The Wholesale Gamble

Brands often sell through both the direct-to-consumer (DTC) and wholesale channels, with demand in each uncertain before the season starts. Wholesale orders happen first at a lower price, and whatever inventory remains goes to DTC. This introduces a key gamble: Should we always accept a wholesale order if it comes in now, or should we reserve some pre-determined amount of inventory for DTC, where the margin is higher but sales are not guaranteed? In this post, we outline a simple rule for making that tradeoff and show that it can meaningfully increase net revenue across channels.