person giving brown box

Each morning, Mary Kate Nolan brushes her teeth with her Quip toothbrush, shaves her legs with her Billie razor, swipes on some blush and mascara from her collection of Birchbox samples, puts on her rented jeans (one leg at a time), and Citi bikes to her office in Chelsea. With three current subscriptions, she’s part of a growing number of consumers who rely on such services for everything from personal style to transportation. 

Since 2014, the U.S. subscription e-commerce market has been growing at a compound annual rate of nearly 60%, and in 2019, up to $15 billion was spent on these services. In-line with that, e-commerce accounted for more than half of all gains in the retail market, as 9,302 stores closed.

“I always have my eye out for a new one,” Nolan, 27, says.

As Americans look for ways to automate their lives, consumer spending is shifting as products that were once goods, are now services. The blossoming subscription economy is expediting the deterioration of brick and mortar stores, while retailers struggle to successfully integrate e-commerce subscriptions into their current business models. 

“The subscription economy is not limited to one or two industries. We’re now seeing sectors far and wide placing subscriptions, over pure-play products, at the center of their businesses to achieve rapid and sustained long-term growth,” said Carl Gold, Chief Data Scientist at Zuora, a company that helps businesses launch and manage subscription based services.

The most successful subscription companies are typically start-ups such as Dollar Shave Club, Birchbox, and Blue Apron. With a subscription to Stitch Fix, you can try on an entirely new wardrobe curated by a personal shopper, and return what you don’t like, without leaving your home. Feather makes getting a couch seem like much less of an endeavor when you can swap it for another after one month, and Exotic Noods allows you to have noodles from around the world delivered to your doorstep.

Like most start-ups, there’s a high fail rate with some taking off. Birchbox, one of the pioneers of the subscription economy is currently valued at $485 million and boasts over 2 million monthly subscribers. 

“Birchbox is $10 a month and it’s 5 samples,” says Nolan. “Usually a mascara costs between $20-$25 for a quality brand so I figure I’m getting a lot, for a lot less. You’re not purchasing high price point items, but you still get to try them out, especially for something like makeup, where I very rarely finish a tube of mascara before it dries out.”

A growing number of retail brands such as Target, Walmart, American Eagle and Old Navy have launched subscription boxes of their own. Nuuly, a clothing rental subscription from Urban Outfitters, Anthropologie, and Free People costs $88 a month for six high price-point items. 

“Clothing rental subscriptions allow me to be more adventurous with my style because I’m not committing to owning something,” says Nolan. “It’s better for the environment because you aren’t buying fast fashion. Someone else will have the opportunity to wear something you would only wear once or twice.”

However, integration of subscription boxes has proved to be a challenge as awareness is low, and brands such as JC Penny, Ann Taylor, and Gap who are trying to build their subscription businesses are thought of as brick and mortar stores with an online presence. Of the retailers who have started to implement these services, Sephora’s Play! box has been most successful.

“Re-thinking the role of retail spaces means going back to the drawing board and re-considering what can consumers do in a physical environment to want to come back again and again, closing the sale in the store or on a digital platform,” said Luigi Matrone, chief executive officer of eBusiness Institute. “Such thinking is challenging for most as it means potentially discovering that the current status quo can’t live long but which CEO is going to be ready to make such a move especially when the retailer in question is a big, public company?”

There is another strategy companies could deploy: acquiring successful subscription box businesses that are already operationalized with a solid customer base. In 2016, Unilever acquired Dollar Shave Club, a razor subscription service with 3.2 million consumers. The merge came with a price tag of $1 billion by Unilever and was part of a strategic move for Unilever to compete in the razor market. However, such an acquisition is proving to be an anomaly.

A 2019 move by Edgewell Personal Care, the parent company of Schick, to acquire startup rival Harry’s for $1.4 billion was blocked by the Federal Trade Commission, citing an effort to suppress razor prices for consumers. Instead of disputing the ruling, Edgewell will continue to create their own direct-to-consumer razor brand, an endeavor that will take significant resources to build. 

Matrone says that for the future, subscription services will continue to expand into every industry, as technology like voice and Internet of Things become more prevalent in people’s lives, and opportunities to automate chores like household item shopping will become widespread. 

“We are not there yet,” said Matrone “but companies are working on it and this is where retailers might get a hit because they won’t be needed anymore, at least not old-fashioned brick and mortar.”

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