The beginning of the Covid-19 pandemic saw a massive boom in subscription commerce, as consumers sought to navigate the seismic disruption to the retail landscape. It’s estimated that by 2023, up to 75% of direct-to-consumer brands will have a subscription-based offering.
Yet growing pressure in the form of inflation, expectations, and plain old competition is taking its toll on the market. A PYMNTS study found that the average consumer has dropped at least one subscription since October 2021, while the growth of subscriptions overall is declining sharply. Growth for 2022 is forecast at just 3.3%, compared with 12.8% in 2020.
While this trend can be seen across subscription types, there’s one category in particular bearing the brunt of declining revenue: Apparel subscriptions. There’s a long – and growing – list of programs that have failed to find profitability, but others have managed to thrive.
So, what is the difference between an apparel subscription succeeding or falling into obscurity? Is it still possible for companies to grow in this area? Let’s dive in.
So, what is it that makes apparel subscriptions such a tricky offering to get right? Let’s take a look:
Convenience has always been the strongest selling point of subscription commerce. But the truth is that subscriptions in discretionary categories are often solutions looking for problems.
The standard curation model, where subscribers receive a box of items each month for a fixed price, attracts consumers mostly based on novelty. But because fashion, cosmetics, or specialized foods aren’t essential items, it’s difficult for these subscriptions to keep providing value over time (after all, there are only so many pairs of leggings that a person needs).
Replenishment subscriptions have the highest levels of customer retention for a simple reason; the need for these items (whether it be pet food, toothpaste, or razors) is fixed and ongoing. Not having to remember to buy toilet paper or vitamins on your next grocery trip offers genuine value in a way discretionary subscriptions struggle to capture.
The subscription market is now vast and covers just every consumer category, from fashion and entertainment to groceries. As a result, the average consumer is now managing several subscriptions at once. According to the Subscription Commerce Conversion Index, the average consumer now has 5 active retail subscriptions.
Yet more subscriptions mean a higher cost and more time spent managing programs, which is causing some consumers to gravitate towards subscriptions that ‘bundle’ multiple services into one offering. This is why programs like Amazon Prime continue to hold such a strong market share, while specialist subscriptions are more likely to suffer from customer churn.
In difficult economic times, it’s the ‘nice to haves’ that are the first to go when consumers start tightening their spending. This doesn’t spell good news for subscriptions that focus on giving subscribers a monthly taste of luxury. With rates of inflation hitting 9.1% in June 2022, it’s hardly surprising that consumers are cutting back on non-essentials such as clothing. Retailers including Walmart and Target have been forced to re-evaluate their project projections, thanks to significant drops in apparel spending.
In sum, apparel subscriptions might flourish when times are good, but even high levels of customer loyalty will struggle to compete with the imperative to reduce spending.
A direct-to-consumer darling purchased by Nordstrom in 2014, Trunk Club has long been a financial weight dragging down the department store’s success. Despite efforts to revive the apparel subscription, such as changing pricing plans and return policies, Nordstrom has struggled to balance personalization with the costs of fulfillment and labor.
Yet Nordstrom reports that shoppers enjoy engaging with personal stylists both in-store and online. Their own research found that Nordstrom customers spend seven times more on average when engaging with a stylist, and report much higher levels of satisfaction with their shopping experience. In May 2022, they announced the closing of Trunk Club as a separate offering and the integration of personal styling services into the Nordstrom brand.
Like many other apparel subscriptions, Stitch Fix has struggled with flat demand for clothing during the pandemic. In the face of these difficulties, Stitch Fix has taken a slightly unorthodox approach to fix the weaknesses of apparel subscriptions – by removing the subscription element entirely.
Stitch Fix customers still get to engage with stylists to have garments picked out for them, but don’t have to do this to any set schedule. In September 2021, the company also added a ‘freestyle’ shopping option that aligns its website much more closely with traditional e-commerce. To maintain a sense of curation, Stitch Fix makes customers fill out a styling quiz before they can access their own personalized product catalog. Freestyle also doesn’t offer a search engine or filters, which forces shoppers to review all product recommendations.
In their latest earnings call, Sitch Fix reported that revenue from Freestyle grew 13% year over year. Despite this, overall revenue fell by 8% and active customers by 5%, while 15% of salaried staff were laid off. This indicates that these changes haven’t helped Stitch Fix turn the corner into profitability.
Apparel subscriptions that stake themselves on high levels of curation, often via the use of dedicated stylists or style quizzes, are finding out the amount of time and cost it takes to create these experiences isn’t paying off. Plus, it only takes one sub-par experience for a subscriber to decide a service simply isn’t worth the additional cost compared with buying items independently.
Subscription fulfillment services such as subassembly and kitting are challenging for businesses to scale independently without the assistance of a well-resourced 3PL. Extras such as product inserts and promotional packaging also create a much lengthier order fulfillment process compared with regular e-commerce orders. If a service isn’t prepared for a sudden increase in orders, it may have to cap subscriptions and stifle growth or dilute the brand experience with a more straightforward fulfillment process.
The recurring nature of subscription boxes can sound like a boon to apparel retailers, who traditionally rely on a series of one-off purchases to build repeat purchasing habits. But if brands are not gathering and analyzing the right data to help them understand consumer needs, or identifying at what point in the sales cycle customers may require a pick-me-up, then customers are likely to defect once that ‘surprise and delight’ feeling wears off.
One of the better-known apparel and lifestyle subscription boxes with over a million subscribers, FabFitFun has traditionally curated seasonal boxes based on the preferences of its team and co-founders. Thanks to the growing demand for personalization, FabFitFun has started introducing more customization options, such as allowing subscribers to choose between multiple colors, or members of certain subscription tiers being able to choose products from a curated range.
By blending together curation and customer choice, FabFitFun has given subscribers more reasons to engage with the service – and gained access to a valuable stream of customer data to help them refine future product selections. Moreover, the expansion of their subscription service into content with FabFitFun TV has strengthened their overall proposition as a lifestyle brand.
One of the oldest apparel subscription companies in the market, Rent the Runway started with a simple idea; that women should be able to rent designer clothing, rather than fork out hundreds of dollars for something they may never wear again. They later augmented this in 2016 with a monthly subscription fee, allowing customers to rent everyday clothing and workwear as often as they wanted.
As the workwear and occasionwear apparel sector experienced a huge drop in demand during COVID-19, Rent the Runway saw 60% of its customer base pause or cancel their subscriptions. Yet this also provided an opportunity for the company to review its program – namely, the losses being created by high shipping costs.
As a result, Rent the Runway opted to shift to a personalized pricing model where customers can pay extra on top of their current plan for additional items. This extra level of customization offers subscribers maximum flexibility, while also allowing the company to factor in the additional cost of shipping and handling.
Online thrift store ThredUp took its first steps into subscription commerce in 2017 with the introduction of the Goody Box, a monthly styling box with ten items handpicked by stylists. Customers would try the pieces at home and pay for what they decided to keep, returning the rest. Although the boxes contributed between $2 million to $3 million in recurring revenue each quarter, the pressure it created on their warehouse operation led to the decision to end the subscription at the end of 2021.
Moreover, feedback from ThredUp customers indicated that it was style guidance, rather than the clothing itself, that they enjoyed the most. In response, ThredUp launched its AI-powered ‘Thrift the Look’, which features thrifted outfits curated by its stylists to offer inspiration. This tool assists shoppers in finding the perfect pieces via stylist expertise, but without the burden of physically curating and shipping products to customers.
Traditional personalization using stylists is labor-intensive for apparel subscriptions to maintain, as offerings like Trunk Club found out the hard way. The alternative, which relies on the likes of quizzes or customer feedback to refine products, put the onus on the consumer, which can backfire if product selections are not up to par. As AI becomes more sophisticated, this offers a more affordable way for apparel brands to offer curated recommendations.
Saving a wavering subscription program relies on brands being able to pivot toward more fluid experiences that offer subscribers additional ways to engage with their products. Combining curated product recommendations with a traditional e-commerce approach is helping apparel subscription services to revitalize their offerings and keep customers interested – but flexibility must be front and center.
Consumers want apparel subscriptions to make life easier for them, not harder. Offering a large number of different subscription plans or too many choices is overwhelming for subscribers and requires more investment than they might be willing to give. A limited number of good choices gives consumers confidence in your curation capabilities.
So, what does the future hold for apparel subscriptions? Declining growth coupled with tighter consumer spending is certainly creating a rocky path to profitability for subscription companies. Yet the growing sophistication of AI technology offers a pathway for brands to manage the labor costs of curation while providing more relevant recommendations. As flexibility and choice play a larger role in the customer experience, there’s space for subscription businesses to offer additional services alongside subscriptions that enhance value and loyalty.
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