Market Outlook, Future Challenges for Subscription Commerce Sector

Once a relatively small sector, subscription commerce services now cover nearly all realms of retail, from clothes and personal grooming to food, wine and pet products — and it doesn’t appear as if this trend will slow down soon.

To understand more about these companies and the outlook for the subscription commerce industry, Snapfulfil partnered with the Subscription Trade Association (SUBTA) to create the first-ever State of Subscription Commerce report. The survey’s results pin numbers to subscription commerce's exponential growth and great expectations, finding that 47 percent of today’s subscription offerings launched in the last 12 months. But are these budding companies ready for the demands of overnight popularity?

Here are three of the survey’s top takeaways:

1. Subscription Retailers Start Small, But Grow Fast

Many of today’s subscription commerce providers are still finding their footing. The subscription commerce customer base is small but mighty: 66 percent of providers are serving 1,000 or fewer monthly subscribers, and more than two-thirds are operating with five or fewer fulfillment-focused employees.

However, many subscription commerce providers are experiencing high growth and retention rates. According to our survey, 30 percent of offerings experience 10 percent or less monthly churn. Nearly 36 percent of providers believe they’ll see revenue growth of at least 501 percent by 2023, and close to one-third of all offerings anticipate doubling their business in 2018 alone.

2. Demand Forecasting is Still Fuzzy

With substantial subscription increases come a greater need for demand forecasting, a source of concern for many subscription commerce providers. Forty-eight percent of active providers see demand forecasting as a significant fulfillment challenge. As the number of subscriptions grow seemingly overnight, providers must maintain inventory levels needed to meet customer expectations and shifting demand, a challenging task for smaller retailers with fewer employees to manage fulfillment.

Contributing to this challenge, nearly 74 percent of warehouses still rely on paper- or spreadsheet-based warehouse management processes in lieu of modern warehouse management tools — i.e., technology that helps warehouse managers better track inventory and streamline essential processes.

3. 3PLs: A Small-But-Mighty Subscription Commerce Partner

To alleviate challenges around fulfillment logistics and inefficient processes, some subscription commerce providers turn to outside help. Twenty-five percent outsource fulfillment to a third-party logistics (3PL) provider, citing greater efficiency (75 percent) and lower cost (60 percent).

One of the survey’s more interesting findings: companies that trust 3PLs with their fulfillment often stick around. Fifty percent of subscription commerce companies that work with a 3PL have maintained the relationship for two years to five years.

Where Do We Go From Here?

The survey findings paint a bright future for subscription commerce. Retailers are hungry to up the customer experience ante through new offerings and greater convenience, and consumers are ready to partake. However, subscription commerce providers will need to invest in deeper data visibility if they want to overcome their demand forecasting and inventory management challenges.

Ben Gruettner is vice president at Snapfulfil North America, a SaaS cloud warehouse management system.