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Subscription Services Will Make Up 75% of DTC Brands by 2023

Subscription Box Fulfillment Services

By 2023, 75% of organizations selling DTC will offer subscription services, with global subscription commerce accounting for 18% of the market, according to a report by the Subscription Trade Association (SUBTA). The subscription commerce economy has a 17.33% compound annual growth rate (CAGR) in a 5-year period. As a comparison, Amazon’s CAGR in a 5-year period is 20.8%, while Apple’s is 9.2% and Microsoft’s is 7.7%.

“Subscriptions have become more appealing for brands for many reasons. Most importantly they allow the consumer to engage in a relationship with the brands,” said Chris George, co-founder of SUBTA. “In many cases, they also save the consumer money; subscriptions can bring value and a lower cost monthly versus a one-time larger payment.”

Forty-two percent of all subscription shoppers with three or more active subscriptions are male. Twenty-eight percent of women subscribe to three or more services; this implies that men in particular value automated purchasing and the ability to limit store trips.

George said brands can capitalize on this appeal by building brand loyalty with the consumer, creating multiple touchpoints with the consumer.

“With so many big box brands out there selling similar products to win the consumer, you need to build a relationship with them,” said George. “Today, the consumer is more about usage versus ownership; for example, five years ago you could purchase Microsoft Office for school or your home, which would cost as much as $500. Now you can subscribe to the software and pay $10 a month.”

There are several factors spurring the growth of the global subscription commerce economy within retail, media and streaming, and digital subscription services. These factors are age of subscribers, generational incomes, cost of ownership versus usage and consumer instant gratification mentality.

Ninety percent of Gen Z shoppers use subscription services, ranking it the highest cohort. Millennials were behind them at 70%.

George said Gen Z shoppers ranked the highest because this group places less importance on luxury or name brands and more importance on what the brand stands for, what its impact level is and how the brand gives back.

Subscription Box Services

As of 2018, there were close to 7,000 subscription box companies globally, nearly 70% of which were US-based. Currently there are 18.5 million subscription box shoppers in the U.S. Thirty-five percent of these active shoppers subscribe to three or more services, with a median number of subscriptions per active subscriber being two.

Subscription boxes have the highest churn of all subscription services at a median churn rate of 10.54%. However, these services have seen continued growth in site visits since 2017.

Sites visits continue to be dominated by grooming, with pet and apparel categories seeing 15% and 11% site visit growth increases, respectively.

Subscription Membership Services

With online subscriptions growing, Amazon leads the pack with Prime membership exceeding 100 million members, starting in 2018, with Prime members spending four times more than non-Prime customers on an annual basis.

In comparison, Costco’s membership renewal rates exceed 80%, with Amazon Prime membership renewal rates estimated to exceed 90%.

Subscription Clothing Services

Membership in clothing rental companies continues to rise in a category once dominated by Stitch Fix and Trunk Club. Clothing rental company Gwynnie Bee spins off its tech platform to a SaaS offering called CaaStle, which lets clothing retailers create clothing rental businesses using their platform.

“Consumers don’t want to own anymore; Rent the Runway has had tons of success and now many other brands are getting into the rental subscription service,” said George. “With this, brands can collect data on what the consumer likes and doesn’t like. From there, brands can recommend what to send and potentially upsell in the future.”

Brands such as American Eagle, Ann Taylor and Banana Republic are now offering clothing rental memberships to expand their customer base further. Retailers that offer clothing membership services see 50% more new customers that haven’t shopped with them for a while and a 100% increase in total brand spend.

Member-based clothing businesses provide even greater value to brands as the data they collect on subscribers helps enhance customer profiles. Some of the most popular pricing models for membership-type businesses include: fixed-term membership, recurring subscriptions with a fixed price per period, front-loaded membership pricing, installment plans and lifetime membership.

Subscriber Benefits

Fifteen percent of online shoppers have signed up for one or more subscriptions to receive products on a recurring basis. Some of the key components of subscribe-and-save businesses includes flexibility to increase, decrease or pause a subscription, change products and discounts. Products in the home, beauty, fashion and coffee categories have an average order value of $30 or less. These categories also have churn below 10%, which indicates that lower average order value (AOV) often leads to less churn.

Food, pets and coffee are some of the top categories for customer lifetime value. These leaders also offer one-time purchase add-ons, which also increase AOV and reduce churn.

George said that consumers are going to see subscriptions in every part of their lives. More than ever, brands are building relationships with their customers. And when you have ecommerce giants such as Amazon that can sell almost anything cheaper than anywhere and deliver it faster than anyone, your brand needs to build consumer loyalty to compete.

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