Large brands and retailers expand the subscription economy
Play by Sephora, ArmourBox – Photos: Sephora, Under Armour

Large brands and retailers expand the subscription economy

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 ArmourBox 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. 

BrainTrust

"The ultimate goal for any brand is a customer for life. "

Adrian Weidmann

Managing Director, StoreStream Metrics, LLC


"You also pay a modest amount for essentially “all you can eat.” It’s an access model."

Cate Trotter

Head of Trends, Insider Trends


"Many retailers are launching subscription-based programs to increase customer loyalty and accelerate the introduction and adoption of new products."

Ken Morris

Managing Partner Cambridge Retail Advisors


Discussion Questions

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?

Poll

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Art Suriano
Member
6 years ago

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” for the customer. It can’t be another of the same and has to be different. Do that and I see this concept being a big win.

Bob Amster
Trusted Member
Reply to  Art Suriano
6 years ago

You mentioned all the important points. End of story.

Art Suriano
Member
Reply to  Bob Amster
6 years ago

Thank you, Bob … you made my day.

Charles Dimov
Member
6 years ago

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
Member
6 years ago

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 right, there is often a lifespan until consumers get bored or enticed by a newcomer.

Adrian Weidmann
Member
6 years ago

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 dialog and conversation relevant through a lifetime! Great possibilities!

Doug Garnett
Active Member
Reply to  Adrian Weidmann
6 years ago

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 spending as they shift their money elsewhere.

Does a subscription service fit this? Certainly it can. Subscription history shows the same cycling, with average purchase numbers running from 3 to 5. What happens after 3 to 5? The consumer spends their money elsewhere.

Cheers….

Cate Trotter
Member
6 years ago

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 not getting access to every item Sephora sells for example. Will we ever see a subscription service that brings a brand new mascara to your door the day it launches?

That said, subscription services are attractive because they’re fun, they give customers a regular treat and there’s an element of surprise to them. I am interested in how important curation and personalization are to these services. Do customers want more control over what comes in their packages, so they get what they want? Or do they want more recommendations and curation from an expert?

Plus, Amazon’s Prime Wardrobe, and Asos’ try-before-you-buy service are edging closer to an access model. Customers can get as many items as they want delivered to their home to try and then only pay for what they want to keep. It’s taking existing customer behavior (buying loads of things to return) and turning it into a service, which is essentially access to everything those companies sell. This can’t translate for every retailer (beauty wouldn’t work for example) but I wonder if we’ll see growth in this type of model.

Adamo Dagradi
Reply to  Cate Trotter
6 years ago

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
Active Member
6 years ago

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 this is an arena where innovation and new product offerings could be offered within the subscription model. It is all driven by analytics, which helps to provide the personalization, customization and uniqueness that consumers are expecting.

Ralph Jacobson
Member
6 years ago

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
Trusted Member
6 years ago

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 they become disinterested. Consumable products are likely candidates for long-term subscription membership, as we need these products every month. The IoT will be a key component in the consumable space and to me provide the best opportunity for success.

Fast fashion is another good category, as consumers that value variety in their wardrobe may keep their membership longer to keep getting the latest fashions.

Michael La Kier
Member
6 years ago

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
6 years ago

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.

Second will be how much those curated assortments can provide breadth, specialization, and differentiation over time. Getting the same items every month/quarter may get old after a few deliveries. Understanding how to “surprise” the customer with freshness will be important.

Amazon with its breadth will likely be able to be the most successful, however, brands that have a great story and great following should be able to drive their own successes in the new subscription model.

Doug Garnett
Active Member
6 years ago

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 creates huge Prime membership while making it very hard for Amazon to ever be profitable on retail-like ecom.

And Dollar Shave Club teaches us is that it’s possible to give away huge volumes of product below cost. But DSC didn’t prove they created long term consumer value. They only proved that by subsidizing a threat to the establishment, someone would have to buy them.

peter messana
6 years ago

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 Club). I think brands running to this model is a bit weird and I see others trying with product sets that after a year the consumer has everything they could possibly ever need.

Cynthia Holcomb
Member
6 years ago

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!