Subscription Retail: Subscribing to Experiences (via Products)

By Maris Cohen, Content Marketing Manager, The NPD Group

These days you can buy just about anything, for just about anyone, via online subscription services. Are you a cat lady? Cat Lady Box has just what you love. Geeks and gamers—just sign up with Loot Crate. Need to entertain kids? Sign them up for Tinker Crate lab experiment kits or get them to create with Kiwi Crate.

Subscription services—those curated boxes that arrive at your doorstep filled with beauty products, wardrobe items, snacks, dog toys, all of the above, or whatever suits your fancy—are experiences disguised as stuff.

Before you lose me, consider the role “experiences” play in our lives. Every day, people share photos of the places they went, the things they ate, and who they were with—showing the world they derive meaning from more than just ostentatious goods. Experiences have become the new currency.

The retail world has been talking about consumers’ obsession with doing things, and not just buying things for a while now. Stores offer in-store demos, classes, and the opportunity to buy an experience, in addition to an object or service. A growing number of online retailers—especially those without an offline presence—have tapped into this experiential retail component through a subscription model: offering specially-selected boxes of products to customers on a regular basis, typically weekly or monthly, for a modest fee.

But does this subscription model actually work?

The viability of subscription retail

Five years ago, subscription-based online retail was limited to a select group of startups and trailblazers like beauty retailer Birchbox, fashion retailer Rent the Runway, and personal care brand Dollar Shave Club. The beauty and fashion categories historically proved the most promising in the subscription area, especially as the online marketplace developed for these industries. Today, thousands of products spanning food, fashion, beauty, health, tech, media, and other industries are sold via subscription models, even from established brands and retailers that have caught onto this business model to boost customer loyalty through product accessibility and diversity.

In an online poll of U.S. adults conducted from July 2, 2015 through January 6, 2016 through our partner CivicScience, we asked 7,942 U.S. adults if they replaced in-store shopping with an online subscription to recurring product shipments for things like razors, clothing, meals, or other items. We found 68 percent of respondents didn’t subscribe to these services and had no interest in doing so in the future. However, the opportunity is clearly there: 9 percent of respondents claimed to subscribe to a subscription service (6 percent subscribed to one service, 3 percent to multiple services). Two percent didn’t subscribe to any services, but planned to subscribe to one in the next six months. And 22 percent didn’t currently, but would consider subscribing to one in the future.

While subscription services haven’t taken over the e-commerce world yet, considering that one-third of consumers would consider subscription services, there is certainly a growing opportunity in this space. Research from our Checkout TrackingSM service shows the subscription model is working and growing—and is a model larger retailers can (and should) replicate. In fact, some larger retailers already have implemented subscriptions with some success. For other retailers, it could be a way to boost performance.

Retailers take a page from subscription beauty

To see how popular subscription retailers were faring in the context of the larger online retail universe, we turned to our Checkout Tracking service. Checkout Tracking mines data from the receipts (both online receipts and those from brick-and-mortar stores) of millions of consumers. Those receipts yield detailed, item-level data about individual consumers across stores, across all retail segments – covering both online and brick-and-mortar – and over time. It equips retailers to see where else their customers are shopping, and manufacturers can see what else customers buy along with their products.

We began with the beauty industry, which is saturated with subscription retailers, ranging from those offering sample-sized products (Ipsy, Birchbox), to boxes targeting particular demographics (Essence Beauty Box), to those that deliver full-size products (Spa Heroes), to internationally-themed beauty products (Memebox).

We focused our study on Birchbox, which had a large enough consumer base for study. Compared to powerhouse online retailers like Amazon and Sephora, and department stores like Macy’s and Nordstrom (whose penetration ranged from 4 to 16 percent), Birchbox’s penetration in the online beauty market was relatively low (1.3 percent for U.S adults in Q4 2015). However, a closer look at growth by generation painted a different picture: Birchbox increased its penetration among 18- to 24-year-olds from 2.3 percent in Q4 2014 to 4.1 percent in Q4 2015. This share point increase was stronger than that of Amazon, Nordstrom, Macy’s, and Ulta.

The only retailer with stronger online growth in beauty was Sephora—which happens to be a latecomer to subscription retail, but has proven to compete well in the space with its PLAY! by Sephora subscription box program. In each of its beauty boxes, subscribers receive five samples, a book of beauty tips, a pass for in-store tutorials and bonus points, a collectible makeup bag, and invitations to “PLAY! DATE” meet-ups. This is the perfect example of big retail leveraging brand awareness to create memorable experiences for customers. And it’s much more than just the products the customer receives – it’s also about the knowledge gained and connections made with like-minded community members. Walmart recently launched its Beauty Box program, and Amazon experimented with its own Amazon Luxury Beauty box. Other traditional beauty retailers in the department store space should consider talking with us about getting in on this growing trend.

Will people subscribe to high-fashion?

While most retail subscriptions deliver sample-sized quantities of modestly-priced products, the model has proved to work for the pricier apparel and accessories market. Rent the Runway started the trend by making aspirational fashion accessible to all. In a classic sharing-economy model, this fashion service offers shoppers the opportunity to look fabulous, feel great, and capture forever moments in their fashion (hello, Instagram)—by renting a clothing item at a much lower cost than buying it. Since this model is based on customers renting, and not owning clothes, Rent the Runway doesn’t actually sell any tangible products; it sells experiences. The retailer even offers an “Unlimited” model, allowing customers to rent as many fashion items as they want (only 3 at a time) for a $139 fee. Since customers only temporarily own items, this takes fast fashion to a higher, faster level.

Companies like Le Tote offer similar models at lower price points and labels, with the option to swap out rented fashion pieces for new ones or to buy the ones they love. Stitchfix and TrunkClub offer subscription fashion at a pricier and permanent level, with the help of personal stylists and the intention that shoppers actually keep their apparel shipments (including an option to easily return items that don’t feel right). Shoppers don’t just get clothes from these services; they’re buying something that’s intangible—style through discovery.

To see how this subscription model performs next to non-subscription online retailers in the apparel and accessories space, our Checkout Tracking team studied the receipts of male online apparel shoppers in the 12 months ending in January 2016, comparing their activity at three popular online apparel retailers: Bonobos, Asos, and clothing subscription service TrunkClub. We found average spend per buyer was higher for TrunkClub than for Bonobos and Asos; the added convenience and discovery factor was enough to get male shoppers to hang on to the pricier wardrobe pieces.

Breaking down the groups into Millennial men aged 18-34 and men over 34, we observed key differences between the segments: Millennial men spent more at Bonobos and Asos than older men. But older male consumers spent more on average at TrunkClub ($1,075) than younger Millennial men ($867)—a reflection of TrunkClub’s higher price tag and the greater disposable income that accompanies older age. The insight? TrunkClub should focus their marketing efforts on the older male cohort.  

We also learned that in addition to Bonobos and Asos, TrunkClub shoppers spent their online apparel and accessories dollars at Brooks Brothers, Neiman Marcus, Macy’s, Zappos, and Gilt. This suggests that if these brands were to start their own subscription models, they might stand a chance at winning over retail fashion subscribers who already know and love their brands. What’s more, Brooks Brothers apparel is already sold as part of numerous fashion subscription programs, so why wouldn’t the fashion house want to sell curated, stylized product selections directly to customers?

Kudos to big brand converts who have taken a page from the startup subscription concept. Adidas announced Avenue A, its $600/year “surprise” subscription service that will deliver quarterly boxes of celebrity-curated sneakers, apparel, assorted workout gear, and limited edition times.

Meal subscription kits: the new online grocery?

Don’t feel like shopping or searching for recipes for dinner? No problem. Meal kit delivery services like Blue Apron, Hello Fresh, Plated, Peach Dish, Home Chef, and Purple Carrot have popped up all over the map to make healthy dinners possible for time-constrained consumers who value home cooking. Our Checkout Tracking team homed in on Hello Fresh customers in the 12 months ending in March 2016, to see where else these meal kit subscribers purchased food items online. We found that Hello Fresh customers spent the most in online grocery from Amazon, Seamless, Grubhub, Fresh Direct, Peapod, and Starbucks. And, Hello Fresh customers over-indexed compared to non-Hello Fresh shoppers at grocery delivery services Fresh Direct, Peapod, Shipt, Amazon Prime Now, Walmart to Go, Google Shopping Express, and Safeway.

It’s evident that certain Walmart and Amazon customers are buying meal kits from Hello Fresh. And while Amazon has entered the entertainment subscription market and Walmart the baby and beauty subscription box market—these retailers might consider expanding into meal kits.

Starbucks online customers also buy Hello Fresh. The coffee brand already offers Starbucks Reserve coffee roastery subscription. But perhaps it might consider expanding this kit beyond coffee, into complementary sweets, snacks, drinkware, or coffee enthusiast gadgets. 

We also compared Hello Fresh and Blue Apron buyer behavior in the 12 months ending in March 2016. Compared to Blue Apron customers, Hello Fresh customers were more likely to have shopped at Peapod, and less likely to have shopped at Fresh Direct. They were more likely to have bought grocery items from Amazon, but less likely to have bought fresh food from Amazon Fresh. And, Hello Fresh consumers were more likely to have ordered from Papa John’s and Domino’s Pizza than Blue Apron buyers. This seems to indicate an urban lean and value for ”fresh”—and the ability to pay for it—among Blue Apron buyers.

The power of surprise, discovery, and connection

To understand the consumer benefit of subscription retail, I recently experimented with a few services myself. A few of them won me over, and it was primarily due to the curated element of surprise:

  • Graze’s snack subscription earned my dollars for its conveniently portioned and packaged snacks for on-the-go consumption. In addition to its modest price point, I liked not knowing what I’d get in each delivery.
  • Club W converted me with its discovery component. The wine subscription service is an easier (and classier) alternative to schlepping black plastic bags from the local liquor store. Most importantly, the delivery includes information cards with facts about wine origin, flavors, and suggested recipes for pairing—serving as a nice hostess gift, conversation starter, and educator, so I I’m actually engaged in my wine consumption and informing my palate.
  • Scrambling to find a gift the day before my best friend’s birthday, I stumbled upon Book of the Month Club. You subscribe and receive one book each month, with five books to choose from. I got big Kudos for giving such a “thoughtful” gift. The best part? When the list of books is announced each month, I read reviews, guess which titles best align with my friend’s literary tastes, and we discuss reviews and together decide on the best read for her. It’s been fun for our friendship and she loves receiving the packages “out of the blue.”
  • On a recent visit to a neighbor’s small city apartment, I noticed a massive pile of dog toys occupying a corner of the room. He blamed the dog’s excessive belongings on their BarkBox deliveries. It was fun for him (and the dog) to open the mystery boxes and coo over seasonal, holiday-themed toys. Eventually he’d get rid of the old ones to make room for new deliveries.

In the context of Millennials, I consider myself to be a light shopper; I try to only buy what I need to save my disposable income for the future. But these subscription services got me, less for the goods they provide than for the fun they inject in my life. I suspect there are others out there just like me. So if you’re a large brand or retailer with financial backing and marketing clout, what are you waiting for? You should be running at the chance to offer me a box of something.

A version of this article appeared in the print and online edition of the The Robin Report.

If you’re interested in developing your subscription strategies, or launching a subscription service for Millennials (or anyone else for that matter), the Checkout Tracking team at The NPD Group can help. Call us at 866-444-1411 or email contactnpd@npd.com.

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