World Class Faculty & Research / August 17, 2017

Will Subscription Services Transform the Way We Shop?

SMITH BRAIN TRUST – Soon, it might be that your favorite place to shop is in your mailbox.

At least, that's the idea behind the growing crop of online styling and fashion subscription services. The services – Stitch Fix, MM.LaFleur, Wantable and LeTote are among the most popular – are offering up a tiny-store-in-a-box each month and hoping to gain devoted customers.

They're banking on the convenience of shopping at home and the appeal of receiving an assortment of products selected to match a customer's tastes. The idea is catching on.

"We are only just starting to see the growth," says Jie Zhang, professor of marketing and the Harvey Sanders Fellow of Retail Management. "This trend will get bigger."

The services operate on a range of different models. Many of them work like this: Users complete an online survey, indicating their sartorial preferences, and for a monthly fee – typically $20 to $50 – they'll receive in the mail a box of curated clothes and accessories. (MM.LaFleur calls them bento boxes because they're arranged like a typical Japanese lunch.) Users buy the things they like and return the ones they don't. They pay no shipping costs in either direction and can often apply their monthly subscription fee to a purchase.

Other services work like the old Netflix DVD rental service. Rent the Runway Unlimited, for example, lets users borrow three items of high-end clothing at a time for $139 a month, with unlimited exchanges. The company pays for shipping and dry cleaning.

"There are many business models out there," Zhang says, "And I think we are going to see even more popping up."

There are services for men's clothing and accessories, and for children's apparel. 

And there are services that cater to certain niches: women's accessories, for example, or workout clothing. And there are also, curiously, lots and lots of subscription services that focus exclusively on socks. A quick internet search reveals more than a dozen sock-of-the-month clubs, with names that cover every sock pun you can think of.

Fans of the services say they offer a way to keep your wardrobe up-to-date without spending hours browsing a physical store or endlessly clicking online. And the monthly intervals tap into the voracious appetites that shoppers have developed, thanks in part to of-the-moment fast-fashion retailers like Zara and H&M. "It's that constant need to reinvent the wardrobe and update the wardrobe," Zhang says.

Americans' shopping habits are changing and mall traffic has been under pressure, as more and more purchases are made online. More than a dozen brick-and-mortar retailers have gone bankrupt this year, amid intensifying competition from Amazon (which is planning a box service called Prime Wardrobe) and other e-commerce players. Profitable retailers, meanwhile, are consolidating locations. Last year, 4,000 stores closed their doors forever, and next year, that tally is forecast to climb to 13,000, according to brokerage firm Cushman & Wakefield.

By 2022, analysts say, 1 of every 4 American malls – once the place that designers looked to to build a customer base – could be out of business.

"The internet has presented unprecedented challenges to retailing, but also unprecedented opportunity," Zhang says.

For traditional brick-and-mortar apparel retailers, the subscription business model may offer a fresh way to appeal to customers, as they seek to re-establish the stable, intimate relationships that drove revenue streams for years.

That appears to be the notion behind Nordstrom's Trunk Club. The company, long known for its personalized styling services, is among the first brick-and-mortar stores to launch an e-commerce subscription service. It's targeting new customers and loyal ones, even waiving the subscription fee for its credit-card holders.

"With their reputation for superb customer service," Zhang says, "and their reputation for personalized styling services, I think they will have the expertise to pull it off."

A key benefit offered by subscription service is convenience. "They will bring the merchandise – the right merchandise hopefully – to the customer's doorstep," she says. "That certainly fits into the busy lifestyles of today's consumers."

But there's also the curation aspect, which gives consumers a level of service that historically has been reserved for only the monied classes.

"The subscription model has been around for a very, very long time – something like 150 years," Zhang says. But the internet has breathed new life into the model, she says, making subscriptions more interactive – and potentially more profitable. 

Today's subscriber doesn't just passively receive a pile of goods each month; they indicate their style preferences through the websites and through their purchases. Using that information, style consultants and algorithms can make more insightful recommendations for future curations. The better the curated selections, the more the customer will buy.

In the end, she says, curation will make the difference between which services thrive and which fold. That means paying attention to what each customer likes and dislikes, staying on top of trends, interpreting the latest looks and not repeating fashions. It means anticipating what a shopper might want next season, and the one after. Zhang calls fashion forecasting "the toughest of all domains" in retail.

"To be able to provide each month, each season a box of merchandise that really meets the customer's needs, that's a challenge," Zhang says. "They need to get that right."



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