The subscription box industry, led by the likes of meal-kit company Blue Apron and beauty-box company Ipsy, has been riding the wave of consumers’ growing online demand. But there are signs the once-hot sector is increasingly a market-share fight.
While U.S. online visits to subscription box sites have risen nearly tenfold the past four years, to 41.7 million visits in April, traffic has slowed from the “exponential rates” in 2014 and early 2015, according to a study from online-traffic tracker Hitwise, which has a panel of 8.1 million U.S. online consumers.
For instance, while industrywide monthly visits rose 10% in 2017 from 2016, the year-over-year increase slowed to 5% during the Q4 holiday period and to 3% for the first four months of this year, the study showed.
“There’s continued signs that the subscription industry, at least (where) pure-play companies go, is a mature or maturing industry,” Hitwise senior analyst John Fetto said in the report.
Mature as it may be getting, the industry continues to attract attention. More Americans than ever are lured with offers to check out the ever-growing number of new subscription boxes of different kinds – from popular categories (food, beauty, fashion, grooming and pet products) to such niche novelty boxes as unicorn- or Harry Potter-themed items.
A record 18.5 million Americans visited at least one subscription box site in Q1, up 24% from a year earlier, Hitwise data showed. Separately, a McKinsey study in February showed 15% of online shoppers — often young and affluent urbanites (sweet spots in retailers’ target demographic) — have signed up for one or more subscriptions on a recurring basis. The online subscription market has more than doubled each year over the past five years, with the largest players among them generating more than $2.6 billion in 2016 sales, up from just $57 million in 2011, according to the McKinsey study.
“This is in response to a continued shift in (consumers’) buying habits,” Paul Chambers, cofounder of the one-year-old trade group Subscription Trade Association (yes, there’s now even a trade association, with 500-plus members), said in an interview. “Convenience is a big factor. We are seeing companies continue to find new ways to offer that.”
Major retailers and brands including Amazon, Walmart, Sephora and P&G have all introduced some type of subscription boxes while Dove soap parent Unilever has bought Dollar Shave Club and grocer Albertsons has acquired meal-kit company Plated. Costco, meanwhile, is experimenting with selling Blue Apron meal kits in some stores.
In total, the number of subscription boxes industrywide has risen 40%, to 3,500, in March from a year earlier, Chambers said. Nearly 47% of subscription box offerings were started in the past 12 months, according to a survey released Wednesday by the trade group and warehouse management firm Snapfulfil.
Over the next three days, more than 700 attendees, including VC firms and retailers like Amazon and Walmart, will gather in Denver for the third-annual Subscription Summit hosted by the trade group, Chambers said. That’s more than triple the number of attendees in 2016, he told me.
The hustle and bustle of activity also signals a heated market-share battle to come. The McKinsey study cautioned against subscription boxes’ overinvesting in free trials and heavy discounting as its survey of more than 5,000 consumers showed that nearly 40% of online subscribers have canceled their subscriptions. The meal-kit category fared even worse: At least three-fifths of users canceled within the first six months.
Many subscription boxes, backed by VC firms, are increasingly on the hook to have profit in mind, Chambers said.
Publicly traded Blue Apron, for instance, recently reported a 24% drop in its Q1 customer count, to 786,000, after it cut marketing spending in a bid to stem losses. But Blue Apron is in a bind. The Hitwise data showed that even though Blue Apron remained the leader in the food space by visits, its year-over-year traffic fell in April while rivals including Hello Fresh and Sun Basket gained ground.
It’s not just Blue Apron in the food category under threat from new competition. The top 10 subscription sites ranked by visits commanded 61% of the industry traffic in April, down from 70% a year earlier, according to Hitwise. Six of the top 10 subscription sites, including Ipsy, Dollar Shave Club, Home Chef and Birchbox, all saw lower visits over the same period, according to Hitwise. Stitch Fix, a styling clothing service and another publicly traded company, was one exception, as it touted a data science team that would deliver on the personalization promise.
Blue Apron, in an attempt to engage consumers, on Tuesday opened its first-ever “experiential retail” pop-up shop in New York, offering events including cooking classes, as part of a series of pop-up events it will host in multiple cities across the country.
“We are eating from the same share of wallet,” said Chambers, who is also a cofounder of the Gentleman’s Box subscription service for men. “Some of the larger chains are looking at the penetration into the market. You are going to see new entrants in the space.”[“Source-forbes”]