Large brands and retailers expand the subscription economy

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Play by Sephora, AmourBox - Photos: Sephora, Under Armour
Nov 03, 2017
Jeff Miller

The subscription economy continues to grow and innovate. Many people peg its growth to huge subscription-based digital businesses like Netflix, Spotify and Adobe. However, the subscription retail space is also evolving at a rapid pace. The most common retail companies referenced are:

  • Original disruptors like Birchbox, LootCrate and Dollar Shave Club;
  • Recent innovators like Stitch Fix, IPSY and Blue Apron;
  • Media companies like Popsugar and Allure;
  • Amazon with Prime, Wardrobe and its subscription section, which started as digital-only and will now expand to physical boxes.

Another trend, however, is emerging under the radar — the launching of subscription programs from large brands and omnichannel retailers. Adidas, Sephora, Gap and Under Armour are joining the game along with existing beauty and sample subscription programs from Walmart, Target and Amazon.

Adidas with its Avenue A program targets a growing niche for female athletes with a quarterly curated box of higher end products, ranging from shoes to apparel. The Play by Sephora box is a beauty assortment, similar to Birchbox and IPSY, that has an additional goal of driving subscribers to exclusive in-store and digital experiences as a membership benefit.

Gap is now starting to promote a customized and curated subscription program it launched quietly earlier this year for baby apparel, with curation that grows with the baby. Under Armour is positioning its AmourBox as having “exactly what you need to perform better, look better, feel better. All in one box”

What is driving these new subscription initiatives? The promise of recurring revenue and an ongoing connection to the consumer are obvious motivations. Brands and retailers also have an incentive as public companies to show the Street that they are part of the recurring revenue financial world. In the era of Amazon retail dominance, a subscription channel can do even more in creating a real sense of community and belonging that is missing across much of retail. 

DISSCUSSION QUESTIONS: What do you see as the key motivators for large retailers and brands launching subscription channels? Which of those currently available do you think has the best chance of long-term success and why?

Braintrust
"The ultimate goal for any brand is a customer for life. "
"You also pay a modest amount for essentially “all you can eat.” It’s an access model."
"Many retailers are launching subscription-based programs to increase customer loyalty and accelerate the introduction and adoption of new products."

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18 Comments on "Large brands and retailers expand the subscription economy"

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Art Suriano
BrainTrust
I think subscription-based programs are smart when done correctly. For the retailer, it’s a natural brand loyalty program and is profitable. The secret, of course, is creating a program that the customer is going to like and will continue their subscription. The article references the early starters like Netflix, Spotify and Adobe. Each one of these companies created a business subscription program that was and still is a “must-have.” Retailers who go this route have to be creative themselves coming up with subscription program concepts that are not only attractively priced but are so good it too becomes a “must-have”… Read more »
Bob Amster
BrainTrust

You mentioned all the important points. End of story.

Art Suriano
BrainTrust

Thank you, Bob … you made my day.

Charles Dimov
BrainTrust

Continual, consistent cash flow. That’s what a good subscription model brings to retailers. It is the ultimate in brand loyalty — so long as the customer is engaged. This is very similar to the cloud technology model, that has revolutionized software. It lets retailers better predict their inventory needs and locations. All told, a brilliant move — with the right retail technology to support it on the back-end. The tricky part is convincing customers to convert to subscribers.

Ken Lonyai
BrainTrust
There’s a huge difference between an Adobe software subscription and a physical product subscription. Retail is far trickier. Either the subscription has to do with replenishment, like Dollar Shave Club, or discovery, like Adidas. Both require extremely good customer understanding to not crash and burn from replenishing too fast/slow or misreading customer cues as to what products are delightful, respectively. I definitely see a strong potential in subscription growth as people look to create simplicity in their lives and offload thinking/decision-making. However, for every successful initiative, there will be multiples of failed attempts and even for those that get it… Read more »
Adrian Weidmann
BrainTrust
We live and shop in an experience economy but, through a business and financial lens, brands and retailers are chasing a’subscription economy. The ideal would be an “experiential subscription” economy. The ultimate goal for any brand is a customer for life. It stands to reason that if a young couple purchases their first washer and dryer from Maytag, it is now on Maytag’s shoulder that IF either of those two people purchases another washer/dryer brand in their lifetime it is Maytag’s fault! Think of all of the workflows supported by available technologies that could be implemented to keep the direct… Read more »
Doug Garnett
BrainTrust
I’ll disagree that “the ultimate brand goal is a customer for life.” Certainly, many brands wish it could be. But the solid research, like that discussed in Byron Sharp’s “How Brands Grow” shows that consumers are always brand-polygamous. And that there’s a constant cycling among consumers of preferences in where they put their money. So can I suggest an alternative? The ultimate goal of a brand is a healthy cycle — where there are always large numbers of new, low involvement adopters cycling in to buy their brand and where a portion of adopters increasing purchases to replace those reducing… Read more »
Cate Trotter
BrainTrust
It’s interesting that the article correlates the success of services like Netflix and Spotify with the growth of retail subscription services/boxes/packages. I think a lot of Netflix and Spotify’s success is tied to our on-demand nature — they’re digital services so you can get the music or film or TV show you want the second you want it. You also pay a modest amount for essentially “all you can eat.” It’s an access model. Retail subscriptions operate quite differently — you get them according to the subscription cycle and you usually get a curated selection of items to keep. You’re… Read more »
Jeff Miller
BrainTrust
Cate, I did not mean to correlate the success of digital services like Netflix and Spotify with the growth of retail subscription. The point that maybe was not clear as as it could have been is that when media and financial folks reference the subscription economy, they almost always focus on digital and the big innovation in that space — but that there is also innovation in the retail space. Also, on your great question about customization and personalization, it is very interesting. When subscribers are asked if they want customization they will always say yes, but their actions with… Read more »
Adamo Dagradi
Guest

I would add that subscriptions are gaining traction in the delivery sector too, which is getting more and more important for the good health of omnichannel strategies. They’re very dangerous, though, especially for those logistic companies eager to please. The risk is promising more that you can economically handle. I guess the same might go for the other sectors. Experience is much valued in delivery too. You can’t think of it as a “behind the scenes” service no more: it’s part of the shopping experience. It has to delight the customer.

Brandon Rael
BrainTrust
Retailers entering into the subscription model certainly understand the benefits and potential revenue lifts by taking advantage of this channel. However, as it pertains to fashion and trendy products, it will take quite a bit of trial and error and experimentation to get it right. In fashion apparel it has worked with a very exclusive affluent customer, and that was a very personalized concierge-like experience which existed well before the digital age. Beauty is the best subscription-based model to hedge your bets on. The driving factor here is strong loyalty to brands such as Sephora and Ulta, but also that… Read more »
Ralph Jacobson
BrainTrust

These are great loyalty programs, however how much “stuff” can a consumer accumulate each month? I’m thinking more about the apparel and other semi-long-life goods retailers/manufacturers. Food stores? Sure, they could do this. Beauty supply? Yep! However, to maintain this long-term, I would look at truly consumable goods and perhaps expand the apparel stores’ assortments to include these consumables.

Ken Morris
BrainTrust
Beyond the obvious motivator of increasing revenues on a reoccurring basis, many retailers are launching subscription-based programs to increase customer loyalty and accelerate the introduction and adoption of new products. Monthly subscriptions that are well executed are ones that curate the right products based on the unique preferences of each customer instead of a one-size-fits-all approach. This is personalization on steroids. With subscription services, retailers have the opportunity to develop an extensive profile of each customer to truly know their customers. The challenge with subscription services is for brands to keep customers as members as long as they can before… Read more »
Michael La Kier
BrainTrust

The key motivators to launch a subscription business direct are 1) Closer relationship to the consumer/customer and 2) recurring revenue. This is a challenge as all businesses don’t have a natural fit with subscription commerce. Also, consumer fatigue can play a dampening role as people opt-out for other choices. One of the early innovators — Blue Apron — is actually seeing their customer base shrink (6% in Q3 and 9% in Q2). Value from brands is important to keep shoppers satisfied.

Dave Brewer
Guest
Brands and retailers are launching subscription services in order to drive new growth opportunities. While it may be a small percentage today, it could grow significantly. Especially for smaller/newer brands looking to grow their recognition. I see at least two challenges for the personalization economy (subscription services) to be able to retain the customer beyond the initial delivery. First will be how much they can surprise the customer with the curated assortments. How much they deliver what the customer truly will want/need. Achieving this through data analytics and using AI with understanding the customer and their interests will be key.… Read more »
Doug Garnett
BrainTrust
The business model for subscription services for product is tough, because a true subscription generally starts with an assumption that average length is likely 3-5 purchases. (Decades of history with those models — from skin care to flowers, clothing, and more — show us this reality.) It’s a good idea, but a limited one for the bottom line of a large brand. Subscriptions can create nice small profits for a brand. But only a narrow portion of a product based market wants subscriptions. We need to be careful assuming much from some of these other examples. Buying customers via Prime… Read more »
Peter Messana
BrainTrust
I don’t see this working for brands like it does for subscription services and I don’t think Netflix or Spotify is anything like Trunk Club or Stitch Fix. The chance for long-term success is variety. Do you really want a monthly box of 5 Under Armour products? I mean some people probably have a use, but at some point you have enough of the same brand, I think that is why Stitch Fix has been so popular and about to go public. You have to be able to provide something unique each month or something very consumable (e.g. Dollar Shave… Read more »
Cynthia Holcomb
BrainTrust

Surprise, excitement, the dopamine thrill of “discovery shopping” delivered in a box. An emotional “fix” in a pressurized world. A happy “cocktail of diversion” delivered without fail, right to your door. Retailers who get this right, win … and win big.

Retailers, who do not get it right, create “angst” for their customers with each delivery. A subscription service holds the opportunity for an emotional, personal engagement with each customer. Screw it up, risk losing a customer for life!

wpDiscuz
Braintrust
"The ultimate goal for any brand is a customer for life. "
"You also pay a modest amount for essentially “all you can eat.” It’s an access model."
"Many retailers are launching subscription-based programs to increase customer loyalty and accelerate the introduction and adoption of new products."

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