Retailing is one of the largest sectors of the UK economy, with 306,000 shops employing 2.9 million people and with a (pre-Covid-19) annual sales volume of £394 billion. However, there’s no doubt that last year brought significant challenges.
Whilst supermarkets were deemed essential and saw demand increase, many non-food retailers were forced to close at various points in order to comply with government guidelines and keep customers safe. For those without an online presence, this proved costly. Even the biggest household names felt the impact, with Primark going from making £650m in sales each month to nothing.
However, this time of hardship was also one of resilience. Many retailers adapted to the ongoing situation and refocused their efforts to meet new demands in consumer behaviour. As such, the entire industry witnessed a rise in the popularity of subscription boxes.
Despite restrictions easing, consumer buying behaviours and, therefore, the retail industry have changed forever. But a more resilient future is within our reach.
We sat down with John Phillips, General Manager, EMEA at Zuora, to discuss how and why subscription boxes have boomed in popularity over the last year…
Why do you think subscription models within retail are so popular?
Against our current backdrop of change and uncertainty, subscription-based models have emerged as a key for businesses across a range of different sectors to ensure a stable revenue stream and for consumers to get the products they want in a convenient, low-cost way.
From groceries and meal-planning boxes to coffee delivery services, the number of people signing up to subscription-based models is steadily increasing and COVID-19 has only highlighted their resilience. In fact, Zuora’s Subscription Impact Report – which took data from March – May last year – found that more than half of subscription businesses had not been impacted by the pandemic, while one quarter actually saw subscriber acquisition rates accelerate. Meanwhile, the latest edition of the Subscription Economy Index revealed that subscription companies continue to outperform their peers by wide margins. Last year alone, subscription revenues grew 11.6%, while the S&P 500 sales declined -1.6%.
There are several key players who are already reaping the rewards of this shift. For example, whilst many businesses have struggled to survive the pandemic, Gousto – the subscription-based recipe box provider – announced plans to create 1,000 new jobs as part of an expansion following a 115% spike in sales during the first half of 2020. Several other major retailers including Hotel Chocolat, Nespresso and Majestic Wine – have taken note of this success and now offer subscription boxes themselves. Morrisons, the UK’s fourth largest grocer, also recently joined the movement, launching a new weekly, fortnightly and monthly food box service.
Subscription-based models are proving to be a lifeline for many retailers battling the current period of uncertainty, with recent research revealing that 39% of UK shoppers have signed up for at least one. This demand is only likely to increase moving forward, with Zuora’s latest CPG Subscription Report finding that consumers who have a subscription already are 2x more likely to get another in the next 3 years.
How are changing consumer attitudes creating a more popular market for subscription boxes?
During the peak of the pandemic, with supermarkets and shopping centres closing their doors and millions of households asked to stay at home, many consumers took to ordering products online. Signing up to subscription-based models became a way of ensuring that they were able to access the goods and services that they wanted and needed. From groceries and meal-planning boxes to coffee delivery services, the businesses already implementing subscription-based models saw an increased demand for what they had to offer.
Despite vaccinations and the government’s new timeline for recovery bringing hope, there is no doubt that the last year has shifted consumer buying behaviour permanently. Earlier this year, Zuora’s End of Ownership survey revealed the pandemic has accelerated a trend we’d already been witnessing; an increasing consumer preference for the use of subscription services over the ownership of physical products. In fact, 77% of U.K. adults have subscriptions services today. This is up from the 58% that had subscriptions 5 years ago.
While they are rising in popularity now, how can we make sure subscription boxes will be here to stay?
While signing up new subscribers will always be important, it costs much less to retain an existing customer than to acquire a new one. Therefore, the success of a business model which incorporates subscription boxes will ultimately rely upon reducing churn. Customers need to feel like they receive ongoing value, a significant shift away from the traditional single-transaction model. Their definition of value is much more than simply a price point. Whilst saving money is important, it will often not be enough to make them stay long term. Instead, the key to long-term success is to establish strong connections through unparalleled subscriber experience.
Today’s consumer wants to be put in the driving seat – therefore businesses who ensure both flexibility and convenience are likely to come out on top. For example, the ability to opt-out or even just temporarily suspend a service is seen as a really important factor. Moreover, the delivery mechanism for the subscription must be more convenient than traditional purchasing. It must take the pain out of tackling the high-street but still provide the experience at home for customers. There is a common thread that the most popular subscriptions will save time, deliver to the home or be something that the customer would struggle to get hold of under normal circumstances.
Customisation is also crucial when it comes to improving the customer experience. Consumers have higher expectations for a subscription model than they do with a single purchase. Taking unique preferences into account is likely to enable businesses to build a better relationship with their customers, encouraging a longer commitment and lessening churn.