2 retail models to 'crack the nut' of subscription-box fulfillment
With a built-in customer base, traditional retailers don’t start from scratch, but starting a new sales channel requires different ways of thinking
Subscription boxes are the new retail vertical — and who better to offer them than the brick-and-mortar retailers with omnichannel sales. These legacy companies would appear to have a leg up on start-ups whose sole offerings are subscription boxes. Traditional brands have an established customer base. They have name recognition. They have an existing supply chain. They have vendor relationships.
So why are brick-and-mortar retailers seemingly adopting the subscription channel more slowly than start-ups, and what unique challenges do they face? "Large retailers all want to add this," said Jeff Miller, marketing director of OceanX, a platform that provides end-to-end subscription services.
Not all is perfect in the subscription world, though. The Gap and Old Navy "paused" their subscription box experiments this summer, about a year after they began. Adidas is "taking a break" from its service as well. Birchbox, a well-known beauty box company that got its start as a subscription-only service, experienced growth issues and recently sold a majority stake to an investor. Ironically, Birchbox will bring its brands to a brick-and-mortar location, Walgreens, where in-store customers can create their own boxes.
If done right, a retailer can benefit from a subscription service with recurring revenue and better customer understanding. "If you could crack the nut of getting a subscription channel integrated into your stores and e-commerce experience, it can be a great way to have a true omnichannel," said Miller. Some large brands in the market with their own subscription services include Target, Walmart and Under Armour.
Curation or replenishment? Different models, different objectives
The subscription box trend started building steam around 2011 and hasn’t slowed since then. About 47% of today’s subscription companies launched between April 2017 and April 2018, according to Snapfulfil and the Subscription Trade Association (SUBTA) State of Subscription Commerce survey.
Retailers, both traditional and subscription only, are experimenting with the program elements, to determine what works and how to keep customers enrolled. About 65% of subscription services use the curation model, according to the SUBTA survey, which means finding unique products for each shipment. Another 14% use the replenishment model, restocking consumables without the customer having to proactively place orders.
Both are competitive areas, but the replenishment models are competing against Amazon and Walmart, said Miller, which are selling basics like diapers on a subscribe and save model. Retailers must have a unique value proposition to compete against them.
"If you could crack the nut of getting a subscription channel integrated into your stores and e-commerce experience, it can be a great way to have a true omnichannel."
Marketing Director, OceanX
In the replenishment model, the service should be convenient and economical. "Dollar Shave Club made it so a guy would never have to go to a store to buy a razor again. Out of sight, out of mind,” Christopher George, co-founder of SUBTA, and CEO of Gentleman’s Box told Supply Chain Dive. Chewy sends shipments of heavy dog food, with good customer service and lower prices than at the store, said George.
Brick-and-mortar retailers face different subscription challenges
Adding a subscription service can enhance current business, but with a caveat, Miller told Supply Chain Dive. Just offering a subscription service is not enough to just draw people in. It still has to provide value and product differentiation. And that sometimes requires different skills or products than the retailer currently offers, while still needing store coordination.
Pricing: Customers should pay less for items in the subscription box than they’d pay in the store. That means coordinating with store promotions, so subscription items aren’t inadvertently offered at the store at the same or higher discount. Customers want value from their boxes. "If boxes are $50 a month, they should be getting $100 in value," said George.
Exclusivity: If the subscription model is to provide new and different products, customers won’t be interested if they can buy the same thing in the store.
Omnichannel: Retailers have a potential advantage by integrating customers into the brand experience, including in-store loyalty programs. But that can be a difficult process. It means tracking and syncing up customers from each channel and integrating returns into the process.
Returns: With omnichannel retailers, a customer may want to return something in the subscription box. Ideally the item can be returned or exchanged in the store, which means employees need cross training, and the store needs protocols. On the plus side, there’s the potential for additional in-store sales.
Shipping schedules: Some companies ship all their boxes on the same day every month or quarter. Others ship based on a customer’s start date. That can challenge the supply chain in terms of tracking and ordering, though this is a challenge that subscription-only services also face.
Customer service: Customer satisfaction is critical in subscription sales, as it’s easy to cancel. With brick-and-mortar retailers, however, that subscription needs to be integrated into the overall business. Subscription services must continually work to satisfy that customer, as they’re in more frequent contact, while traditional retail is based on transactions. "With subscriptions, you over deliver or they’ll cancel," Miller said.
Fancy fulfillment: Retailers already shipping one or two items at a time won’t find that aspect of subscriptions difficult. However, the boxes must be packaged nicely, which may be a change for those who currently just place merchandise in padded envelopes or plain cardboard and send it on its way.
Personalization is key: Customers may want to swap out items before shipping, and be given choices. There must be flexibility in the system to please the customers. The industry is heading toward more personalization. "Companies have barely scratched the surface," Miller said. "Every box is going to be personalized."
KPIs: Key performance indicators (KPIs) are slightly different from traditional retail. "There’s a skill set to even looking at profit and loss statements, as compared to regular e-commerce," said Miller. "You look at customer acquisition costs a different way."
Digital upgrades may be needed
Some omnichannel retailers already have the technology in place to handle a subscription service. Others may need system tweaking. Necessary digital elements for subscription services include the ability for customers to order, recurring billing, warehousing, shipping and customer service.
Not all retailers have the ability to charge a credit card when it’s not present and to communicate with the customer if their credit card is denied, hence the need for a recurring order and charging platform, said Miller. Customers using a subscription service need the ability to update their information and preferences.
"If boxes are $50 a month, they should be getting $100 in value."
Co-founder, Subscription Trade Association (SUBTA) and CEO, Gentleman’s Box
In terms of fulfillment, to succeed the process needs to be as personal as possible while at scale. "You need to invest in customer service more than you think," said Miller, as the relationship needs nurturing and the customer should feel they belong to something special.
Miller suggests companies entering the industry make the investments and plan to stay in for the long haul. Those who exit after a year aren’t giving the model enough time to succeed. "Subscription companies make money in the long tail," he said.
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