The masses were familiar with hearing “Avon calling” at the doorstep in the 1950s and 1960s as employees of the skincare company went door-to-door offering samples and direct sales of makeup products.
Fast forward to today and the person bringing makeup samples, clothing, luxury products, wine and other items is the postal worker, delivering subscription boxes full of goodies.
The service gained popularity a few years ago with companies such as Birchbox, which delivers high-end skincare and makeup samples monthly for $10. Numerous other companies have followed suit with monthly subscriptions or on-demand services. The services run the gamut from specialty pet items to STEM-related toys for kids to disposable razors and meal kits, to name a few. (There are 2,500 companies that sell subscription boxes, according to a 2016 Bloomberg article).
But what are the benefits of these services, and are they sustainable business models?
We all probably have an anecdote about someone telling us about the service they subscribe to (I can think of two: one of my co-workers subscribes to monthly makeup samples through IPSY; another has tried Hello Fresh as an easy and quick way to get a foolproof homecooked meal on the table on busy evenings).
And I’m quick to recommend my own experience with personal styling company StitchFix. As someone who would never initiate or pay for a personal stylists’ services at a department store, I absolutely love being able to have the service delivered to my doorstep. Not one to follow fashion trends (and at 6-feet tall), the company sends me five pieces tailored to my size, shape and style preferences for a $20 styling fee. I keep what I want (the $20 comes off the top of the price of clothing) and send back the rest for free.
There are a few reasons these services are popular, one being they are personalized experiences with the convenience of not leaving your home. There’s also the anticipation factor – you don’t know what you’re going to get until you’re opening the box and pulling back tissue paper.
But can the practice sustain? Particularly as large companies begin to capitalize on the idea, can start-ups survive stiff competition?
This Forbes article gives a good in-depth look at growth in the industry, demographics of the targeted audiences and up-and-coming companies, as well as the major challengers getting into the subscription box game.
Scaling niche businesses is also a challenge. How do you keep the products personalized and quality high when you start marketing to a broader audience in order to grow? And with the highly-personalized nature of these services, can automation ever play a role in the manufacturing process?
Bloomberg recently focused on meal delivery company Blue Apron, which went public earlier this year. The article notes company shares have fallen by half in about two months’ time.
Five-year-old Blue Apron, which raised close to $200 million in venture capital before its IPO, has warned it may never be consistently profitable. And that isn’t just a Blue Apron problem: The business model for subscription boxes turns out to be much tougher than it sounds, because of the high costs of getting and keeping customers. “You’re coming into an area where margins have always been thin, which makes turning a profit a huge task,” says James Wester, an analyst at researcher IDC. “Just applying new technology on top of traditional industries doesn’t work.”
About 2,500 companies sell different kinds of subscription boxes in the U.S. alone, with the top handful generating nine-figure annual revenue. Profitability, however, is a different matter, and the past year has been littered with box companies that couldn’t work it out. The recently shuttered services have names like Treatsie (for high-end candy and other sweets), Fair Treasure (jewelry and other accessories), and Blush Box (beauty products, lingerie, and sex toys).
Now that Blue Apron has gone public, its numbers are more transparent than most. In pre-IPO filings, the company said it had spent an average of $94 in the past three years to acquire each subscriber, that each was paying an average of $236 a quarter for about 24 meals’ worth of preportioned ingredients, and that those numbers had dipped slightly since 2016. Counterintuitively, scale hurts subscription-box makers, because getting big means they have to spend way more on marketing. (Blue Apron spent $144 million on marketing in 2016, a 182 percent increase from the year before.) Among subscription boxes in general, “the pricing is not smart given the price of acquisition being so high,” says Ross Blankenship, a venture capitalist at Angel Kings.
As with any relatively new service or company, only time will tell if this section of the retail industry can last. Until then, tell us about your experience (in the comments section) with subscription box services.