Subscription box market fights fatigue

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Credit: Illustration by Tam Nguyen/Ad Age

Another day, another box. They land relentlessly on doorsteps across America—packages filled with eyelash-lengthening mascara, stuffed with figure-flattering belts or bearing a fresh mix of toys for Fido. The deliveries arrive in an almost numbing drumbeat of monotony, the antithesis of the unpredictability and joy they once carried. And they've created a new malady: subscription fatigue.

The subscription market is more crowded than ever as mainstream brands, including Gap, Under Armour and Target, have rolled out their own apparel boxes, lessening the appeal of getting a monthly mailing filled with the unexpected. The marketing language has become tedious, with so many curated assortments to surprise and delight, that it's impossible for one brand to differentiate. Even Katz's Delicatessen, the famous New York eatery, announced in May it will offer its own pastrami subscription service beginning this month. And those buying to cure the munchies can also get monthly deliveries of marijuana (though not from Katz's).

The saturation could spell trouble in particular for beleaguered apparel sellers looking to cash in on the trend.

Retail experts say the key to recruiting—and retaining—shoppers is making aOKn emotional connection by offering hard-to-find, personalized products on a regular basis. Consumers are more likely to continue one service over another if they're getting a more special, rare product than they can find elsewhere, they say.

"The problem is some brands have a relatively repetitive type of product," says Kit Yarrow, a consumer psychologist. "It's a psychological requirement that they open the box and have a moment of delight or surprise or excitement, otherwise there's no reason to continue."

The attraction for marketers: Once that customer connection is made, brands have access to a trove of consumer data.

There have been some recent successes, notably seven-year-old Stitch Fix, an online brand that uses an algorithm to send customers a regular assortment of fashion products to meet their style needs. Stitch Fix went public late last year and recently surpassed revenue expectations, raking in $316.7 million, 29 percent more than the year-earlier period amid a 30 percent rise in active clients, according to financial reports. Earlier this month, the San Francisco-brand hired a new CMO from Google, its first executive in the role in four years.

Conversely, Hasbro in December pulled the plug on a quarterly Gaming Crate of family games that it introduced only last summer. "Moving away from the Hasbro Gaming Crate offering will enable the company to explore new and unique ways to engage fans with innovative gaming experiences," a spokeswoman says.

Similarly, in 2012, Walmart rolled out snack service, but abandoned it a year later.

Sampling to start

The trend traces back nearly a decade to the 2010 founding of Birchbox, a pioneer of box deliveries. At the time, consumers were still reeling from the aftereffects of the recession; shelling out $10 for a bright pink cardboard box filled with sample-size beauty products from high-end brands wasn't going to break the bank. In times of economic strife, consumers are usually willing to spend on small luxuries—the so-called lipstick effect, coined by Leonard Lauder of Estée Lauder. Birchbox was onto something, and other brands followed suit. Boxes caught on because consumers were overwhelmed with choices, both in stores and online, says Yarrow.

"The boxes really tap into a very powerful consumer need today: how exhausted and fatigued consumers are and how they would love to have some sort of box service they perceive to be helping them make good choices," she says.

Because the majority of the companies pushing a box product have been e-commerce startups like Stitch Fix and MM LaFleur, a seller of women's professional attire, most of the early advertising was digital. In recent years, though, brands have been spending more on marketing for customer acquisition. Last year, Stitch Fix rolled out its first TV campaign ahead of its IPO, for example.

Now that mainstream retailers are getting in the mix, they're leveraging their brick-and-mortar locations to advertise the box. Macy's, which debuted a subscription for small-size beauty products last year, has a fixture set up in stores displaying each month's box. The department store chain is "consistently growing" its subscriber base, a spokeswoman says, though she declined to provide specifics. Macy's has been using its themed boxes to drive full-priced sales by offering coupons and bonus samples.

"The beauty shopper today is much more curious about new brands, products, ingredients and colors," says Nata Dvir, general business manager for beauty at Macy's. "They want to try without the commitment of the larger size, so the subscription model made sense, as it allows customers exposure to new things."

But Macy's and Birchbox are far from the only brands to realize that consumers like to sample cosmetics. Over the years, the influx of competitors has squeezed Birchbox into multiple layoffs. The company, which has been moving toward a more traditional business model like a Sephora, is no longer as focused on samples. Sales of full-size products currently make up 35 percent of revenue at Birchbox, according to a spokeswoman, who notes that the brand's subscription business is still growing.

Similarly, six-year-old Blue Apron, the once-hot meal kit seller, is facing excessive competition—including from Purple Carrot, a vegan startup that recently received $4 million in funding from Fresh Del Monte Produce, a major produce supplier. Since going public last June, Blue Apron's shares have lost nearly 65 percent of their value and the brand has said it's pulling back on marketing to improve operations.

To retain consumers, brands need to offer a hard-to-find product and try to anticipate a customer's needs ahead of time. With Stitch Fix, for example, the brand works through its algorithm to find the right formula of trends for individual consumers, who fill out a style questionnaire. Some shoppers might want trendier items like cold-shoulder tops, while others are looking for more conservative attire. Such personalization is what will drive continued subscription, experts say. Marketers that are delivering less-thrilling products, like workout clothes or basics, might not have as much luck.

"There's an opportunity to lock in some of these early movers that have been really successful—the personalized boxes," says Nikki Baird, VP of retail innovation at Aptos, a retail technology company. "But for the boxes that don't personalize, that loyalty is fleeting."

Once marketers find the formula, including product and frequency of delivery, they have an opportunity to collect more consumer data to inform the rest of their business. Target has a box of baby clothes for its in-house Cat & Jack brand, for example, which also gathers customer information for its larger $71.9 billion business.

Bigger boxes

Subscription services are even gaining traction in the automotive industry—but as a result of the so-called sharing economy and a fear of commitment from today's modern consumers. And this offshoot might travel further with consumers than a cardboard box of delivered goods. Brands such as Cadillac and Volvo have recently launched subscription services where consumers pay a monthly fee to operate a car, and can often switch models. Fair, a Santa Monica, California-based app, enables flexible car ownership for a range of brands. The company began operating last August in the Golden State, with plans to expand to the rest of the U.S.

Customers can subscribe to a car for as little or as long as they'd like—and prices are on par with typical ownership. A 2016 Prius carries a monthly fee of $300 with a $1,000 start payment, for example. Derek Callow, who joined Fair as chief marketing officer in April, says the company is focusing on radio ads and some targeted TV spots, but is also fine-tuning the customer experience.

"The way people get cars today is broken—whenever we speak to customers, they say car ownership is dead," says Callow, who was formerly at Tinder. He adds that the subscription model requires "no commitment" and helps consumers who expect more flexibility.

"People's lives change ... and the one thing about people's lives that's often a problem is the way that people are in cars," Callow says. "Whether it's a lease or a loan, people get sick of cars."

At least they don't come in a box.

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