Are subscription box services an untapped opportunity?
Retail is undergoing a massive disruption and revolutionary change, which just might be the understatement of the year. Many old rules no longer apply, while new concepts are being rolled out—all in an effort to service and entice consumers to shop somewhere other than on Amazon, basically. The fact is, with the mega-retailer’s ability to offer almost anything and everything at any time and (likely) at the lowest price with quickest delivery, if the competition doesn’t come up with alternative ways to shop (think curation, experiential and human contact), what’s left to fight over, really?
That’s why pop-up shops have become all the rage of late. They are fresh, timely and pop up in unexpected places. There’s also the added incentive for shoppers to pop in, because it’s unique, entertaining and, likely, offers a limited edition or exclusive selection of merchandise. Of course, this concept is effective for those who actually still get off their sofas to shop. What about the growing horde of hermit shoppers—what’s the best way to entice them to shop differently?
Enter subscription box services. The recurring delivery of niche-oriented products allows traditional retailers (as well as manufacturers) to take some of the hassle out of shopping. It’s also an effective way to curate and introduce new items and brands to consumers. Then there’s the “Christmas Effect” that can’t be overlooked. Entire YouTube channels (like Unbox Therapy) are devoted to people opening their boxes, with some videos having more than a million views. Subscription box services are a way to give yourself a present each month, something Millennials—the tier’s largest demographic—love. It’s why Kamaj Silva, founder of the subscription box Sneakertub, themes each package as a way to enhance the overall experience of each shipment. “The mystery aspect of the subscription model is the heart and soul of the experience,” Silva says. And it’s clearly working. Thousands of Sneakertub subscribers get a mix of sneakers, apparel and accessories from 20 brands. The feedback Silva often receives: customers experimenting with “styles they would never have picked up online or at a store.”
Such services, in fact, have caught on like wildfire, running the gamut of niche categories like beauty gurus (think Birchbox) and pet lovers to fitness buffs and beer lovers to busy moms. A current guesstimate: there are now an estimated 2,000 subscription box services for consumers to choose from—one of which is Amazon’s Prime Wardrobe that’s currently in beta testing. The service, available to Prime members at no charge, allows customers to try on clothes and shoes before they buy them and return any items they don’t like—for free. If the world’s biggest retailer is testing the subscription box service concept (Macy’s and Walmart are reportedly working on versions, too), it’s pretty safe to say the concept has arrived.
“Amazon entrance into the channel absolutely establishes the fact that subscription businesses are here to stay,” says Karen Li, from the marketing team of Cratejoy, a platform that allows entrepreneurs to create subscription box businesses from scratch. According to a 2016 study from Hitwise, visits to subscription box service sites in the U.S. have increased by nearly 3,000 percent in the last three years, with more than half the visits coming from mobile devices. Bob Phibbs, the New York-based Retail Doctor, says subscription box services is the biggest trend of 2017, noting that the days when it was an occasion to browse the racks at the mall all afternoon with friends are long gone.
Of course, the concept itself is nothing new. Subscription box services have long been in existence. (Remember when Clark Griswold was gifted a Jelly-of-the-Month club membership for Christmas by his stingy boss in Vacation?) But the concept has come a long way from cheesy novelty items, with Birchbox largely to thank for bringing it into 21st century coolness. Since its debut in 2010, the company rocketed from 20 brand partners and 1,200 subscribers to more than 800 partners and 1 million-plus subscribers. Co-founder Katia Beauchamp says offering four to five personalized beauty samples each month for a $10 fee gives subscribers a taste of a new brand or product, which often leads them to buy more of what they like through its website, brand websites and stores. Call it a win-win-win.
Subscription box services feed on time-starved consumers who don’t want to or can’t “shop” in the traditional sense. Taking over the discovery process allows customers to try new products without hunting through a store or endless options online. It’s easier to “discover” new or hard-to-find items when a personal shopper takes your preferences into account while filling each box, says Li. She cites, for example, a person interested in Korean beauty items. “For somebody who either doesn’t know where to start or is looking to expand their current collection, a subscription box service is an efficient way to both try new products and learn about personal preferences.”
Building a level of trust through good recommendations also increases customer loyalty, experts say. Birchbox is particularly adept at this skill: after getting a taste of a new beauty brand, 50 percent of its subscribers go on to purchase full-size versions through its website, according to Beauchamp.
The model also capitalizes on convenience, which is particularly appealing to parents. Alicia Werle founded childrenswear subscription box Wee Blessing with that in mind. The service delivers four styled outfits consisting of discounted designer brands and culled from the subscriber’s style profile. It enables parents to spend more time at home and less time at the mall. “Gathering all of the kids in the car and shopping from store to store is so frustrating and time consuming,” Werle says. “By allowing a personal stylist do the shopping for you, so much stress is relieved.”
As for the possibilities subscription box services present to the footwear industry, many experts believe there}s potential as well as inherited risks—namely a high rate of returns because of fit issues. Phibbs expresses skepticism about whether a shoe-centric service can be profitable amid the high risks and staunch competition. “People are very specific about their shoe style and fit, and return rates on apparel already sit between 30 and 50 percent,” he says. He cites Nordstrom’s Trunk Club acquisition as an example, which allows subscribers to work with a stylist to curate a monthly box of head-to-toe outfits and send back what they don’t want. Nordstrom purchased the service for $350 million in 2014 and took a $197 million write down two years later. “Zappos lets you buy exactly what you want and return what you don’t for free, so why would I trust a subscription box to deliver something better than that?” Phibbs says. In addition, he notes that male shoppers generally purchase shoes only when they need them, so a monthly or even a seasonal shipment may be too much.
Women, of course, are an entirely different breed of shoe shopper. Perhaps it’s why the sister private label subscription box services Shoedazzle and Justfab have been doing well, according to Kira Cohen, director of public relations. She says most members think of the $39.95 monthly charge as a bill, just like rent, leading to the company’s low skip rate. In an attempt to assist shoppers, the sites feature algorithms that offer suggestions, but customers have final say on what goes into a box. On JustFab, if the subscriber doesn’t pick anything for the month, her account is credited and the money can be used at a later date. Or she can opt to skip the month and not get charged at all. Cohen believes its members like recommendations and shopping on their terms as opposed to being assaulted by advertising and upselling in stores and online. “The ads are practically forced down your throat,” she says. “But our customer tells us she wants to choose and doesn’t need it in front of her face all the time.” Cohen reports 30 percent of its VIP subscribers have upgraded to include the personal styling services.
Another perk to running a subscription box service, says Phibbs, is they act similar to gift card programs. Meaning, they are low-risk because they tie up consumers’ money. “With offerings coming, they’re less likely to go to Macy’s, so that is money taken out of their wallet,” he says, adding, “People don’t cancel subscriptions as quickly, which promises fewer returns for the company.”
Nevertheless, Silva says many shoe brands have been hesitant to partake in the subscription box model. Securing accounts was difficult when launching Sneakertub because it’s hard to convince sales reps there are other models than a physical location. “Any company who tries to break the traditional mold is seen as a challenge,” he says. That said, Silva believes it’s imperative that retailers reinvent themselves. Brands should embrace new concepts, instead of resisting them. “Stop putting shoes on a rack and calling it a day,” he says. “Provide customers an experience.”