decreased reliance on traditional retailers and marketing since more and more consumer traffic is originating in marketplaces already full of third party sellers. Both of these factors have made it possible for manufacturers to open F2C channels with minimal initial investment or experience.

Obstacles

Still, there are obstacles to implementing F2C channels. Although China has invested heavily in infrastructure, certain factory locations still are not well integrated with worldwide transportation networks. There are the traditional border crossing hassles and fees, and the Trump administration’s calls for increased tariffs and other measures designed to reduce Chinese manufacturers’ competitive export advantage in U.S. markets give rise to concern for the future.

Perhaps the greatest challenges facing Chinese manufacturers attempting to become F2C merchants are their lack of familiarity with U.S. consumers and the negative associations most consumers carry for goods “Made in China.” Traditionally, middleman brands and distributors have served as buffers, offering recognizable brands and trusted channels that pushed the focus away from the product’s place of manufacture, serving as a conduit for implementing customer feedback into product design, and creating marketing materials that matched customers’ native culture. A quick scan of factory direct listings on any major marketplace reveals this gap remains a real challenge; moving forward, this barrier will certainly be a major hurdle for many products and their manufacturers.

Solutions

More and more companies are offering logistics solutions tailored to China’s F2C space. DHL, Hong Kong Express, Amazon Logistics, AliExpress, and a range of other carriers all offer options that differ in terms of coverage, flexibility, speed, and price points. These don’t solve all of the logistics hassles, but for many manufacturers, at least one carrier has a solution that fits F2C channel needs.

Some Chinese manufacturers have also been able to partner with international marketing and branding agencies to create their own international brands to help mitigate some of the stigma that comes with trying to sell direct from China. While working to build the reputation of Chinese products, these partnerships also look for short term ways to boost consumer confidence and increase conversions globally.

The rise of digitally native brands also presents an alternate market driven solution. Many eCommerce DNVB (digitally native vertical brand) sellers are opting to craft exclusive deals with factories, or to outright purchase manufacturing facilities to use for their brand. (See Harry’s purchase of a razor factory for an example). Moving forward, these kind of partnerships and acquisitions should increase as market players take advantage of the new dynamics created by logistics advances.

Actionable Takeaways

  • Products without strong brand trust or loyal consumer followings, especially brands that rely on price points to attract consumers on marketplaces, will be doomed by the inevitable influx of cheap direct from factory goods. To prepare, create products with strong branding and a reputation for quality and select marketing campaigns that foster economic moats that can withstand pricing pressures from competitors.
  • There are massive opportunities for U.S. based agencies to help Chinese manufacturers create brands and connect consumers. This is a major area where F2C merchants typically are lacking, which creates good potential for agencies to add substantial value with minimal investment.
  • Similarly, there are opportunities for logistics providers to partner direct with Chinese manufacturers. While major players like Amazon will obviously lead the field for many manufacturers, other 3 and 4PL providers can offer value and the high touch many manufacturers need when establishing their F2C channels.
  • For certain products with demand among Chinese consumers, there is also potential for utilizing the growing direct to consumer logistics infrastructure to sell high demand U.S. goods direct to Chinese consumers.

Conclusion

The trend towards F2C selling is already impacting eCommerce, and it will only gain momentum as more and more Chinese manufacturers become aware of the trend and market structures. F2C is already pushing the ongoing revision of old supply chain principles, and it’s offering powerful opportunities for alignment and vertical integration. At the same time, it threatens business models that are too inflexible to adapt and lack protective moats. Regardless of where a manufacturer, agency, or brand is in relation to the trend, it’s definitely time to start implementing strategies that recognize that F2C is here to stay.  

Interested in discovering how to capitalize on the F2C trend? Send an email to [email protected] to learn more.