Interviews, insight & analysis on Ecommerce

Glynn Davis: Have we hit peak subscriptions yet?

Glynn Davis is one of the UK’s most knowledgeable and experienced retail journalists, founder of Retail Insider, and Ecommerce Age’s monthly columnist.

Tinned fish is not something I ever thought I’d be buying on a subscription basis but my love of tuna, mackerel and sardines packaged in beautifully designed tins got me hooked on the idea by independent suppliers The Tinned Fish Market. 

It’s such a joy receiving these tasty goods on a regular basis with the element of surprise over what’s inside that month’s tins. I’m clearly not alone in my enthusiasm as it has been mirrored by many other people, which has driven the value of the subscription market up by 22% over the past year to £395 million. This is on the back of a 25% rise in the number of households signed up to such services who now spend an average of £620 annually on subscriptions compared with £552 the previous year, according to Barclaycard Payments.

It is no wonder that the subscription model has been embraced by the retail sector – with adoption by myriad newcomers entering the industry and also by established operators who’ve added such a proposition to their existing operations. Of those already in the market, a hefty 83% have added an average of three new subscription products or services since the start of this year alone. 

There is no doubt that Covid-19 lit the touch-paper under the model and as many as 71% of retailers who provide subscriptions claim it saved their businesses during the lockdown. This seems to have resulted in a giddy feeling that the good times will continue to roll on because retailers in the market are predicting a further 30% growth this year. Such is the enthusiasm that 36% of retailers who haven’t yet provided such services plan to launch a range of subscription products in time for Christmas.

Despite my love of tinned fish on subscription this gung-ho positivity seems to smell a tad fishy to me. I can’t help think we might have reached peak-subscription and that there will be a rationalisation of people’s subscription portfolios. This would also make it difficult for the newcomers into the market to gain the necessary traction. 

At the heart of my suspicions is the fact it is notoriously difficult, and very expensive, to acquire subscribers. In fact, there is only one thing that is harder than attracting them and that is retaining them. Handling churn in the customer base is the biggest challenge for providers of subscription services. 

Proof of this difficulty comes from Emarsys who found only a mere 2% of UK shoppers have kept their subscription services for more than a year. The average consumer cancels their subscriptions in less than half a year – 5.3 months to be precise. As many as 38% of people admit this tardy level of commitment is down to a belief that the subscription was too expensive but most worrying is the finding that 18% of consumers stopped when the free trial period ended and that this was the reason they were attracted to it in the first place.

It is for these reasons that the more established subscription providers have all looked to expand their operations beyond being wholly reliant on the vagaries of the subs model. Graze set the ball rolling early on with its move to sell its range of snacks individually in retail outlets including the major supermarkets.

Leading meal kit company HelloFresh recently revealed it is to set up HelloFresh Market in the US through which it will sell a range of ingredients that customers can add to their deliveries of boxes. It currently has a tiny 25-product add-on range that delivers 2% of revenues but when this is expanded the belief is that it could account for 15-20% of total company sales.

The beauty box subscriptions like Birchbox have also recognised the limitations of the subscription-only model and their boxes of small size tester products have been increasingly used as a driver for the purchase of full-size products that are stocked on their websites.

This will no doubt be the reason why established online beauty retailer Feelunique has just launched its own Beauty Box scheme. The box arguably needs to do little more than achieve break-even because all the profitability comes from the sale of the full-size products that it helps to promote.

The subscriptions market had been gradually maturing pre-Covid-19 but was given a turbo-charged boost during the pandemic. I would expect an unwinding of some of the current exuberance and for normal service to resume. 

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