Excerpts from the article by By Tony Chen, Ken Fenyo, Sylvia Yang, and Jessica Zhang on mckinsey.com
Subscription e-commerce, led by start-ups such as Dollar Shave Club, Blue Apron meal kits, and Stitch Fix personal styling, is a fast-growing new way of buying online. Our research shows that 15 percent of online shoppers have signed up for one or more subscriptions to receive products on a recurring basis, frequently through monthly boxes. Subscription e-commerce services offer these consumers—often younger, affluent urbanites—a convenient, personalized, and, often lower-cost way to buy what they want and need. Churn rates are high, however, and consumers quickly cancel services that don’t deliver superior end-to-end experiences.
The subscription e-commerce market has grown by more than 100 percent a year over the past five years. The largest such retailers generated more than $2.6 billion in sales in 2016, up from a mere $57.0 million in 2011.1 Fueled by venture-capital investments, start-ups have launched these businesses in a wide range of categories, including beer and wine, child and baby items, contact lenses, cosmetics, feminine products, meal kits, pet food, razors, underwear, women’s and men’s apparel, video games, and vitamins.
This strong growth has attracted established consumer brand manufacturers and retailers, which have also entered the space; for example, P&G (Gillette on Demand), Sephora (Play!), and Walmart (Beauty Box) have all launched new subscription businesses. The market has also seen significant M&A activity—in particular, Unilever’s $1 billion acquisition of Dollar Shave Club (2016) and the $200 million-plus deal that the grocery chain Albertsons did for meal-kit company Plated.
To better understand the drivers of the subscription e-commerce market, we surveyed more than 5,000 US consumers (see sidebar, “Our survey methodology”). The goal was to assess the overall penetration of e-commerce subscription services and the demographics and buying behavior of their consumers. We also wanted to understand why consumers subscribe and why they cancel their subscriptions, an overriding worry for players in this space. Our article summarizes the survey’s high-level insights, which have important implications for subscription e-commerce companies—either start-ups or larger entrants—as they seek to accelerate the building of scalable, profitable businesses.