Why Retail Subscription Services are Struggling to Take Off
Credit: Dollar Shave Club
Many retailers view subscription services as the new way to generate revenue. Customers subscribe and voila a stream of reoccurring revenue arrives. For Amazon as well as Dollar Shave Club this model has been very successful in attracting and retaining customers. But how many eCommerce subscriptions can a person have? Despite the hype around subscription services in the retail sector adoption levels are quite low. Only between 7% to 10% of consumers currently subscribe to a retail subscription service.
One of the factors that is contributing to low adoption is the value equation. Does a customer truly need to receive a box each month with 5-6 beauty products? Despite claims to the contrary it is just as easy to make a trip to Ulta Beauty on a Saturday each month to pick up what is needed.
The reason why Amazon Prime is so popular is because it took the concept of a retail subscription service and turned it on its head. Amazon thought much more broadly about what value looks like when designing its service. Free shipping, super-fast delivery are no brainers. But what about its movie and TV streaming service that is available through Prime? Or what about Amazon Music where as part of the base Prime membership members can stream music from a library of two million songs? Or Prime Wardrobe, Amazon’s try before you buy clothing service?
What Amazon essentially did was take the best of the most popular subscription services (i.e. Netflix and Spotify), then it added several retail offerings and tied those services up into one bundle. That’s why there are 150 million prime members and why it’s hard to beat. For a subscription service to take a greater share of a consumer’s wallet, when many consumers are already strapped for cash it has to provide the right level of value.
What does the next best alternative to Amazon Prime look like? That’s anyone’s guess but many retailers are jumping into the fray. Panera Bread recently took a crack at this segment by introducing unlimited hot coffee, iced coffee, or hot tea for $9 per month, or $108 per year. Nike introduced Nike Adventure Club last year, a sneaker subscription service for kids, and Walmart is in the process of launching Walmart+ a competitor to Amazon Prime.
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No one wants to subscribe to 10 subscription services. So retailers need to ask themselves if they can be competitive for potentially the last spot a customer allocates in their wallet to subscription knowing that they likely already subscribe to services such as Spotify, Netflix and Amazon Prime.
Once in the fray, retailers have not had an easy time with this model. Gap closed down its clothing subscription service in 2018 after only 14 months. JCPenney got rid of Bombfell, its men’s clothing subscription last February. Bark and Harry’s which both started with a subscription model can now be found in Target.
Albertsons purchased subscription meal kit service Plated for $200 million in 2017. At the end of 2019 Albertsons canceled the subscription model and instead now sells Plated products under Albertsons’ private label offering. Forrester retail analyst Sucharita Kodali has said: “there’s fundamentally tension in subscription models — that is, how do you basically get people to pay for the service but not use it that heavily, because those are your most profitable people?” The Wall Street Journal also reported that Unilever, which purchased Dollar Shave Club “has concluded that selling staples as online subscriptions doesn’t make financial sense.”
In light of this retailers may want to exercise caution before jumping into what has become an increasingly saturated market with many companies struggling to find their way to profitability.