It’s been over a year since we first analyzed the rise of eCommerce subscriptions, and a lot has changed. Subscription services exploded, eCommerce adoption increased. Then a global pandemic upended retail and brought the world to a standstill.
Few will be surprised to hear that, with most of the world sheltering at home, a retail model that delivers products directly to customer doors has done particularly well.
This article explores the current state of the eCommerce subscription economy, the impact of COVID-19 and the opportunities still available to DTC brands.
The Market Has Grown Substantially Since Our Last Analysis
Research released in 2019 by the Subscription Trade Association (SUBTA) found that the eCommerce subscription market experienced annual growth of 17.33% in the last five years. It predicts three-quarters of DTC brands will offer subscriptions by 2023, while global eCommerce subscriptions will account for 18% of the total market share.
Consumers find subscription services appealing for several reasons, says Christopher George, Co-Founder of SUBTA. “Most importantly they allow the consumer to engage in a relationship with the brands,” he says. “In many cases, they also save the consumer money; subscriptions can bring value and a lower cost monthly versus a one-time larger payment.”
Encouraged by the success of startups like Blue Apron, a slew of established brands have gotten in on the action, according to a Fuel by McKinsey report. In 2019, Nike, Urban Outfitter and Banana Republic all started subscription services, while Amazon expanded its subscription offerings in apparel. McKinsey’s Ken Fenyo and Adam Mitchell say they expect the actions of these established players to increase sales and raise consumer awareness of the model.
The U.S. leads the way when it comes to subscription service adoption, writes Ben Dalfen, CEO, Ecommerce and Card Not Present, Paysafe. Over two-thirds of American consumers (69%) have multiple subscriptions and 28% have at least four. It’s far from an American phenomenon, however. A full one-half of Canadians have multiple subscriptions, with Germany, the U.K. and Austria close seconds.
The Pandemic Has Proven Positive For Most Subscription Brands
The vast majority of subscription-based businesses have fared well during the coronavirus pandemic, writes Tien Tzuo, Founder and CEO of subscription management platform Zuora. More than one-half (53.3%) of subscription-based businesses report that subscriber acquisition rates have been unaffected. Nearly one-quarter (22.5%) saw subscription growth rates accelerate, while 12.8% saw subscription growth slow but were still onboarding new customers.
Subscription facilitator Ordergroove reported surging numbers of subscribers in March, with total subscriptions up by around 40% week-over-week across all clients. Health and wellness, pet and specialty retailer sectors saw particularly strong growth.
Ordergroove CEO Greg Alvo attributes the rise in subscribers to the relationships these brands build with consumers. “During these uncertain times, relationship commerce offers consumers an easy and predictable way to shop,” he says.
“During May our website for UK subscription boxes received 173% more visitors compared to the same period in May last year,” he told City A.M. “Categories that have enjoyed the highest increase in demand are kids’ boxes – parents are looking for innovative ways to entertain children while schools are shut – and food boxes, especially recipe boxes and meal-kits.”
While most brands have enjoyed soaring subscriber figures, growth has been far from certain. Take Box of Style by Rachel Zoe, for instance. Rodger Berman, President and Co-CEO of the subscription service, says subscriber growth fell by 20%-30% at the start of March. Since then, however, the figure has rebounded, and daily average subscriber growth is now 20% higher than it was in the first quarter, while retention rates have been unaffected.
Should Your Brand Start a Subscription Service?
With many physical stores still shuttered, doubling down on eCommerce in the form of a subscription service could significantly boost revenues for DTC brands.
For Richard Kestenbaum, Co-founder and Partner at Triangle Capital, it’s not a case of if but how. He says that with lockdown accelerating adoption rates, brands must assess which parts of their business can be sold by subscription. Currently, the bulk of eCommerce subscriptions are sold by subscription-only brands, but nothing is stopping larger retailers from adoption subscription models. If Nordstrom can do it, why can’t your brand?
Digitally native brands are great candidates for the subscription model, writes Patrick Campbell, CEO at subscription software provider ProfitWell. Customers are often more engaged with eCommerce brands and are more willing to commit to regular spending in the form of subscriptions as a result. They also stand to reap several benefits, including higher lifetime values and more consistent revenue.
You can use three main models to sell subscriptions, explains journalist and digital consultant John Boitnott. You can curate existing products in a monthly box, replenish consumable products at regular intervals or offer consumers exclusive access to products and experience.
“For consumable or refillable products, subscriptions are just common sense,” writes the team at Churn Buster. By subscribing, consumers know they will always have your product on hand, plus they’ll have the anticipation of receiving it every month. In return, brands get reliable monthly recurring revenue that makes inventory and financial forecasting much easier. They can also save the money that would otherwise need to be spent on attracting new consumers.
You’ll need to consider whether subscription boxes make sense for your customers and whether they can afford them at this time, though, says Erica Carranza, Ph.D., VP of Consumer Psychology at market research firm Chadwick Martin Bailey. “The question now is: Is that too expensive, especially if people are concerned about being laid off, or worried about the economy? In the current climate, does it appear too frivolous?”
Focus on Customer Experience to Improve Your Odds
Adopting a subscription model just so your brand can cash in during the coronavirus won’t work. You need a long-term, customer-centric view to be successful in this market.
Venture capitalist Kirsten Green says that subscription services must enhance the customer experience of the product. “If it doesn’t, then it is ultimately just a gimmick.” You need to go beyond repackaging your product in a box and delivering it monthly to consumers.
Success comes from understanding consumer needs and motivation, writes First Insight’s Greg Petro. Do your customers appreciate the ease of the service? Do they enjoy being surprised or are they overwhelmed by the number of options? Conduct consumer research, get feedback and tailor your subscription offering appropriately.
Visiture CMO and CoFounder Ron Dod recommends brands straight up ask consumers what they want. This is what Bark has been doing since it started selling its BarkBox subscription service in 2012, says Dod. This feedback spurred the company to design its own toys instead of buying them, and also helped them to understand that consumers want to purchase products separately from the subscription box.
In many verticals, consumers prefer choice when it comes to delivery frequency, too. ReCharge’s 2020 State of Physical Subscription Commerce report found that custom subscription lengths dominate in the coffee, beverage and pet verticals. Monthly subscriptions were the preference in home, fashion and health and wellness.
Partner With a Third-Party to Reduce Risk
Establishing a new revenue channel is fraught with risk at the best of times, let alone during a global pandemic and on the cusp of a recession. Partnering with a third-party will make the transition easier and significantly reduce risk.
Nicole Lee, Director of Fulfillment at Saddle Creek Logistics Services, says that flexibility is key. Working with a third-party for warehousing and logistics will make it easier to scale operations up and down quickly and without significant investment.
Brands can also lean on third-party partners to run the consumer-facing aspect of subscription selling. Puori, a subscription-based supplements brand, relies on Scalefast to handle customer eCommerce subscriptions and loyalty programs. As a result, their in-house team has more time to focus on the most important aspect of subscription selling: the customer experience.