Deesha Gupta examines the newly reinvigorated business of subscription delivery services.
There has been a growing trend among people to subscribe to some sort of a subscription service, even more so during the pandemic. This could be a direct outcome of either the initial supply scare in early 2020 or just a new, but expensive, method of lifting gloomy moods associated with quarantine. A burst of joy upon seeing cardboard boxes is not uncommon since the beginning of the coronavirus outbreak. The number of home deliveries has significantly gone up, and so too have the subscription boxes. According to Royal Mail Group, 27.4% of Britons signed up for subscription boxes in February 2019 and this number has increased exponentially ever since. In fact, in a survey by CouponFollow involving more than a thousand Americans, at least 1 in 5 had acquired a subscription service at some point during lockdown to get products delivered directly to their doorstep.
But subscription services have been around for some time, and the coronavirus outbreak seems to be just one of the accelerators of this already booming business. According to the Shopify Blog, the e-commerce subscription market is projected to reach $473 billion by 2025, up from $15 billion in 2019. Even before the pandemic, subscription boxes were increasing in popularity, and according to Marketplace, the industry had already reached $10 billion in value in 2018.
Subscription boxes are no longer limited to magazines or newspapers. They are available in almost all the categories of retail; from customised beauty products to meal prep, fancy stationery to clothing picked by a stylist. This peaking craze can very well be attributed to many reasons, the most prominent of which is convenience. Before the lockdown subscription boxes brought with them monthly ease and comfort. Post-lockdown, they will be considered a life-saver during the busiest days of the office, when you simply cannot afford the time to go to a store but can afford a subscription service. Because most of the boxes are often curated by the companies themselves based on the customer’s preferences, they tend to find it hassle-free, seamless and flexible. And of course, they get an added advantage of skipping a trip to the store and the decision fatigue that comes along with it.
While the growth was slow earlier, the lockdown gave the industry an unexpected boost. As the pandemic progressed, so did the paranoia among the general population regarding the availability of essential goods (which apparently led to real-life hunger games over rolls of toilet paper), and so consumers started looking into alternative routes to obtain their daily necessities. The subscription boxes promised timely and regular delivery, making them a reliable source of shopping.
Some subscription boxes also gained popularity because they guaranteed to keep the occupants of the house occupied. People working at home have a lot of free time on their hands and boxes such as those containing craft items or pre-packaged ingredients for meals serve as great activities for family engagement and bonding. They ensure a sense of normalcy in a time when that is in such desperately short supply. Additionally, a lot of people just prefer to treat themselves to such subscription services to get a monthly dose of dopamine. These feel-good packages are tailored so that the shoppers can fully spoil and pamper themselves. In CouponFollow’s survey, 39% of the participants confessed that they had signed up for subscription boxes simply because they enjoyed receiving products in the mail.
Although many of these organisations are not well established, and in the start-up phase, they still have managed to gain immense popularity through novel digital marketing strategies such as shout-outs by celebrities and social media influencers. Papergang is one service that is quite trending among the stationery-fanatics. The brand packages cute and aesthetic stationery- from rulers to notebooks, clips and tape, it has it all. Stitch Fix aims to help the fashionably-challenged, by delivering curated outfits for their customers each month. It also enables them to create customisable looks according to their body type, with input from professional stylists. Blue Apron is another famous service for all you out there who love to cook, but only when they have all the necessary ingredients and a detailed recipe to follow. This service offers pre-measured food ingredients with elaborate instructions to create just about any dish in the kitchen.
One of the reasons why so many subscription companies have popped up over the years is because their direct-to-consumer business model is relatively simple. The consumer signs up to either receive a collection of products, or their preferred items from a selection, and gets them at the time of their choosing (i.e. fortnightly, monthly, seasonally). Once the payment method is set up, the transactions are usually automated depending on the number of deliveries.
The company on the other hand contracts out the production to manufacturers or suppliers and ensures that a steady production of the goods is available. A certain percentage of subscriber fee is given to the supplier, often taking the form of ‘per unit, per minute or per click sale’ based on the number of subscribers, time or amount of service/product used. The process works smoother when the company is producing the goods in-house. But usually, because most companies source the products from other manufacturers, the prices of these boxes can often be quite high.
In an interview with Retail Gazette, Adobe’s commercial business director Brian Green agreed that this strategy is effective as it ensures a strong revenue stream when subscribers pay every month, which allows for better forecasting of the financials. He also added that they increase stock predictability, and help retailers remove the cost of aged stock. The biggest hurdle these companies face is creating boxes that create continuous engagement with the customers. With new companies coming up every year, each organisation needs to ensure that whatever they create is unique, and worth the ridiculously high fee.
The question that arises here is if subscription boxes will keep flourishing even after the lockdown has been lifted when people could easily access the brick-and-mortar markets. It will ultimately all come down to the value these boxes provide. While providing surprise and enjoyment to the shoppers could definitely seem beneficial to business, it may not be enough for a consumer to pay for long-term. Especially in the time of coronavirus, when people are cutting down their expenses due to tight budgets, people may not view it as a necessity, but a luxury. In fact, in a survey, around 21% of subscription box consumers reported that they plan to cancel their boxes due to financial struggles caused by COVID-19 in the near future.
Regardless of the challenges, this model has certainly been catching the eye of many big retailers, and data from Subscription Trade Association (SUBTA) projects that by 2023, as many as 75% of direct-to-consumer brands will have a subscription-based offering.
I suspect the subscription box model is here to stay, but it will have to convey continued value to the customers if it doesn’t want to fade in the long term.