Subscription box craze takes off in the US
Investors make big bets on start-ups
Need a monthly delivery of doomsday prepping supplies? How about treats for your pet rabbit, or only-available-in-Japan snacks like Umashi Oasi Cheetos?
Then you might be a candidate for the latest consumer craze: the subscription box. A growing community of eager shoppers seeking both the convenience and surprise that every regular delivery brings are flocking to the concept, paving the way for ever-more-eclectic and specialised offerings.
Generally priced at $10 to $30 a shipment, the boxes are stuffed with goodies built around a theme, but usually filled with a surprise mix of products picked out by a curator.
“I get close to 100 boxes a month, and I still get excited when I see them at the front door,” said Liz Cadman, the founder of the My Subscription Addiction, a website of reviews.
Investors are making big bets on subscription box start-ups like Blue Apron, which mails its subscribers weekly deliveries of recipes and the ingredients to make them.
The three-year-old company, based in New York, recently raised $135 million in a deal that values it at $2 billion.
Blue Apron says it is delivering more than three million meals a month, three times the number it shipped nine months ago.
Companies like NatureBox (snacks), Club W (wine), Citrus Lane (children’s products), BarkBox (treats for dogs), Faithbox (socially responsible goods) and Birchbox, the beauty products retailer widely credited with accelerating the subscription craze, have also taken in money from venture capitalists.
Trailing those well-funded ventures are a growing number of mom-andpop operators.
Korrina Ede, 26, and Robert Madden, 32, had long fantasised about leaving their retail jobs and starting their own business.
In November, they took a week off to brainstorm and sketch out ideas. From that emerged OwlCrate, a monthly subscription box for young adult books. Each shipment includes a recently released novel and an assortment of themed literary knickknacks like jewellery, bookmarks, stickers and art.
Trying to guess how many customers they might attract, the couple prepared 150 boxes for their first shipment in March, featuring V.E. Schwab’s fantasy novel A Darker Shade of Magic. It sold out almost instantly.
They scrambled to assemble supplies for an additional 100 boxes, priced at $30 plus shipping — and quickly blew through those. A waiting list formed.
Ede and Madden will not disclose exactly how many subscribers OwlCrate now has, but they say it is in the thousands.
The business they started in their apartment in Vancouver, British Columbia, is already overflowing the storage locker they rented for their swelling inventory.
“The main limitation on our growth is that we can only put together so many boxes ourselves,” Madden said. “We’re still sort of in a state of shock about how this took off.”
OwlCrate’s success was fueled by a community of bloggers and subscription fans eager to promote their latest finds. My Subscription Addiction has 1,200 companies listed in its subscription directory, up from around 800 a year ago.
“We found that the typical person who creates an account on our site subscribes to seven boxes and has 12 more on her wish list,” Cadman said.
New service providers are making it easier for those with ideas to get started.
Cadman and others say that one catalyst for the market’s recent growth is Cratejoy, a company in Austin, Texas, that sells turnkey software — website templates, customer account management and billing tools — for running a subscription business.
Cratejoy’s services cost $39 a month, plus 1.25% of each client’s subscription revenue and 10 cents for each billing transaction. After beta testing with a limited pool of customers, it opened to the public in October. Within a month, it had 100 paying merchants. It now has 8,000.
Around half of those vendors are first-time business owners, according to Amir Elaguizy, Cratejoy’s co-founder and chief executive.
How many will stick with it is an open question.
Starting a subscription business can be inexpensive — OwlCrate’s founders say they spent just a few thousand dollars on their initial supplies and inventory — but maintaining one is a punishing logistical grind.
Sourcing suppliers, fielding customer questions and complaints, marketing, managing inventory, packing boxes and transporting shipments can be a heavy workload for what is typically a low-margin operation.
Cadman says that 13% of the merchants My Subscription Addiction tracks have disappeared.
Market research on the industry is scarce, but anecdotal evidence suggests that many subscription businesses have trouble sustaining the elements — like heavy product discounting and the novelty of discovery — that draw customers to them.
Paige Hendrix Buckner and her business partner had several hundred subscribers to Tique Box, a $25 monthly shipment of artisanal goods from Portland, Oregon, but chose to shut down the business in March after two years of operations.
Balancing the boxes’ price against the cost of supplies was a challenge, Buckner said.
In the beginning, Tique Box sought free samples from merchants looking for exposure to new customers, but that became harder as Tique Box’s customer base grew. Paying for products left thin profits.
The business could cover its costs, but it was hard to envision it growing big enough to support salaries for its owners.
Buckner used what she learned from Tique Box to form a new company that she thinks has broader potential: ClientJoy, which creates custom gift packages for corporate clients — a market Tique Box unexpectedly uncovered when local businesses started stocking up on its boxes.
“One of the biggest lessons we learned from Tique Box was to decide, ‘Is this a small business, or do you want to scale this into a faster-growing start-up’?” she said.
Some ventures that successfully scaled have complex business strategies underpinning a model that looks deceptively simple.
Birchbox, created in 2010 by two Harvard Business School students, proved — against all conventional wisdom — that customers would pay $10 a month for a box of cosmetics samples obtained by Birchbox free from manufacturers. Dozens of competitors immediately copied the approach.
But Birchbox believed from the start that its subscription model would work only as the first step on a much longer path of introducing customers to new brands and turning them into repeat buyers, said Katia Beauchamp, a company co-founder.
Each box is individually customised and comes with educational content on how to use the products.
Birchbox places volume orders for everything it samples and sells full-size versions on its website; a generous loyalty program encourages customers to buy directly instead of migrating to other online or offline retailers.
More than half of Birchbox’s one million subscribers have shopped on its website, and the company now draws 35% of its revenue from non-subscription sales.
“The unit economics are so sexy — you’re selling people things that you got for free — that people fixated on it, but our approach was really complicated,” Beauchamp said. “If you’re not creating value for the consumer and the brand, it’s a short life cycle.”
The subscription boom may turn out to be more of a bubble than a lasting market — plenty of early entrants have already faded away — but it is alluring enough that new players keep charging in. Hot niches quickly become glutted, almost comically so.
Blue Apron’s long list of rivals in the dinner kit market include Plated, Hello Fresh, Din, Marley Spoon, PeachDish, Gobble, Home Chef and at least a dozen others.
“Two years ago, there was this trend of ‘time of the month’ boxes,” Cadman said. “They didn’t exist, and then suddenly there were 20 of them.”
She sees three especially hot areas right now. Boxes filled with comics and toys are taking off, as are home décor subscription boxes.
The third category Cadman named is book boxes.
OwlCrate opened at exactly the right moment to capitalise on a surge of interest in young adult literature, and it has drawn praise for its thoughtful selections, its clever packaging and the custom items it hires Etsy artists to create.
Now, the challenge Ede and Madden face is to keep their thousands of newfound customers feeling as if they’re getting $30 worth of value — about twice what the featured books alone would cost — from OwlCrate’s packages, month after month after month.