Digiday gathers some interesting, and highly positive information about the subscription box business.
Here’s some highlights from this report.
If Amazon revolutionized retail with efficiency and ease, it took some of the joy of discovery out of the picture. Subscription boxes may be the antidote. Inherently personal (most are personalized to your tastes) and with the element of surprise built in (you never know exactly what you’re going to get), subscription boxes bring a bit of playfulness back to shopping.
Which is in part why the business is growing: A study by Hitwise, a division of Connexity which provides marketers with a sampling of online behavior, showed that visits to so-called “sub-box” sites has grown 3,000 percent in the past three years, with 21.4 million visits in January 2016. (In comparison, visits to the top 500 online retail sites have only gone up 168 percent.)
I’m skeptical about this data point from My Subscription Addiction
My Subscription Addiction, a review site for boxes, estimates there are 11 million subscribers in the market this year (not individuals, since on average, the typical subscriber subscribes to seven boxes and has 12 on her or his wishlist.)
Is there a bubble?
But with boxes available for dirt, tampons, food (vegan, gluten-free, dairy-free), and pretty much anything else you can think of, some people are beginning to see signs of a bubble, comparing it to the Groupon model.
“The energy has already died down,” said Sucharita Mulpuru-Kodali, analyst at Forrester. When VCs jumped on this, there was a belief that this would be akin to the daily deal or flash-sale boom of a couple of years ago, with rapid growth and the possibility of a very lucrative exit. “It’s a tough business” that only appeals to about 1-5 percent of customers in the market for the given product, said Mulpuru-Kodali. “That means the overall business opportunity just isn’t that large.”
There is also a problem of scale. Alex Lutz, head of the business strategy group at Huge, said subscription businesses initially take off in the early stages because the cost of acquiring customers is low (once you get them, you have them.) “When you start to scale is when these businesses are so punishing,” she said. That’s where the cost-per-customer acquisition no longer provides enough of a margin to keep these businesses sustainable.
Why The Big Brands Are Exploring The Sub Box Space
Bigger is better
That’s where big brands come in. Over the last few months, an increasing number of boxes have launched by giant, established companies.
Sephora, which hands out samples in stores as part of a loyalty experiences, launched late last year “Play!” a sub-box service that also will cost $10. (“Finally!” proclaimed fashion websites.)
Sephora had always wanted to get into subscriptions, said Deborah Yeh, svp of marketing at Sephora. Deluxe-size sampling (samples bigger than teeny-tiny) are the core of the brand’s loyalty experience and is a key differentiator, so the brand wanted to do it better. Research showed that subscribers wanted curated, well-known and prestige items in a box, not “a random assortment of filler products mixed with one or two that they’d really use.”
Sephora used existing loyalty data to figure out what the clients wanted. “We’re the only subscription beauty box that has the full power of Sephora behind it,” said Yeh. And each box works with Sephora To Go, the beauty app, to access content like advice and tips. There’s also Play Pass, a physical card included with each box that users can bring into stores to get consultations on how to use products.
Starbucks is getting in on the act too: The Reserve Roastery will send subscribers “hand-selected” and “small-lot” coffees for $19 a month. “Traditional retailers should be — and some already are — taking note of the success that startups in this industry have enjoyed and determine if a subscription model would be a smart extension to their existing product line up,” John Fetto, analyst at Hitwise, said.
In February, Adidas launched Avenue A, a quarterly sub-box filled with shoes, apparel or accessories, selected by celebrity curators. It costs $150. And in the fall, Macy’s launched a beauty based subscription box ($9.99 a month) — the Spotlight includes samples, plus one full-size item, and you have to sign up using a Macy’s account (or create one).
Why Boxes Struggle
Josh Goldman, a VC at Norwest, said that it’s that precise problem that may doom subscription boxes: the belief that if it worked in one category, beauty, it would work everywhere else. “The ones that seem to struggle are in higher-priced, more considered purchase categories or ones that focused mostly on new product discovery,” he said. “Consumers just started to push back on the monthly fee for yet another random collection of things that they didn’t really want or need.”
Read the original report here.