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Subscription Boxes May Have Lost The Hype, But Don’t Count Them Out Just Yet

This article is more than 4 years old.

Vanessa Camozzi, a 29-year-old recruiting manager who lives in San Jose, California, is quick to admit she’s a fan of the subscription box industry. Since 2011, she’s tried about ten different subscription box services, from Blue Apron and HelloFresh meal kits to Stitch Fix personalized-styling clothing and Birchbox beauty sample boxes. 

“I hate going to stores,” she said. “It takes a lot of thinking and decision-making out for me. ... It pushes me to try something I wouldn’t have wanted to venture before. I love the surprise factor.” 

While the subscription box industry has lost its initial sizzle—seven-year-old Blue Apron, for instance, has lost 95% of its stock value since its 2017 IPO—that hasn’t translated to the sector’s demise. And the interest from consumers like Camozzi offers just one clue.

“The market still has room to grow,” said Ken Fenyo, consumer markets lead for Fuel, consultancy McKinsey’s startup practice.

McKinsey estimated that the market for subscription e-commerce box services is as big as $15 billion, and the largest online subscription businesses generated $7.5 billion in combined sales in 2018, up 30% from 2017.

There’s still plenty of room for growth. Those numbers represented just a sliver of the more than $510 billion in online sales in 2018, as reported by the U.S. Commerce Department. 

Consumer awareness also remains low. Only about half of U.S. consumers have heard of at least one of the most popular subscription services, with only about 15% of online shoppers having subscribed to at least one of them on a recurring basis, according to a McKinsey study last year. In contrast, 46% of consumers subscribe to an online streaming media service like Netflix, according to the study.

“It’s still very early days” for the subscription box concept, Fenyo said. “New companies and new categories continue to emerge.” 

Indeed, many of the older and better-known boxes like Birchbox and Dollar Shave Club aren’t even 10 years old. 

At this year’s SubSummit conference, hosted by the Subscription Trade Association, the number of attendees exceeded 1,000, a record and five times the size from four years ago, when the first such gathering was held, said Paul Chambers, president and cofounder of the trade group.

It’s a space “certainly not without its challenges,” such as rising costs to attract new customers, Chambers said, adding that the industry counts about 3,500 subscription boxes. But “we continue to see engagement and subscriber growth.” 

The choices have also expanded beyond food, beauty and fashion to niche categories including female hygiene products, toilet paper and things like Hunt A Killer murder mystery boxes. Amazon, for instance, features more than 150 subscription boxes ranging from succulents to STEM toys for kids.

Subscription box companies are capitalizing on their know-how in a smart way. SnackNation, for instance, offers consumer insights and runs product sample and package tests for brands including Hershey. Vitamin box Bulu has expanded its business to include making private-label subscription boxes for major brands including Crayola. 

After a decline to $318 million last year, the lowest mark in at least four years, U.S. venture capital funding for subscription boxes as of December 12 this year had risen by a third, to $426 million, according to PitchBook. 

Many new players—which include major brands like Nike, which is rolling out a kids’ shoe subscription plan—don’t even need the VC backing. 

The allure aside, keeping customers around remains a key issue despite box companies’ attempts to make their plans more flexible and tailored to individual needs. The cancellation rate for the meal-kit category, for instance, can be 60% to 70%, or even higher, within the first six months of subscription, above the nearly 40% average across subscription box services, according to McKinsey. 

“People are very quick to cancel because it’s perishable,” Fenyo said.

For Camozzi, not having time to cook and forgetting to change a scheduled delivery were among reasons that had led her to cancel Blue Apron and other meal-kit subscriptions. 

“It takes 30 minutes to an hour” to cook, she said. Sometimes she wants to eat out. “It just feels very wasteful, or sometimes the menu is not what I want.”

She’s also canceled her Ipsy beauty box and had stopped Birchbox’s monthly subscription for a year before starting again because she wanted to use up the samples she’d already accumulated. She also canceled her Fabletics subscription. “I just don’t need that much workout clothes,” she said.

Stitch Fix, for now, is the only one she’s had and kept since she began trying it over three years ago. After some “hits and misses,” she was eventually matched with her current stylist. The result: She had kept her last four boxes and paid about $200 for each.

“The more personalized offering, the lower the turn rate,” said Amir Elaguizy, cofounder and CEO of Cratejoy, a subscription box marketplace.

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