Pandemic lockdowns created the ideal conditions for retail subscription boxes to thrive, but keeping continuous consumer loyalty is getting harder.
Boyden's perspectives on the news and trends that are transforming industries
Homebound consumers trying to make the most of a more restricted pandemic lifestyle signed up for online subscription boxes in droves, having all manner of products auto-shipped to their doors. As Dan Burkhart, CEO of Recurly Research observes, the pandemic “didn’t cause consumers to want or need fewer things. If anything, it heightened their needs”. Companies that weren’t already in the subscription ecommerce business were quick to adapt, either pivoting to or adding a subscription to their strategy.
The subscription box industry was already growing steadily prior to the pandemic, along with the rest of ecommerce. The Subscription Trade Association reports that in the broader subscription industry, including both products and services, global revenues grew at an average annual rate of 17% between 2014 and 2019. Then in 2020, sales spiked. In America they increased more than 40%, reaching $23 billion, according to research firm eMarketer.
The industry appealed to investors, who readily embraced perks like recurring sales and consumer data capture, both before and during the pandemic. Between 2018 and 2020, venture capital firms worldwide invested nearly $3 billion in online subscription businesses, according to PitchBook Data.
Now the retail subscription box industry is facing bigger challenges. For one, the lifting of pandemic-era restrictions in most parts of the world means more consumers are returning to physical stores. The cost of shipping has escalated, squeezing product-based companies’ margins. There is also a high cost to acquiring customers, and to keeping them. Cancellation rates can be high, The Economist reports.
With so many companies entering the space in recent years, including new startups and big firms either launching or acquiring subscriptions, competition has increased significantly. As with the industry’s growth, this trend has been unfolding for years. Walmart had one of the first, rolling out its Beauty Box in 2014. Unilever purchased Dollar Shave Club in 2016. URBN, owner of global consumer brands such as Urban Outfitters and Anthropologie, launched its clothing rental subscription service Nuuly in 2019.
Companies that rely solely on subscriptions are having to adapt to these changing conditions by coming up with creative solutions and differentiating themselves from direct competitors as well as traditional retailers and ecommerce platforms. Some are giving subscribers more flexibility. Others are tweaking the subscription model. Stitch Fix, which sends bespoke boxes of clothing monthly or quarterly, now allows on-off purchases. This may lure different types of consumers, but it also forfeits the benefits that have drawn so many companies (and investors) to the subscription model in the first place.