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Blog / Aug. 20

Nothing – Not Even Amazon – Lasts Forever (Part 1)

Dave Bruno

The formal history of retail may be short but one thing is certain: times are constantly changing. And today, the increasing speed by which technology evolves is leading to a more rapid rate of change in retail than we have ever seen before. Competitive advantage erodes more quickly, and no retailer – or retail model – is safe. One need only review the three most dominant retail models of the last 150 years to see how quickly retail is changing.

Department stores, fueled by the vision and bank accounts of retail magnates like Harry Selfridge and R.H. Macy, captivated shoppers in the late nineteenth century, and they reigned  for almost 100 years. In the middle of the nineteenth century, Sam Walton and George Dayton ushered in the rise of the big-box category killers, who ruled for about 50 years. Jeff Bezos almost single-handedly brought multi-channel commerce to dominance in the late 1990s, and yet, in less than two decades, the clock is already ticking for Amazon’s model. Amazon knows they must adapt to survive, and they are constantly evolving their model in order to remain relevant (and, thus far, dominant).

While new retail models are constantly emerging (e.g. fast fashion’s recent meteoric rise to almost $60 billion annually), not every business can embrace wholesale reinvention in order to stay relevant. Most established businesses must evolve incrementally. And I believe the greatest opportunity for incremental, yet significant impact is via customer engagement. Consumers no longer go shopping; rather, they are always shopping. They are constantly connected, open to new ideas, willing to experiment with new engagement models, and they are (clearly) willing to share their feelings and offer feedback on their experiences. It seems to me that there is no better time than the present to consider offering a new shopping service, or engagement option. And, thanks to rapid development tools and ubiquitous connectivity, the risks and costs associated with failure are lower than ever before, and the rewards can be significant.

In my recent travels around the retail industry, I have encountered several new engagement models that caught my eye. I found each of them intriguing. full of potential, and, in most cases, downright fun to shop. In this post, the first in a series of four posts exploring new and potentially disruptive engagement models,  we will examine the burgeoning phenomenon that is subscription services.

Monthly Subscription Boxes Go Digital

Subscription services have a long legacy in retail. Who isn’t familiar with—or hasn’t experienced firsthand—the milkman, prominent from the early 20th Century to the 1960s, who reliably delivered fresh, local milk reliably to your door? And how many of us receive monthly wine selections on our doorstep from wine club memberships we just couldn’t live without during a recent sojourn to wine country? But there’s something strikingly different about the subscription service offers that have gained prominence today. The difference is incredibly simple yet overwhelmingly powerful:

“You never know what you’re going to get.”

Birchbox entered the world in 2009, and spawned a global phenomenon

Birchbox, the first subscription service of its kind, was founded in September 2010 by Harvard Business School students Hayley Barna and Katia Beauchamp, who came up with their brilliant, $10/month idea in 2009. Certain that their idea had legs, they cold-emailed a list of beauty brand CEOs from their Harvard email addresses with the subject line, “Reimagining Beauty Retail Online” and offered a box full of a few curated health and beauty samples for about $10 a box. Their courage paid off. When Birchbox launched in September 2010 it did so with 660 beta members and 3,000 members on a waiting list, all garnered through word of mouth. The beauty company hit its three-year goal for subscribers in seven months. Today, Birchbox has more than 800,000 global subscribers and $96M in sales.

In just five short years since Birchbox launched, there are now over 600 monthly subscription services offered in the U.S. In 2013, investors poured $300M into this category. Today, this trend can be found in every retail segment from beauty to food to tech. There is sheer, limitless variety. Love geeky things? nerdBLOCK sends you comic book or video game-themed toys, shirts, collectible items and more. Need a getaway without leaving home? Hammock sends a monthly box to entertain the “homebody” crowd. Love Austin? Get four to five curated products from the The Austin Bat Box.

The reason for the rapid growth is clear: shoppers love these things. When asked, they give a variety of different responses, but they almost always come back to experience. Shoppers love the thrill of the hunt, the element of surprise, the fact that many boxes are curated specifically to their history and preferences, and, of course, they also love the value.

As for the investors, it’s all about the numbers…

When asked why they like investing in subscription services, investors consistently tell us that they love the numbers

Greater Lifetime Value
“Acquiring a transaction means you acquire a customer over the longer term, rather than just a single purchase.”

Greater Predictability
“You have a very close idea of how much stock you need, what shipping costs will be, the spread of delivery destinations, and likely future income.”

Lower Retention Spend
“Customers automatically ‘buy’ each month, without the need to bring them back via display re-targeting, social, email, etc.”

Company Value
“A company that is built on recurring revenue is usually going to be viewed as more attractive than the same company without the near-guarantee of income.”

But it’s not just the customers and investors who are taking note. Big brands have begun to invest in the trend too, from high to low—Nordstrom to Target—from clothing to packaged goods—Bergdorf Goodman to CVS. Birchbox founders Barna and Beauchamp were right – subscription services reimagined retail.

Next time, we’ll look at Mobile Commerce 2.0. This time around, retail really is on a roll.

 

To learn more about monthly subscription services, as well as the other potentially disruptive engagement models, download our latest eBook,
Engage Customers Differently: New and Potentially Disruptive Experience Models that Drive Traffic and Revenue.

Or alternatively, check out the presentation below:

[slideshare id=51229023&doc=disruptivecustomerengagement-finalslideshare-150803175554-lva1-app6891]