Do We Really Need 2,000 Subscription Box Services?
A crowd of wealthy patrons clad in suits and cocktail dresses were milling around the Cadillac House in lower Manhattan not too long ago. Luxury automobiles were the primary decor for the event space, flanked by young women hawking on-demand helicopter rides and high-end saké. The late summer event was meant to launch Robb Vices, a members-only luxury subscription box service backed by the 1 percent’s gracious living website, Robb Report.
The over-the-top opulence was very much in line with the site’s brand, as was the choice liquor and eyewear inside its sleek black boxes. They were hardly the main attraction, however.
These neglected stars of the evening sat perched on a white marble bar as women in red soled high heels teetered over them, quizzically inspecting the pink salt and pricey tequila packed inside. “So cute,” one exclaimed, picking up a pair of wooden sunglasses. But the fancy boxes, which for as little as $60 a month arrive at your home packed with goodies, may be the decadent bookend on an oversaturated industry with subscriptions for everything from razors to dog treats.
The boxes that make up the monthly subscription industry differ in price and content, but the premise is always the same: A box of surprise stuff, typically keeping to a theme such as makeup, vices, or snacks, arrives at your doorstep once a month. Because these companies are largely privately held, it’s hard to gauge how big the market really is, but Cratejoy, a subscription marketplace, estimates subscription commerce generated $5 billion in revenue in 2014.
But these days, a record number of boxes are looking for a slice of the same pie, as more consumers seeking monthly joy log onto Amazon.com for their regular box of stuff (the e-commerce site offers recurring delivery, in which you customize your cart and pay as the items ship). It’s unclear exactly how many box services there are–box review site My Subscription Addiction lists more than 2,000 in its database. And more, like Robb Vices, continue to appear, despite the industry being plagued with layoffs, slow growth, and a capricious public. Monthly visits to various websites of online subscription companies did total more than 21 million in January, up 3,000 percent from three years earlier, according to a study by Hitwise.
With this deluge of new entrants, lack of many big successes, and perhaps excessive hype surrounding the model, analysts and investors fear that a shakeout is imminent and that many will not survive the culling.
Birchbox began the craze when it started shipping its cutesy cardboard crates full of tiny beauty samples in 2010. Makeup lovers jumped on board, and the company built a subscriber base of more than a million people. Copycats swiftly arrived, creating boxes of everything from coffee K-cups to tampons. Giant retailers jumped on board the box bandwagon, including Wal-Mart Stores Inc. and Target Corp.
But subscription box services are starting to come to terms with the new reality. Birchbox pushed growth to the side and is focused instead on staying afloat. Trunk Club, a men's clothing box, recently added a $25 fee. WhimseyBox, an arts and crafts subscription service, collapsed and endured backlash for the handling of billing information after it stopped shipping boxes. Yet box companies keep opening: Along with Robb Vices, Sephora launched a subscription box service earlier this year, and Nest Fragrances recently launched a monthly candle subscription.
Venture capital investors have poured more than $1.6 billion into e-commerce subscription services, which includes everything from retail shoe clubs to food delivery services. A chunk of this cash went to the stuff-in-a-box companies–Ipsy (makeup), Birchbox, and BarkBox (dog products) have raised more than $200 million in combined funding. After the flash sale craze was spurred by the swift growth of Groupon and LivingSocial, subscriptions became the next target as investors scrambled to find the next trendy business model. The allure came from the promise of repeat customers, shifting retail from a transactional process to a recurring sale.
Now the blush is decidedly off the rose.
“I have worries that we’re coming to a peak,” said Josh Goldman, a general partner at Norwest Venture Partners, who invested in such e-commerce companies as Gilt Groupe and ModCloth. He has looked into investing in many subscription box services in recent years but never pulled the trigger. Boxes have spread into categories that aren’t appropriate, he said—throwaway novelties that shoppers don't stick with. The model can work only for certain kinds of goods–essentially things that shoppers need replenished (household products), or items they are willing to buy frequently anyway (clothes, makeup).
Brendan Witcher, an analyst at Forrester Research, said these boxes require a huge customer base to survive because the economics often don’t work for niche services. This is something made ever worse as more boxes come on the scene, further chopping up consumer interest. An example of some quirky additions to the industry include a monthly box featuring a single pencil and even a $44 box dedicated to a cartoon cat. Given how niche these offerings are, they may have a hard time scaling their business.
Shipping and labor costs are also high, adding to the burden these companies face in achieving sustainable margins. That means they have to sell boxes that have mass appeal, and it’s hard to find enough people who want a new box of something every single month.
“The problem is the model doesn’t work at $10 a shipment,” said Witcher. “You need to reach massive amounts of scale.”
Understandably, those inside the box arena aren’t persuaded by these concerns. In July, Birchbox co-founder Katia Beauchamp penned a piece for Medium in which she argued that subscription services are not a fad. “It is the natural evolution of e-commerce in a marketplace that is increasingly fragmented and confusing for the consumer,” she wrote. She did concede, however, that not every subscription box will survive.
Regardless of what both analysts and box CEOs preach, there’s the simple matter of whether consumers like these items. Overwhelmingly, they’re considered fun, and most are low cost enough for a risk-free trial run. A forum on My Subscription Addiction regularly brings thousands of views and hundreds of comments from those looking to discuss their boxes and exchange items.
But the boxes need to be rooted in usefulness to succeed. As long ago as 2014, reviewer Liz Cadman eschewed nail polish subscription boxes, citing the flood of samples lapping at her doorstep. “Even if I changed my color every day, I would never got through them,” she said. She suspended her subscription until she “could get things back to slightly normal.”
As for Robb Vices, it is banking on quality customers and quirky offerings to build a following. “This is not a product for everybody,” a spokesperson explained. “We are a monthly celebration of the good life delivered to the home.”