While online shopping has made our lives so much easier, it also has its problems. For instance, we don’t get to sample new products to see how they feel or taste. Women who buy their makeup at Sephora.com or Beauty.com don’t have the pleasure of tinkering with new mascaras, lipsticks, or moisturizers as they would at a beauty counter.
In 2010, Birchbox founders Katia Beauchamp and Hayley Barna had a simple business idea to solve this situation: They devised a monthly service that delivers a box of carefully curated samples to women’s doorsteps for $10.
"The idea was to leverage the subscription model to be part of the product discovery process," Beauchamp says. "We wanted to transform e-commerce from a flat, two-dimensional world by giving it texture and reality."
It soon became clear that Birchbox’s success was not just about giving women the opportunity to try new products at home. Birchbox was selling an experience: Women loved receiving a package on their doorstep and not knowing exactly what was inside. It helped that the boxes were beautifully packaged, so women felt they were receiving a gift in the mail. "This business is about the art of giving to yourself," says Marshal Cohen, chief industry analyst at NPD, a consumer market research group. "Millennial consumers, in particular, love the idea of self-indulgence, and subscription companies really understand this."
Jenna Wortham, writing in The New York Times, described the experience as akin to receiving a "care package." Bloggers felt like it was "Christmas every month." On YouTube, a cottage industry developed in which women would open their Birchbox and describe each product within, allowing viewers to vicariously experience the thrill of the surprise. Within a year of launching, Beauchamp and Barna had amassed 45,000 subscribers and $10.5 million in seed funding.
Kirsten Green of Forerunner Ventures was among Birchbox’s earliest investors. "When I first met Katia and Hayley, the big idea I was interested in was bringing a new approach to the $7 billion beauty category," Green recalls. "The luxury beauty market is controlled entirely by department stores, which were seeing declining traffic as consumers shopped online. Birchbox was taking a page out of the beauty-counter concept, allowing customers who were digital natives to sample and learn about products at home."
As soon as the success of Birchbox’s model became clear, other entrepreneurs rushed to offer competing beauty boxes. So much so that now one must wonder if we've hit peak Precious Box Delivery Services—and zoomed right past it to somewhere less satisfying and economically viable. Put another way: How many boxes can one country order?
I recently fell into a YouTube rabbit hole watching blogger after blogger review beauty box subscriptions: There is Ipsy, a brand founded by YouTube sensation Michelle Phan, which sends products in a reusable makeup pouch for $10; Beauty Army allows you to choose what samples to put in your box for $12; Memebox sells boxes of full-size Korean products for between $35 and $39; Goodebox puts only sustainable, healthy items in its box for $16; at $20, curlBOX fills its box with haircare products. My Subscription Addiction, a website that offers an up-to-date directory of subscriptions on the market, lists 123 different boxes in the beauty category alone.
And that’s just the tip of the delivery iceberg. Before long, I got sucked into watching unboxing videos for the hundreds of other subscription services out there. There are food-of-the-month boxes, sex toy boxes, sock or underwear subscription programs, art project boxes for kids or adults, and pet-lover boxes. There are monthly subscriptions at every possible price point, from Svbscription’s invite-only club where premium boxes can cost $539 a quarter, to Papirmass, which delivers art in the mail every month for $5.75.
Liz Cadman, the founder of My Subscription Addiction, has over 900 different subscription boxes on her site, and she is constantly updating it. "We get four or five requests from new companies to be listed every day," she tells me. Amir Elaguizy, the founder of Cratejoy, a platform much like Squarespace that allows entrepreneurs to create subscription businesses from scratch, believes the market is even larger than this, although it is hard to quantify it precisely because there isn’t good data available. Since 2011, Elaguizy has seen the subscription commerce industry growing at a rate of 200% a year, generating $5 billion in revenue in 2014. He estimates that there are 10,000 subscriptions on the market, from small services catering to less than a hundred customers to the Birchboxes of the world; 4,000 of those companies use Cratejoy.
New genres of boxes are constantly being invented. Two years ago there was a sudden boom in "time of the month" boxes. Le Parcel, for instance, offered a box of feminine hygiene products, chocolate, and a unique gift every month, delivered in time to coincide with a woman’s cycle. Many other competing services quickly rushed into the market: HelloFlo, Juniper, My Cotton Bunny, and The Period Store, among others. "We went from not seeing any boxes in this category to seeing 20 launch in one month," Cadman says. "There are definitely companies that notice a model is working for someone else and believe they can do it too."
According to Cadman, this is fairly typical in the subscription service universe. When one brand shows that a new subscription concept is working, there is often a land grab where other companies rush in, competing for customers either through a superior product offering or through more-aggressive marketing. There is also a sense that the barriers to entry into subscription commerce are fairly low: All you need is a website, some marketing tools, and relationships with suppliers who want a new channel for getting products or samples to consumers.
The beauty-box industry is a case in point. Charles von Abercron, the CEO of Glossybox, has no problem admitting that his product was inspired by Birchbox’s model. He wanted to be among the first to bring the concept to Europe, so he launched Glossybox in 2011 in his native Germany. At the time, there were few other subscription boxes on the European market, and the concept is quickly catching on, though demand for them is nowhere near as high as in the United States.
"We went into the market at the right hour," von Abercron says. "America is sometimes ahead of Europe in terms of trends, and we had the opportunity to get in early." As his brand grew, he decided to enter the U.S. market and compete directly with Birchbox, pitching Glossybox as a premium alternative priced at $25, but one that offered more value because it included several full-size products, rather than just samples. And so far, his strategy has worked well: Glossybox has sold over 7 million boxes globally over the last four years. While he doesn’t have detailed number on hand, von Abercron says that a sizable portion of those sales are coming from the U.S. market, which has been growing rapidly over the last few years. "Our product is now so different from Birchbox, it is almost impossible to make a direct comparison," he says.
Getting good value for money is the biggest driver of subscription-box sales. "People, on average, are looking for a box with a value of about double what they paid," Cadman says. "It helps them justify the risk of spending money when they don’t exactly know what is in the box." From what she can tell from her website, the most popular subscriptions in recent months have been the Target and Walmart beauty boxes that are priced at just $5. Subscription companies are able to keep costs low partly because they are able to get their products for free or at very low cost. Beauty brands see services like Birchbox and Glossybox as marketing channels and are happy to supply them with premium samples or full-size products. If a product is featured in a popular box, it might see a sudden spike in reviews or pictures on Instagram.
But even within the genre of luxury boxes, value is important. Quarterly, for instance, invites celebrities who already have big audiences, such as Pharrell Williams and Arianna Huffington, to curate boxes that cost between $50 and $100 a quarter. "Rather than focus on a particular category of product, we offer customers a connection with the curator, giving them access to a part of that person’s life that they can’t access in the digital space," explains Zach Frechette, Quarterly’s CEO and founder. "But we learned the hard way that people are used to getting deals online and expect even more value in the box than they are paying."
Boxes are priced at between $50 and $100 a quarter, but customers expect the products they receive to be worth far more than they spent. Frechette says that since brands are often willing to supply products to Quarterly for free in exchange for a celebrity endorsement, he is able to pack the boxes with expensive items and keep customers happy.
With hundreds of companies offering subscription services and new ones popping up by the day, the big question looming on the horizon is whether we’re reaching a saturation point. This is something that Birchbox’s founders think a lot about. They see the proliferation of subscription-based companies as evidence that the model is responding to an important need in the market. "We’re happy when other companies evolve in our space because it proves that this is not a fad," Beauchamp says. "This is the future of product discovery and shopping online."
At the same time, as the beauty space becomes crowded with competitors, Birchbox is not taking any chances. "This is absolutely the biggest risk in our business, and we think about it all the time," Beauchamp says. "We really believe that if you are not treasuring this business and thinking about how you can create value, you won’t be able to retain your customers."
But another important way that Birchbox is hedging against the possibility that consumers will experience subscription fatigue is through its business strategy. Birchbox’s model is not simply about the monthly box, but about using the box to lead consumers to buy full-size products on the company’s online shop. It also launched its first brick-and-mortar store last year in Soho. While many subscription companies make all their money from selling the boxes themselves, Birchbox has multiple revenue streams. "I find it hard to see ourselves living on in perpetuity without adding these additional facets to the business model beyond the box itself," Beauchamp says.
As an investor, Forerunner’s Kirsten Green says that the monthly or quarterly delivery concept itself is not enough to keep consumers interested long-term. "I’ve never invested in a subscription business because it was a subscription business," she says. "I’ve seen every subscription service there is, and to me, the real question is whether the subscription enhances the experience of that particular product. If it doesn’t, then it is ultimately just a gimmick." She believes that consumers will lose patience with subscription companies that don’t add anything beyond packaging products in a box that is delivered every few weeks.
Given the sheer number of companies in subscription commerce, entrepreneurs need to be constantly working on delivering a strong product and a good value proposition to keep customers interested. "Once a brand starts to disappoint consumers, they will be willing to jump ship," says NPD’s analyst Marshal Cohen. "This means that brands need to earn their loyalty to their subscribers every single month. There isn’t room for hundreds of these services, but there is room for a constant sea of change. Remember, a large part of what makes these boxes successful is the novelty factor."
It's quite possible that we'll see more mergers and consolidation in the subscription market. This is, in fact, already happening on a small scale. In 2010, Matt Collins, an entrepreneur in the U.K., wanted to bring the beauty-box model to the British market, so he launched an almost identical replica of Birchbox called Boudoir Privé. A year later, his company was purchased by the French subscription service JolieBox, which was in turn purchased in 2012 by Birchbox. Across categories, successful subscription companies might choose to buy out their competitors or add to their existing product offerings by acquiring other brands.
While individual companies may come and go, all the experts I spoke with believe that the subscription model is here to stay. "From search engine traffic to user base to new boxes launching, everything is still rising," says Cadman, who started My Subscription Addiction in 2012, at the dawn of the subscription-box era. "I’m actually seeing the opposite of saturation."
Of the hundreds of subscription services that are cataloged on her site, only a small minority of them have had to fold. Whimseybox, a DIY craft box backed by Techstars, suddenly shuttered it doors without delivering boxes that had already been paid for, leaving a trail of angry customers in its wake. But according to Cadman, this is the exception. Of the hundreds of beauty boxes that have popped up since 2012, only eight have gone under. There are currently 151 food boxes in her directory, and only 16 have been canceled.
Most boxes are able to thrive. The biggest players in the space sell hundreds of thousands of boxes a year. Barkbox, for instance, has shipped 4 million boxes to dog lovers in five years, while Citrus Lane, a kids' box, landed 45,000 monthly subscribers in three years. Among the niche boxes, demand is so high, companies are having to limit their membership. Svscription, a luxury box that costs between $329 and $539 a quarter, is actively trying to keep its subscriber base to under 10,000 people to keep it exclusive, while Carnivore Club, an artisan charcuterie box, will have to set up a waiting list once 6,000 people sign up, since the butchers will not be able to meet demand. Even though there are dozens of celebrity-curated boxes out there, Rachel Zoe’s brand-new $100 "Box of Style" sold out within days of launching.
In many ways, subscription companies are the perfect complement to e-commerce, which has become the primary way American consumers buy products. Online shopping is optimized for efficiency, making it easy and quick to find the exact brand or product you are looking for. As a result, consumers are less likely to discover new things they might like.
"In the past decade, we’ve migrated so much of our lives online, which for the most part has been great," says Frechette, of Quarterly. "But we’re currently going through this period of correction where we realize that there are experiences that we can have in the real, tangible world that are meaningful and powerful."
The monthly subscription box is all about bringing back that element of discovery and surprise. But importantly, it does so by allowing consumers to sample products in small batches, preventing them from experiencing sensory overload. Quarterly’s model is based on celebrity curators, but all subscription services rely on careful curation and tailoring boxes to meet the specific interests of an individual consumer. "There is so much going on in the universe, and it can be overwhelming; people want filters to figure out what they can get from it," Frechette says.
While people tend to think of the big well-known brands when they think of subscription services, there is a fascinating boom of small, niche businesses whose owners have no intention of turning into large-scale national companies. Amir Elaguizy, Cratejoy’s founder, has seen hundreds of people generate a revenue stream for themselves by gathering a small group of loyal subscribers and delivering them products every month. Often, these small business owners have relatively modest financial goals. One entrepreneur on Cratejoy sells granola for $20 to 50 subscribers, which allows her to pay her rent, her car payment, and her student loans. "It allows people who could not otherwise run a business the opportunity to do so," Elaguizy explains. "That’s the real story when it comes to subscriptions; it’s all not about the Birchboxes of the world."
He points to Vilago, a mother-and-son team that creates organic soaps offering monthly subscriptions from as low as $4.99 a month. If they were to put their products up on Amazon, Ebay, or Etsy, they would compete with thousands of other soaps and would easily get lost in the ether. A subscription service, on the other hand, is a more sustainable model for a small business like this, since they can focus on building a steady subscriber base that is interested in their product and their story. "Nobody can take that business from them as long as they keep their subscribers happy every month," Elaguizy says. "Amazon can’t reach in and compete for those subscribers."
Papirmass, a monthly subscription that delivers a work of art every month for $5.75, was launched by the husband-and-wife team Kirsten McCrea and Jp King in 2009. As artists, the couple wanted to make art affordable and accessible to as many people as possible, while also bringing attention to new artists.
"People in our culture feel they don’t have a right to have an opinion about art," McCrea explains. "We’re trying to empower people to realize that they are experts: They get a piece of art in an envelope every month and form an opinion about it."
With this goal in mind, they are not trying to thicken profit margins or score venture funding. Rather than investing in marketing efforts, they have let their subscriber base grow organically through word of mouth. The rise in subscription commerce has only helped the business, since consumers are more comfortable than ever spending a little money on a recurring basis for the excitement of getting something new in the mail.
Over the last two years, there’s been a noticeable uptick in new subscriptions. "Now," McCrea says, "we don’t have to explain the concept of our business at all."