Subscription boxes give shoppers a surprise

Published 12:00 am Sunday, August 16, 2015

Martin Tessler / The New York TimesRobert Madden and Korrina Ede, sitting in their home in Vancouver, British Columbia, run OwlCrate, a subscription box company for young adult books. A growing community of eager shoppers seeking both the convenience and surprise that every regular delivery brings is flocking to the concept of subscription boxes.

Need a monthly delivery of doomsday prepping supplies? How about treats for your pet rabbit, or only-available-in-Japan snacks like Umashi Oasi Cheetos?

Then you might be a candidate for the latest consumer craze: the subscription box. A growing community of eager shoppers seeking both the convenience and surprise that every regular delivery brings is flocking to the concept, paving the way for ever-more-eclectic and specialized offerings.

Generally priced at $10 to $30 a shipment, the boxes are stuffed with goodies built around a theme, but usually filled with a surprise mix of products picked out by a curator.

“I get close to 100 boxes a month, and I still get excited when I see them at the front door,” said Liz Cadman, the founder of the My Subscription Addiction, a website of reviews.

Investors are making big bets on subscription box startups such as Blue Apron, which mails its subscribers weekly deliveries of recipes and the ingredients to make them. The 3-year-old company, based in New York, recently raised $135 million in a deal that values it at $2 billion. Blue Apron says it is delivering more than 3 million meals a month, three times the number it shipped nine months ago.

Companies like NatureBox (snacks), Club W (wine), Citrus Lane (children’s products), BarkBox (treats for dogs), Faithbox (socially responsible goods) and Birchbox, the beauty products retailer widely credited with accelerating the subscription craze, have also taken in money from venture capitalists.

Trailing those well-funded ventures are a growing number of mom-and-pop operators.

Korrina Ede, 26, and Robert Madden, 32, had long fantasized about leaving their retail jobs and starting their own business. In November, they took a week off to brainstorm and sketch out ideas. From that emerged OwlCrate, a monthly subscription box for young adult books. Each shipment includes a recently released novel and an assortment of themed literary knickknacks like jewelry, bookmarks, stickers and art.

Trying to guess how many customers they might attract, the couple prepared 150 boxes for their first shipment in March, featuring V.E. Schwab’s fantasy novel “A Darker Shade of Magic.” It sold out almost instantly. They scrambled to assemble supplies for an additional 100 boxes, priced at $30 plus shipping — and quickly blew through those. A waiting list formed.

Ede and Madden will not disclose exactly how many subscribers OwlCrate now has, but they say it is in the thousands. The business they started in their apartment in Vancouver, British Columbia, is already overflowing the storage locker they rented for their swelling inventory.

New service providers are making it easier for those with ideas to get started. Cadman and others say that one catalyst for the market’s recent growth is Cratejoy, a company in Austin, Texas, that sells turnkey software — website templates, customer account management and billing tools — for running a subscription business.

Cratejoy’s services cost $39 a month, plus 1.25 percent of each client’s subscription revenue and 10 cents for each billing transaction. After beta testing with a limited pool of customers, it opened to the public in October. Within a month, it had 100 paying merchants. It now has 8,000.

Around half of those vendors are first-time business owners, according to Amir Elaguizy, Cratejoy’s co-founder and chief executive.

How many will stick with it is an open question. Starting a subscription business can be inexpensive — OwlCrate’s founders say they spent just a few thousand dollars on their initial supplies and inventory — but maintaining one is a punishing logistical grind. Sourcing suppliers, fielding customer questions and complaints, marketing, managing inventory, packing boxes and transporting shipments can be a heavy workload for what is typically a low-margin operation.

Cadman says that 13 percent of the merchants My Subscription Addiction tracks have disappeared. Market research on the industry is scarce, but anecdotal evidence suggests that many subscription businesses have trouble sustaining the elements — like heavy product discounting and the novelty of discovery — that draw customers to them.

Paige Hendrix Buckner and her business partner had several hundred subscribers to Tique Box, a $25 monthly shipment of artisanal goods from Portland, but chose to shut down the business in March after two years of operations.

Balancing the boxes’ price against the cost of supplies was a challenge, Buckner said. In the beginning, Tique Box sought free samples from merchants looking for exposure to new customers, but that became harder as Tique Box’s customer base grew. Paying for products left thin profits. The business could cover its costs, but it was hard to envision it growing big enough to support salaries for its owners.

Buckner used what she learned from Tique Box to form a new company that she thinks has broader potential: ClientJoy, which creates custom gift packages for corporate clients — a market Tique Box unexpectedly uncovered when local businesses started stocking up on its boxes.

“One of the biggest lessons we learned from Tique Box was to decide, ‘Is this a small business, or do you want to scale this into a faster-growing startup?’” she said.

Some ventures that successfully scaled have complex business strategies underpinning a model that looks deceptively simple. Birchbox, created in 2010 by two Harvard Business School students, proved — against all conventional wisdom — that customers would pay $10 a month for a box of cosmetics samples obtained by Birchbox free from manufacturers. Dozens of competitors immediately copied the approach.

But Birchbox believed from the start that its subscription model would work only as the first step on a much longer path of introducing customers to new brands and turning them into repeat buyers, says Katia Beauchamp, a company co-founder.

Each box is individually customized and comes with educational content on how to use the products. Birchbox places volume orders for everything it samples and sells full-size versions on its website; a generous loyalty program encourages customers to buy directly instead of migrating to other online or offline retailers.

More than half of Birchbox’s 1 million subscribers have shopped on its website, and the company now draws 35 percent of its revenue from nonsubscription sales.

“The unit economics are so sexy — you’re selling people things that you got for free — that people fixated on it, but our approach was really complicated,” Beauchamp said. “If you’re not creating value for the consumer and the brand, it’s a short life cycle.”

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