Introduction
A channel decision in apparel is a trade between two kinds of margin. Selling direct, through the brand's own stores, website and app, captures the full retail price and produces a much higher gross margin percentage. Selling wholesale, through department stores, sporting goods chains and specialty shops, gives up half the retail price but avoids most of the cost of reaching the shopper. Which channel earns more depends on what happens below the gross profit line, and many brands learned that the hard way.
Nike is the clearest recent example. By September 2021 it had exited about half of its retail partners to push sales through its own channels. In its fiscal year to May 2026, wholesale revenue rose 6% to $27.5 billion while Nike Direct fell 6% to $17.7 billion, as the company rebuilt its relationships with retailers. This article explains the economics behind that reversal and how bankers analyze a brand's channel mix.
Why Direct Looks Better on Gross Margin
The starting point is price. A wholesale account typically buys a product for about half its retail price and sells it at full price, so the brand receives roughly half of what the shopper pays.
- Keystone Pricing
The apparel and footwear convention in which a retailer sets the retail price at about double the wholesale price it paid, a 50% gross margin for the retailer. Actual markups vary by brand strength and category, but keystone is the rule of thumb bankers start from.
Selling direct captures the whole retail price, so the brand's gross margin jumps. But direct selling adds costs that wholesale never carries: picking and shipping single orders, payment processing, returns, which run far higher online than in stores, the marketing needed to bring shoppers to the site, and the rent and staff of owned stores. The worked example compares one unit through each channel.
The example also shows why contribution margin by channel, not gross margin, is the number to ask for. A brand that reports rising gross margin as direct sales grow may be shifting cost into operating expenses rather than earning more.
| Wholesale | Direct to consumer | |
|---|---|---|
| Price received per unit | About half of retail | Full retail, less promotions |
| Gross margin | Lower | Higher |
| Operating costs | Sales team, account support | Fulfillment, returns, marketing, stores, technology |
| Inventory risk | Shared with the account once sold in | Carried entirely by the brand |
| Customer data | Limited | Full |
| Fixed costs | Low | High (leases, platforms, distribution centers) |
Owned stores versus e-commerce
Direct is not one channel. Owned stores carry rent and staff but no shipping or return-to-warehouse costs, and a flagship store doubles as marketing. E-commerce needs no leases but pays for every parcel and every return, and its traffic is bought through advertising. Outlet stores sit apart from both: they exist to clear inventory at a margin the brand controls. A brand's direct margin depends heavily on which of the three is growing, so bankers ask for the split rather than accepting one direct-to-consumer number.
What Wholesale Gives a Brand
Wholesale accounts do much more than buy product. They provide reach, putting the brand in front of shoppers who would never visit its website, and they offer something direct channels cannot: a multi-brand store where a runner compares five shoes before choosing one. For a newer brand, the right wholesale accounts are often the main route to discovery.
Wholesale also changes who carries the risk. A retailer that buys product owns that inventory, finances it and clears what does not sell, although brands usually contribute markdown support. That keeps the brand's working capital lighter and its fixed costs lower than a store fleet would. The costs are real too:
- Loss of control over pricing, presentation and promotions
- Markdown allowances, chargebacks and returns demanded by accounts
- Concentration in a few large accounts, and exposure to their financial health
- Less direct data on who the end customer is
The balance of power between brands and their largest accounts is explored in retailer power, shelf space and customer concentration.
Door strategy: fewer, better accounts
Brands manage wholesale through the accounts and stores they choose to sell to.
- Door Count
The number of individual retail locations (doors) that carry a brand. Brands track door count by account and tier, and a deliberate cut in door count usually signals an effort to move the brand upmarket or reduce discounting.
A brand sold in too many doors loses price integrity: the same product turns up everywhere, often on promotion. Selective distribution keeps the brand in accounts that present it well and sell at full price, at the cost of some volume. The judgment is about quality as much as quantity, and the best-run brands review their account list every season.
Why Brands That Went All-In on Direct Pulled Back
In the late 2010s and early 2020s, many apparel brands set targets to grow direct-to-consumer sales sharply, attracted by higher gross margins, ownership of customer data and the success of online-native brands. The economics in DTC and Amazon: how brands sell direct and online explain why the promise was strong and why it proved harder to deliver than it looked.
Nike's pullback from retailers showed the risks. Analysts quoted by Modern Retail argued that Nike lost shoppers who wanted multi-brand stores and that excess inventory made wholesale partners more valuable, since they help clear stock; Nike returned to DSW and Macy's in 2023. Several forces pushed brands back toward balance:
- Rising acquisition costs: digital advertising became more expensive, so each new online shopper cost more.
- Ceded shelf space: shelf space that one brand gave up went to competitors, including fast-growing running brands that used wholesale accounts to build awareness.
- Inventory clearance: brands with excess stock needed retailers and off-price buyers to move it.
- Fixed costs: websites, apps, distribution centers and stores need volume to pay for themselves.
The results show in the channel mix. In Nike's fiscal 2026, NIKE Brand Digital sales fell 12% while wholesale grew, according to Nike's fiscal 2026 results release. At Deckers, owner of HOKA and UGG, wholesale grew 12.3% to $3.21 billion in its year to March 2026 while direct sales grew 6.3% to $2.26 billion.
How Bankers Analyze Channel Mix
Most large brands now run a balanced model, using wholesale for reach and discovery and direct channels for full-price selling, data and the brand experience. Analyzing one starts with splitting the numbers by channel:
- Revenue, growth and comparable sales by channel, including digital versus owned stores
- Gross margin and, where available, contribution margin by channel
- Concentration in the top wholesale accounts and the order book from them
- Door count trends and the tier of accounts the brand sells through
- Inventory held for each channel and markdown support paid to accounts
The answers shape both the operating plan and the valuation. A buyer of a brand with a high direct share is buying higher gross margins and customer data, but also leases, technology spending and exposure to digital marketing costs. A buyer of a wholesale-heavy brand is buying lower fixed costs and wider reach, along with account concentration. The broader model behind both is set out in how apparel and footwear brands make money, and how operating costs scale with sales is covered in retail margins: gross margin, occupancy and SG&A leverage.
The banker's judgment comes down to whether a brand's channel mix fits its stage. A young brand usually needs wholesale for discovery; a mature brand with strong demand can push more through its own channels; and a brand that pushes direct faster than its demand allows ends up paying for traffic that wholesale accounts used to provide for free.
