UK Subscription box market heads to £1bn value but churn is an issue

By

Sandra Halliday

Published
Feb 14, 2019

The UK subscription box market continues to go from strength to strength and the latest report on the sector, from parcels carrier Royal Mail, said it should reach a total value of £1 billion by as soon as 2022.

That value will be hit as a sector dominated by start-ups becomes increasingly appealing to bigger brands seeking alternatives to traditional retail channels.

The UK Subscription Box Boom Report also said the subscription box model presents “significant opportunities for international expansion,” with nearly 90% of subscription businesses making at least some of their sales overseas.

Yet there are still hurdles to jump with ‘churn’ one of the biggest problems, and barriers to take-up of subscription services requiring the delivery of “a highly convenient and flexible service that is easy to cancel and that offers a product or service that shoppers cannot easily get with conventional retailers.”

As mentioned, the sector has been a fertile one for start-ups with the low barriers to entry in the market having meant that “even with limited capital and resources, entrepreneurs can establish and build a successful business.”

But Royal Mail said “such success is now sparking interest from bigger brands including Gillette and Sephora, hoping to emulate the performance of subscription companies such as Dollar Shave Club and Birchbox.”

That said, subscription box companies haven’t always considered big retailers and brands to be their direct competition and have found ways to work in collaboration. This can pay off for the larger brands as well as for the subscription services with brands like Estée Lauder having “made use of the wealth of data that subscription brands hold on their customers to find new ways of targeting shoppers with their latest products.”

And of course, the ultimate collaboration can come when a larger name swallows up a start-up such as Unilever’s acquisition of Dollar Shave Club for $1 billion as far back as 2016.

INTERNATIONAL GROWTH

As mentioned, UK subscription box firms are heavily focused on the international opportunity and while foreign brands such as Birchbox, Harry’s and Dollar Shave Club have entered into and made an impact on the UK market, these entries “have been mirrored by the efforts of UK brands to conquer territories abroad.”

Popular markets for international sales among UK businesses include Ireland and France, where 46% of subscription businesses have an overseas presence, plus Germany (39%) and Spain (31%), although there must be concerns among these firms that Brexit talks are still little closer to a resolution than they were on June 24 2016.

But while growth opportunities to reach new customers are huge, retaining existing clients remains an issue. Client churn is “one of the biggest challenges facing subscription box businesses,” Royal Mail said and ways to counter this have been varied.

In some cases, it has meant subscription specialists diversifying their business model to reduce their reliance on subs, as well as launching new products and features.

The report also said that "innovation [to boost customers] can sometimes be as simple as keeping customers engaged using a magazine.”

Shaving subscription business Cornerstone, for example, credits the launch of its ’15 minutes’ male lifestyle magazine with a "major reduction” in its churn rate and now claims a readership of 130,000. 

Beauty box retailers have also focused on personalisation, with Birchbox trialling Birchbox Select, where customers can pick out specific items or tailor the box to their requirements such as skin or hair type.

The report also said that a key to customer retention and acquisition is convenience, starting with delivery. “There is clear demand from busy shoppers to have items delivered hassle-free without them having to wait in at home. Letterbox delivery is highly sought after,” the company said. It added that brands are seeking to make their products adaptable to the average letterbox with Garçon wines even going as far as pioneering flat wine bottles.