Thinking outside the box: A look at the popularity of subscription boxes

Dollar Shave Club’s story reads like something of a digital marketing fairy tale. Beginning as a startup focused on subscription boxes of razors, eventually expanding to include grooming products, the company launched in 2012 with a YouTube video. That initial ad campaign resulted in a server-crashing amount of website traffic within an hour and 12,000 orders within 48.

Of course, Dollar Shave Club wasn’t the first or only subscription-based retailer. Stitch Fix launched weeks later, while the company was predated by Birchbox and Trunk Club. In 2014, Nordstrom acquired the latter for $350 million. Stitch Fix launched a month later. But Dollar Shave Club is among the most significant in the space because of another number in the brand’s history: 1 billion.

That’s how many dollars Unilever paid to acquire the company in 2016. Unilever is the world’s largest consumer packaged goods company with hundreds of brands to its name, including Dove, Q-Tips and Ben & Jerry’s. Unilever clearly saw then what we’re all seeing now: subscription boxes had potential to be insanely popular.

Curation and personalization

Subscription boxes are having a moment in the sun. According to eMarketer‘s Ecommerce Insights Survey from June, 11.4% of U.S. Internet users, especially millennials, received a subscription box in the previous month. (However, not limited to retailers, this study also included meal kits such as Blue Apron.)

There are also more of these services available than ever, as retailers are increasingly getting in on the action. Many of them are niche subscriptions for a very specific customer. JCPenney’s focuses on men who buy big and tall sizes, while Target launched one in February based on Cat & Jack, its kids’ clothes private label.

This speaks to one advantage of the subscription box: curation. Countless studies have proven that consumers prefer personalization. And isn’t personalization ultimately curation, with brands recommending products based on someone’s individual history and preferences?

Subscription-based retailers often give new customers a quiz to learn those preferences straightaway. For example, JustFab inquires about sizes and tastes, as well as customers’ celebrity style inspirations. This makes personalization easier for the brand, making shopping easier for the customer.

On the topic of curation, in February, McKinsey’s found that 25% of consumers signed up for subscription boxes because they “thought they’d try something new.”

Appealing to the brand agnostic

Earlier this week, Pitney Bowes released its 2018 Global Ecommerce Survey, for which the ecommerce technology company surveyed 13,022 consumers in 11 countries. One key takeaway is that 39% of online shoppers are “brand agnostic.” In other words, they don’t know exactly what they want and aren’t married to a particular brand. And the brand agnostic shoppers are far more likely to turn to subscription boxes and online marketplaces, with their massive inventories and increased comparison shopping.

This highlights another advantage: customer acquisition. Take Amazon. The 18th largest company on the planet, Amazon is both a juggernaut of an online marketplace and as of last year, a subscription retailer.

In June, Prime Wardrobe became available to all 100 million-plus Prime members. Customers can order items and spend a week marinating on them, only paying for want they want to keep.

True, Amazon already acquired these customers. But Prime members are twice as likely as non-members to buy clothes on Amazon, according to Morgan Stanley. This service gives the ecommerce giant the opportunity to introduce its growing apparel business to even more of people.

The opportunity for subscription boxes

Subscription boxes are great for acquisition, but these companies have traditionally struggled with retention. According to McKinsey’s study, nearly 40% of subscribers end up cancelling their services. Many of them don’t care for the recurring business model and don’t want to purchase on an indefinite, monthly basis.

As more retailers transition into the subscription space, they have the opportunity to go after the pain points. Prime Wardrobe, for example, isn’t recurring or monthly. Under Armour’s curated ArmourBox has 60- and 90-day options for those people who don’t need new gear every month.

With increased competition coming from every which way, retailers are also using these insights to modify their existing subscriptions. Last year, Rent the Runway added a new, cheaper membership tier, which lends customers four items a month—from high-end brands, such as Tory Burch and DVF—for $89 per month.

Rent the Runway’s subscription business is also up 125% year-over-year and is projected to triple by the end of 2018.