More than Netflix & Stitch Fix

A once-in-a-generation event like the pandemic, as we’ve explored many times here, has the potential to permanently change the trajectory of every aspect of commerce. Ecommerce adoption has advanced several years. Curbside pickup has become table stakes for chain retailers. The market caps of Netflix and Peloton have exploded. But when it comes to other subscriptions—specifically subscription box services—the verdict appears mixed.

We think of the subscription box segment as consisting of two models: replenishment and curated.

• In the replenishment model, the same product is shipped on a recurring schedule—think toilet paper and razors.
• In the curated model, the recurring basis is similar, but the box contains a different assortment of products each time—like apparel and meal kits.

While there are plenty of examples of crossover between these two models (our own clients include a basic apparel company doing sock replenishment and a pet care company doing curated toys/treats), for the merchant these two models require fundamentally different go-to-market strategies, org structures, and inventory management approaches. Equally critical is the difference in mindset of consumers when signing up each of these subscription models. So, in an environment where trips to the grocery store are fraught with risk and many people have stopped wearing pants…what’s happening with each of these subscription models?

Overall subscription market trends

• More than 1 in 4 consumers (27%) report that they have subscribed to a subscription box service in the last year and they are most popular among—who’d have guessed—younger affluent urbanites.
  • Among current subscribers, 30% subscribed for the first time in the last 12 months.
  • 52% of subscribers kept the same number (30%) or added more subscriptions (22%) in the last year compared to the previous year.
  • Only 1 in 5 (19%) said they had reduced the number of subscriptions.
  • Do the math, though, and the churn is high enough that it may nearly wipe out gains in organic growth among existing subscribers.
• Compared to 2019, subscription box adoption among older consumers has increased.
  • In 2021, 21% of those age 45-64 reported that they signed up for a subscription box in the past year, up from only 13% in 2019.
  • Among seniors (age 65+), the number more than doubled from 6% in 2019 to 14% in 2021.
• 16% of non-subscribers plan to sign up in the coming year.
  • Gen Z (28%) and Millennials (25%) lead the way with greater intent to sign up in next year than GenXers (15%) and Baby Boomers (7%).
• Not surprising: Those with higher income since COVID report above average subscription sign up rates (44% vs. 27% among total consumers).
• Surprising: Those with lower income since COVID are more likely than those who say their income has stayed the same to have signed up for a subscription service in the past year (29% vs. 21%). Why is that? We think it has to do with some subscriptions replacing alternative categories of spend.

Below, we play out a thought experiment: if one were to look at all subscriptions as a multiple of Netflix sign-ups, does this unlock a Maslow’s hierarchy of subscription needs?

• Personal care subscriptions are in the top 5 for all age groups, on par with Food/Beverage (13% each), driven in large part by soaps, sanitizers, and nutritional supplements.
• Meal kits are a rapidly growing segment and are nearly 2x as popular among commonly-new-parent Millennials (13%) compared to Gen Z/Gen X (7% each) and 3x more popular than among Baby Boomers (4%).
  • Oi, my back: Baby Boomers rank meal kits and pet supplies higher than the other age groups.
• Fitness is on the mind of those having. put on the COVID-19 (pounds). Fitness subscriptions (displacing germy gym memberships) are most popular among Gen Z and Millennials (10% and 14% of each age group said they signed up in the past year compared to 5% among Gen X and only 1% among Boomers).
• Among those whose incomes have gone down since the start of the pandemic, home goods/office supplies/toys/hobbies carry a low value in comparison to other categories.
  

Who gets voted off the island first?

Customer retention is notoriously hard for subscription services—particularly where each box on a consumer’s doorstep is a reminder of a recurring expense (something digital subscriptions often sneak under the radar with). So, we asked consumers, if you had to cancel a subscription you have today…which would be the first to go? The answers give an illuminating glimpse into stack ranking of priorities (and another way to view our Maslow’s Netflix Index above).

• Though #1 in popularity and sign-ups in the last year, 39% of consumers say that they would cancel their digital entertainment service first if they were forced to cancel a subscription. A surprising admission that Bridgerton is, in fact, an indulgence.
• However, the category most likely to be on the chopping block is the meal kit (50%), an expense that can tends to be several orders of magnitude more expensive than a digital entertainment subscription. Because there’s always ramen.
• Categories about 2x as much staying power compared to Meal Kits: Pet Supplies (24%), household supplies (26%) and apparel/footwear (27%).

Why it matters:

39% of consumers reported that they did in fact cancel a physical product subscription in the past year.

• Amazon subscribers (40%) were more likely to report having cancelled a subscription in the past year (for any reason) compared to non-Amazon-subscribers (33%).
• When asked why they had cancelled a subscription, the top reason was not offering enough value for money the paid (15%); other leading reasons included:
  • slow delivery (8%)
  • poor product selection (6%)
  • inconsistent & late deliveries (5%)

We have more to come in upcoming posts about the subscription industry—and how ecommerce logistics plays a critical role in brand perception.