Online retailers think inside the subscription box

 BY KAT FAY Sr. Data Analyst

Subscription-based e-retailing is one of the fastest growing online segments, and more traditional merchants like Starbucks and Sephora are adding the box model to their repertoire, a Hitwise report says.

Subscription box sites are considered a niche market, but a recent study says these online retailers have grown nearly 3,000% in the past three years.

Visits to the sites of online subscription retailers topped 21.4 million in January, compared with 722,000 visits in January 2013, says the report from Hitwise, a division of Connexity. By comparison, visits to the Hitwise Retail 500, an aggregation of the top 500 online retail sites, grew 168% during that same period.

But it’s not just online retailers who see growth potential in the segment. Traditional retailers Starbucks Corp. and Sephora USA Inc. have joined the fray, and that speaks to the impact subscription sites bring to online retailing, Hitwise says.

“Consumers who came of age in the digital era are accustomed to subscriptions models for online media (Netflix), music (Spotify) and news (New York Times online), but ironically for them subscribing to something in the physical world is exciting and new,” says Hitwise senior analyst John Fetto.

Starbucks and Sephora have added subscription box services for consumers looking for a monthly delivery of specially selected products that cater to their lifestyle, interests and tastes. Sephora, No. 141 in the Internet Retailer 2015 Top 500 Guide, in December added Play!, a program in which a box of cosmetics and skin care samples are sent monthly for $10. A subscription model called Reserve by Starbucks (No. 456) sends a box of small-lot and specialty coffees for $19 a month.

So what’s the appeal behind the monthly subscription box model? Convenience and the element of surprise are the two biggest attractions, according to the study. Consumers overwhelmed by too many product choices are happy to leave the selection process to the experts so they can try the products without spending time on research.

Subscription online retailers such as Birchbox (No. 254) and Loot.com appeal to a “critical” segment of consumers. 25- to 34-year-olds who are entering prime earning and spending years “should sustain continued growth in the category,” according to the report.

This same age group is more engaged with social media, which also is driving subscription box popularity. For example, in December, some 13.5% of referred visits to subscription box sites came from social media. Traditional retailers received 8.4% of traffic from social media sites. In addition to the convenience factor, subscription sites also “help older Millennials and Gen Xers get new stuff they can talk about without exerting much effort.”

Hitwise finds the subscription box shopper profile looks like this:

• Age 25-44
• Higher income
• Higher education
• Female

The top five online subscription sites in the U.S., by visits, as of January, according to Hitwise, are:

• Birchbox
• Dollar Shave Club (No. 319)
• Loot Crate
• Blue Apron (No. 318)
• Graze