Subscription box retailing on the rise

Here in New Zealand, businesswomen Cecilia Robinson, Theresa Gattung and Masterchef winner Nadia Lim created the weekly meal-planning service, My Food Bag. Photo / Kapiti News
Here in New Zealand, businesswomen Cecilia Robinson, Theresa Gattung and Masterchef winner Nadia Lim created the weekly meal-planning service, My Food Bag. Photo / Kapiti News

Hoping to spice up her cooking, Nancy Lorenz signed up last summer for Blue Apron, a weekly meal-planning service that delivers a box of ingredients to her home. She enjoyed the food samples so much that she went online to write a review, but instead she stumbled deeper into the growing and quirky world of subscription boxes.

Now, Lorenz, who lives in Ohio, receives more than a dozen packages every month, with samples of food, beauty supplies and handmade jewellery. She spends almost $300 on boxes some months.

These curated goody bags have exploded in popularity over the past few years, and now even major retailers, including Target, see that there may be money to be made. Much of the appeal for retailers is the personal data they collect from customers - from their food and fragrance preferences to their income - while collecting feedback on untested products.

New York-based start-up Birchbox kicked off the trend in 2010 by sending women tailored cosmetics samples. Now subscribers can choose from boxes of pet food, baby products, fishing tackle, video games, adult toys and even marijuana-smoking accessories.

The subscription can cost as little as $10 or top $100 a month for luxury items. The collective value of products - if you buy them at full price - is often higher than the monthly cost. Subscribers, a vocal and social-media-savvy bunch, have set up blogs and online forums to review the best boxes or swap goodies to fit their tastes.

For many, the real attraction is not the convenience of home delivery but the element of surprise.

"It's like Christmas - you never know what you're getting," said Lina Belosky, 27, a product manager in Hoboken, New Jersey, who subscribes to about 15 boxes.

There is little data on this nascent industry, but by some estimates there are 400 to 600 kinds of box services in the United States and even more overseas.

Many are start-ups that have yet to turn a profit, industry experts say, though they receive products at a discount or free from companies hoping to be introduced to new customers.

Some have already fizzled out. In 2012, Wal-Mart's tech center @WalmartLabs piloted a subscription snack-box service called the Goodies Company. At $7 a month, the box offered subscribers healthy snacks. Wal-Mart discontinued Goodies in October but said it will apply the lessons from that experience toward other subscription services.

There are downsides to subscription boxes. The quality of new, untested brands is not always top-notch. Not everything will suit shoppers' tastes. And consumers may lose interest but be too harried to take the extra step of canceling their membership.

"By the time people realise they don't want [a service] anymore, it takes time for them to cancel it," said Larry Chiagouris, a marketing professor at Pace University's Lubin School of Business. "The real money is in the inertia."

Liz Cadman, 29, who runs the review blog My Subscription Addiction, describes her affection for monthly deliveries as a gamble that does not always pay off. "If I end up liking the whole box, then I've hit the jackpot," she said.

Lorenz's husband - who subscribes to a men's lifestyle box - kept receiving hair products even though he is bald, she said. She complained repeatedly before the company caught on, said Lorenz, 55.

For retailers, monthly boxes are like offering shoppers a plate of appetisers: Sample what you like, come back for more - and if you don't like something, give it to your friends. But there is something beyond money in it for them, too.

Subscribers share tons of personal data to customise their boxes. They also provide retailers valuable feedback on products before they hit store shelves. For retailers nervous about the growing popularity of online shopping, the boxes can be a way to reach consumers who have disappeared from the shopping aisles.

"If you no longer visit the store for diapers, what other things are you not going to buy?" said Amy Koo, senior analyst at Kantar Retail, a consulting group. "Subscription boxes gives retailers an opportunity to get [people] interested in a category they weren't in the first place."

The subscription model is as old as the newspaper industry, but the rise of services such as Netflix and Amazon Prime have sparked a renaissance, analysts say. Retailers - especially brick-and-mortar stores - want to replicate that success to retain customers. (Amazon.com chief executive Jeff Bezos owns The Washington Post.)

Americans' budgets are still tight, they are on the lookout for deals and they are used to the convenience of online purchases. Subscription boxes let "experts" do the research for time-pressed shoppers and send their recommendations to people's doorsteps, Koo said.

"If you walk into any major big-box store, there are aisles and aisles of products," said Jeremy Gwynne, co-founder of Mystery Tackle Box, a monthly fishing-supplies box service. "For someone who isn't a die-hard angler, it can be an overwhelming experience."

Some big-box retailers have set up Silicon Valley arms specifically to test the success of new business models.

Last year, Target introduced a $5 Beauty Box on Facebook, to see how customers would respond on social media. Last month, it relaunched a limited supply of beauty boxes on its website.

For now, the popularity of subscription boxes is likely to keep growing, experts say. Younger shoppers make up a sizable chunk of subscribers, analysts say, probably because they are willing to experiment with new products. Most boxes still target women, although boxes for men - such as Loot Crate, Nerd Block and Birchbox Man - are an expanding segment.

The next challenge facing many of these companies is how to turn a loyal customer into a profit.

- The Washington Post

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