Subscription boxes — monthly-or-so deliveries of needed or wanted merchandise — have quickly become commonplace in retail. The model is now prevalent in replenishment-friendly categories such as beauty, pet supplies, consummables as well as, increasingly, in apparel. Last month alone, in addition to five-year-old Stitch Fix’s initial public offering filing, The Gap expanded a subscription service for baby merchandise beyond its initial pilot, and Under Armour launched ArmourBox. A host of others with at least one such service include Amazon, Sephora, Gap Inc.'s Old Navy, Target and Walmart.
The concept did seem to take retail by storm a few years ago, especially in consumer goods markets ripe for disruption. Birchbox, founded in 2010, launched at a time when beauty sales were almost unheard of online. And men’s grooming brands Harry’s (co-founded in 2013 by a Warby Parker founder) and Dollar Shave Club (founded in 2011) took advantage of consumers’ frustration with the expense of drugstore razor offerings to go direct to the consumer, complete with a replenishment program.
Of course the idea wasn’t really new. Mail order clubs like Columbia House (founded in 1955, had a 60 year run) and the Book-of-the-Month Club (founded in 1926) got there first. But as an extension of e-commerce, it took flight as a way to log regular orders and sticky customers.
Shook by the disruption in the men’s razor business, CPG giant Unilever got in the game with the $1 billion acquisition of Dollar Shave Club, which had grown to $200 million in sales within five years, boasted 3 million subscribers in 2016 and had grabbed nearly 7% of the U.S. shaving market. The bloom was still on the rose for subscription retail, and the support of a consumer goods stalwart made it seem like a good marriage.
"When Dollar Shave Club first launched in 2012, the direct-to-consumer subscription model quickly garnered attention by offering an innovative model that promised a higher level of brand engagement, curated offerings and competitive pricing," Luke Starbuck, vice president of marketing at customer care automation firm Linc, told Retail Dive in an email. "When Unilever acquired Dollar Shave Club, it gained access to a large amount of consumer data that not only provided insights on their customers, but it also furthered the CPG’s direct connection to them."
Along with Birchbox, the startup was the most-visited subscription-box website in the U.S. in 2016, according to a report from retail think tank Fung Global Retail & Technology. "In addition to its unique consumer and data insights, Dollar Shave Club is the category leader in its direct-to-consumer space," Unilever North America president Kees Kruythoff said at the time. "We plan to leverage the global strength of Unilever to support Dollar Shave Club in achieving its full potential in terms of offering and reach."
Flatline
A year on, the story is something else. Within a month of the July 2016 acquisition, U.S. sales of Dollar Shave Club flatlined and have remained so since, according to research from data management and analytics firm 1010data emailed to Retail Dive. It’s not entirely clear why. While Dollar Shave’s customer retention has been falling since 2015, there’s an especially steep decline right around the time of the acquisition, according to Samir Bhavnani, area vice president at 1010data.
"It may very well have been a complete coincidence — that they had reached some kind of market saturation right at that time," Bhavnani told Retail Dive in an interview. "Only so many people want a razor subscription."
There are also competitive factors at play, he said. "One of their largest competitors, Harry’s, is now on end caps at places like Target, and on the flip side, Gillette launched its own subscription and direct-to-consumer services," Bhavnani said. "Their opportunity for growth will mostly likely come outside the U.S.," and Unilever will likely use its global reach to enable that.
Par for the course
While that makes it sound like Unilever may have chosen poorly, Dollar Shave Club may not be an outlier in the space. Other research shows that under Unilever’s umbrella the brand is performing on par with many of its subscription peers.
As of August, its 1.7% online buyer penetration rate is higher than that of BirchBox (0.6%), Stitchfix (0.8%) and Nordstrom's Trunk Club apparel boxes (0.1%), according to NPD Checkout Tracking. And based on NPD Checkout’s longitudinal data, Dollar Shave Club shows a good retention rate six months after a subscription is initiated, maintaining between 40% to 50% of its subscribers over time, according to data emailed to Retail Dive.
"The subscription sales of what we track are growing as a percentage of overall spend. We’re going to start seeing subscription services in product categories that you wouldn’t have imaged possible before"
Samir Bhavnani
Area Vice President, 1010data
Unlike the one book or one record that was mailed out by the legacy subscription services years ago, the logistics in the consumer goods subscription space turn out to be complex. For one thing, it actually interferes with shoppers' ability to get what they want, when they want or need it. Plus, the promise of personalization in the internet age isn’t really being fulfilled, according to Linc's Starbuck.
"The subscription sounds convenient, but the consumer experience of a subscription can be frustrating and feel like control of purchase decisions has been lost," Starbuck told Retail Dive in an email. "Worse yet, customers end up with back-stock of product in the cupboard. And that’s why customers cancel."
Direct sales and customer data from subscriptions do represent a huge advantage over the shopper studies and panels that brands have traditionally relied on, according to Starbuck — but they need to be leveraged with the customer in mind.
Subscriptions on the brink
Despite the evidence of flatlining sales and uneven customer retention at Dollar Shave and elsewhere, many experts still see potential in the subscription model. Procter & Gamble-owned Gillette (which has slashed prices and launched its own subscription service following the advent of Dollar Shave Club and Harry’s), this year debuted an on-demand text feature that allows men to text the word "blades" to automatically refill their order, which they receive within two to three business days.
Though that stretches the notion of a "subscription," it does restore the control and flexibility that consumers want, according to Starbuck, who believes that effective artificial intelligence strategies could help here. "By using AI to deliver real-time customer service and engagement, and importantly, to provide on-demand re-ordering through conversational channels like chat and voice, Unilever and Dollar Shave Club could drive growth and increase lifetime value by giving consumers the convenience and control that they crave," he said.
"Three percent of U.S.-based shoppers have signed up for a subscription service and 59% say they’re not interested. This is not the disruption we all expected.
Scott Galloway
Professor, New York University Stern School of Business
Some see few limits to the subscription model. While it's widely seen as ideal for the replenishment needs in consumer products, expect that to expand, said 1010data’s Bhavnani, who spoke to Retail Dive before Under Armour’s announcement of its box service. "The subscription sales of what we track are growing as a percentage of overall spend," he said. "We’re going to start seeing subscription services in product categories that you wouldn’t have imaged possible before, like working out and running. Those things have a life, and people are tracking their runs on their phones. And the model makes sense — for everybody. For the merchant because they’re getting ongoing revenue without doing anything and for the consumer because they are getting a convenience, one less thing for them to think about."
But not everyone’s buying that, and the model has run into trouble elsewhere. Nordstrom, which has proven willing to experiment on retail’s avant-garde, bought flash sale site HauteLook in 2011 and subscription concierge service Trunk Club three years later. HauteLook is now a minor tab on the retailer’s website and Trunk Club is in recovery (and still not profitable) after the department store took a $197 million write-down on it last year, more than half of the $350 million it paid to purchase it.
That doesn’t surprise Scott Galloway, professor at New York University’s Stern School of Business and author of "The Four: The Hidden DNA of Amazon, Apple, Facebook, and Google," who equates subscriptions to flash sales, in that they are both, he says, high-flying retail notions that quickly flamed out. He also calls Dollar Shave Club in particular "the most over-hyped acquisition of 2016."
"Three percent of U.S.-based shoppers have signed up for a subscription service, and 59% say they’re not interested," he said in a video panning the model. "Unilever paid $6 million per employee. This is not the disruption we all expected."
Still, retailers and brands continue to roll out subscription services and expand into new product categories in their hunt for ways to offer personalized products and services and win loyalty in this new era of retailing.
