What You Need to Know About the Subscription Box Business
Subscription services are certainly nothing new. Local food companies, magazines and newspapers have been in on this business for a while. What is new is the phenomenal growth of e-commerce subscription boxes.
The initiator of today’s modern e-commerce subscription services, Birchbox, grew from 45,000 subscribers to 800,000 subscribers over the course of only two-and-a-half years. That’s a whopping 1,777 percent increase in a very short period of time. In comparison, it took Columbia Record Club 41 years to see its impressive subscriber base growth of just under 13,000 percent.
Since Birchbox started delivering beauty products in pretty boxes in 2010, the e-commerce subscription services industry has grown to more than 2,000 companies, according to My Subscription Addiction. With the average subscriber receiving seven boxes and having 12 more on their wish list, it’s no wonder many retailers are looking to get in on the action.
Here are some important facts to know before making the leap into subscription commerce:
It’s dominated by the makeup and beauty industry: Birchbox was visionary in recognizing this product category was perfect for a subscription box business. Eleven of the 20 most popular brands of subscription boxes have to do with makeup or beauty products.
Many companies have started offering competing subscription services to Birchbox. Ipsy is not only the top-selling beauty box today, but it leads the industry as a whole in popularity. Other big brands in the beauty-box segment include Birchbox, Julep Maven, Glossybox and Popsugar. There are also brands out there selling niche beauty boxes, such as those targeted to redheads and vegans.
Big retailers are entering the market: All of this growth hasn’t gone unnoticed by major retailers. Quick to recognize opportunities, companies like Adidas, Amazon.com, Macy’s and Starbucks have entered the market. Wal-Mart is also in on the action — its beauty box has become the sixth most popular subscription box out there. More of the big retailers are likely to go into the e-commerce subscription services business as popularity remains high. To see an in-depth look at the rise of e-commerce subscription boxes, checkout this report from Shorr Packaging.
The industry is diversifying: While makeup and beauty products lead the way in subscription services, that’s not to say other categories aren’t finding success. LootCrate, which markets itself as a provider of mystery geek and gaming gear, is the seventh most popular subscription service and is the top choice for men. The Honest Company has built a solid base of customers and leads the mom, babies and kids categories. Today, there are companies holding top positions in subscription categories like food, wine, coffee, fitness, craft and pet. Even very targeted niches like luxury jewelry, socks, gold mining and survival gear have found enough customers for a subscription service.
Women are driving the growth: The number of subscription box website visits has grown from 722,000 in 2013 to 21.4 million this year, and more than half (58 percent) of that traffic is women. The typical visitor is middle-aged with a median income of around $78,000.
However, a wide variety of people have been checking out subscription services. During the 2015 holiday season alone, 8.6 million Americans visited subscription services websites.
On the flip side: There are definitely opportunities for retailers in subscription commerce, but there's no guarantee of success. Thirteen percent of the companies that have entered this market so far have failed, according to My Subscription Addiction.
While products are provided to subscription box retailers at a discounted or free rate, there are challenges to this kind of business. Among them are heavy product discounting to customers and the novelty of the service. Companies that keep packaging in-house rather than outsourcing to more efficient packaging companies often find that intricate boxes require a lot of time to assemble, which can prove to be very expensive.
Like all businesses, this isn’t one to be taken lightly. To be successful at subscription commerce, retailers need to do their research, understand the unique demands and challenges of this type of business, and choose the right partners to help them keep costs down and meet financial goals.
