“Doing the bow 500,000 times is not easy. Some people just cannot do this,” Britta Fleck, the president of Glossybox USA, told the Wall Street Journal (WSJ). The contents of each box come nestled in packing material, which in turn is wrapped in tissue paper. A sticker fastens the tissue paper, and there’s a black ribbon tied around the whole package. It doesn’t really need the ribbon, but it adds to the customers’ experience. “It sounds ridiculous, but if the box is open and it’s not a nice bow, the experience is already lower.” Yet it’s not a robot that ties that nice ribbon.
Over just the past two years, we’ve seen subscription box services of all kind seemingly pop up from out of nowhere. Need gourmet, gluten-free, sugar-free, farm-to-table, ready-to-eat meals delivered daily to your front door? Then you need look no further than Freshology. Want premium cosmetics delivered each month to your door? Then Birchbox has you covered.
Everything from shoes to candy/snacks such as Graze (featured above) offers, to accessories, personalized outfits and what-have-you are now readily available from these services. But, with this fad, and amid all the hyperbole surrounding it, one thing was left overlooked for many of these startups: The logistics that are involved, and just how nightmarish daily operations can quickly become once your business takes off; if you are not prepared, that is.
Logistics and getting packages fulfilled when they are typically hand-packed and different each month has caused some trouble for startups in this category, according to WSJ.
It’s the most tempting type of splurge: a gift to yourself. A growing industry of stylish subscription services is banking on the joy of the unexpected gift, offering to deliver a box of surprises to your doorstep every month.
Boxes of fashionable goodies, often assembled—or “curated,” as the services say—by a well-known personality or brand, are proliferating. Recently, Actress Kate Hudson launched a monthly subscription service for fashionable exercise wear, called Fabletics, with prices starting at $49.95. For $100 per quarter, Project Runway judge Nina Garcia offers her Quarterly.co subscribers a selection of chic items. A bevy of clothing subscription services, from Trunk Club to Buck Mason, are available for men who can’t bear to enter a mall to get T-shirts and slacks.
Quarterly.co, led by Netflix co-founder Mitch Lowe, offers subscriptions to packages assembled by personalities including chefs, hip-hop artists and bloggers. “Businesses have gotten so good at offering many choices,” he says, “that people now want curation.”
To deliver their colorfully decorated packages, monthly subscription services must defy some of the fundamental rules of e-commerce.
5 Ways Subscription Box Fulfillment Differs from E-Commerce
The subscription box boom sweeping the country is giving rise to a new kind of order fulfillment. While many subscription services have an online component, their order fulfillment needs are considerably different from those of e-commerce fulfillment. As a recent article in The Wall Street Journal points out, “. . . the logistics of shipping subscription packages often go against conventional rules of e-commerce.”
Subscription box fulfillment is typically a very complex, customized, labor-intensive process, conducted within a tight delivery window. Space, labor and expertise are just a few areas where the needs of subscription box companies differ from those of e-commerce retailers.
How an experienced fulfillment provider can help and the five key areas of distinction are:
- All hands on deck
While e-commerce orders ship on a fairly steady basis throughout the year, the monthly (or quarterly) delivery cycle of subscription orders leads to brief periods of intense volume – much of which is handled manually. Adjusting labor and space to suit these dramatic peaks and valleys can be very challenging. It can also be quite expensive to pay for space and staffing to accommodate the highest volume each month when operations are only at capacity for a limited number of days.
- It’s all in the presentation
Unlike typical e-commerce shipments in non-descript corrugated boxes, subscription boxes are designed to delight the recipient and must arrive looking consistent and professional. For added appeal, packaging may include tissue, ribbon, stickers, etc.
“Presentation is important for subscription-box customers, who swap unboxing videos, photos and reviews online,” The Wall Street Journal notes.
- To each his own
While the packaging must be consistent, the contents of subscription boxes are not. Part of their appeal is that the complete product mix changes every month. To further complicate operations, many subscription companies allow customers to pick and choose the contents of their subscription to suit their personal tastes.
Personalizing orders is a complex, labor-intensive process. Effective third-parties are equipped with the staffing, processes and space to handle a variety of configurations based on client profiles, wants, interests, etc.
- Timing is everything
Unlike standard e-commerce customers who have come to expect fast, free (or low-cost) delivery, subscription customers count on the arrival of their package at a certain time every month. Since subscription products are often promoted extensively through social media, delivery dates must be carefully coordinated.
Packing and shipping is timed so that boxes go out in waves. Those destined for the farthest regions go first, so packages to customers in one region all arrive on roughly the same day, to avoid spoiling surprises.
- Quality counts
While order accuracy and quality are important for any company, it is especially critical for subscription-box businesses. Customer feedback is shared widely via social media, so inaccurate orders, damaged products and subpar service can lead to customer dissatisfaction on a large scale.
E-commerce monthly subscription boxes are one of the newer fads that’s trendsetting across the internet, and for ample good reasons, too. They involve, typically, a flat-priced monthly offering for high-demand goods, delivered to your front door in a presentation-enhanced gift box that’s fun to open.
But just how popular have these startups become, and is there really room for growth in this industry?
Dollar Shave Club Sets The Standard
To put it into better perspective, Unilver recently tendered $1 billion to acquire Dollar Shave Club, denoting one of the largest sums ever tendered for a tech startup that’s only been around for four years. This massive, and unprecedented, transaction also helps us better assign an actual face value to the subscription box services industry.
Back in 2012, during the first year of business for Dollar Shave Club, the company posted a viral YouTube video (shown above) that resulted in 12,000 orders in just 24 hours, and that resulted in over $240 million in revenue. In just a few years, the startup had garnered 8% of the market share of a multibillion men’s shaving industry that was previously untouchable.
Was Dollar Shave Club really doing anything different? Nope. They were selling cheap, mass produced razorblades to a price-weary target market, in hopes that convenience, branding, catchy commercials, packaging and front-door delivery would make the difference. The venture also proved another thing: These services can generate billions of dollars inside of multiple niches, thus leading to the spawning of an industry within an industry.
Popularity Has Led To Creation Services
In the years that followed the rampant success of a generic razorblade reseller, countless other entrepreneurs got on board the e-commerce bandwagon. They began selling everything and anything in a subscription box that could be sent inexpensively via USPS Priority Mail within just three days- be it subscription boxes for men, women, teens and even kids. Of course, with such high demand, you know that another industry had to get on board the cash flow express: The shopping cart and frontend IT industry.
Most subscription box services have to resort to manual fulfillment because the boxes are so customized, and the monthly content varies so greatly, that it’d be nearly impossible to use robotic fulfillment methods. This means that many turn to fulfillment houses to get their packages sent, which cuts deeply into their baseline profit margin.
The experts at Econsultancy dug deeper into the worries that e-commerce monthly subscription services providers would have to fester when it comes to risk versus reward.
- Discount entry points can really cut into profit margins, and can leave a retailer breaking even or losing money on the first sale.
- Spend versus return can sometimes even out, especially when costly marketing campaigns are being used.
- Cross-channel selling can deplete profit margins, and can make it hard to turn around cost in the long term if acquisition is too heavy.
- Stock on-hand can become an issue when supplies are short, resulting in an exodus of subscribers.
- Risk of cancellation, returns and long term viability of customers as well as chargebacks and fraud always need to be considered in the long term.
Things To Consider Along The Way
In spite of the risk, where entrepreneurs see a cash cow, they flock like sheep to the opportunity. Not to say that you can’t make a good amount of money in with a subscription box store, just to say that the market is quickly becoming diluted, and that you shouldn’t be overzealous or delusional in your approach.
The services that do take off are using the right model, HubSpot infers. They explain how the successful subscription model works in a nutshell. It involves knowing your LTV, or the lifetime value of your customer, versus existing subscriptions, which is the first place that you’d want to start.
“For example, if your subscription is $100/month (and it’s all pure profit, in a real scenario you’d factor out costs of goods and services and retention etc.) and 1% of your customers cancel each month, your customer life time value (CLTV or just LTV) is $100/1% (100/0.01) which is $10,000.”
Jayem Logistics agrees that the innovation of premier services like these helps us better understand just how multifarious the internet’s offerings can be. As they continue to gain in popularity, they are adding billions of dollars in value to an already rapidly expanding e-commerce industry; one that’s only going to continue to grow as time passes.
The following infographic explains the rise and boom of this niche market industry.
Stacking and Packing Take Center Stage in Warehouse Games
To understand the extent to which e-commerce is transforming U.S. retail, look no further than the warehouses up and down the New Jersey Turnpike, where packing boxes and moving pallets stacked high with customer orders has become a booming business.
Jayem affirms that the special challenges in subscription boxes include customers’ expectation of luxury packaging and the need to ship containers full of small and fragile containers of expensive cosmetics.
Subscriptions enable retailers to predict demand and know they won’t have to offer leftovers on sale later on. If you get someone locked into a subscription you can guarantee their revenue stream more than if you try to count on them coming into the store.
While clothing subscriptions generally allow customers to return what they don’t want for a refund, many others, including Svbscription and PopSugar, don’t allow returns of individual items in the boxes.
There’s just such an allure to opening up a box every month and not knowing what you’re getting, according to Sugar. She predicts subscriptions will be a major part of Popsugar’s business in 2014. Coming soon from Popsugar: bridesmaids’ and new-baby subscription boxes.
With Subscription Beauty Boxes, Rules of E-Commerce Don’t Apply
The most successful online retailers, by contrast, are the ones that make the most efficient use of warehouse space and automate as much of the shipping process as they can. The subscription services are a more manual business, and each company has distinct logistical complications.
Glossybox packs its products in sturdy gift boxes that don’t fold or stack, which are then placed inside another cardboard box to be shipped. The boxes take up so much space that it is costly to transport the packaging from its supplier in China to its warehouses around the world, Britta Fleck, president of Glossybox U.S.A said. Fleck and her team sent almost 200 test boxes to themselves when the company first started to find packaging that looked attractive but was still strong and small enough to ship profitably. The Berlin-based company ships 275,000 boxes each month.
Rival Birchbox ships 100 different combinations of products, or kits, and a total of over a million boxes globally each month. The order in which products are arranged for assembly is important, said Pooja Agarwal, vice president of operations. Workers must be able to finish packing one kit and start on the next, with a minimum amount of rearrangement, and in as little time as possible.
Though Birchbox has reached a scale at which it can at least automate the placement of address labels, much of what it does is still manual, Agarwal said. Warehouse workers have to be trained to do multiple jobs such as receiving and stocking products as well as packing and shipping them so they’re not idle in the weeks between shipments. And at peak shipping times, the company sometimes borrows workers from other shippers, and hires temporary workers. Birchbox uses Geodis SA’s logistics provider OHL which operates the warehouses.
New Beauty’s TestTube, a bimonthly subscription, makes instructional videos for warehouse managers showing the optimum placement of every product because they ship in a cylindrical package that can be a tight fit.
Hudson, the actress, says she chose the subscription model for her fashion line because it allows her to sell each piece of apparel for less.
Of course, the customer might not have bought those white fudge-covered corn snacks or that tin of seasoned salt at any price. And does anyone who is not a yoga teacher or personal trainer really need a full new exercise outfit every month? Style subscriptions require faith on the consumer’s part that whatever will come will be welcome.