“It’s hard to find quality items that are homemade,” Thorp said. “I was thinking, ‘Wouldn’t it be fun if there were an Etsy-of-the-month club?’ ”
Thorp has followed the likes of Birchbox, which sends beauty samples to subscribers each month, and the Dollar Shave Club, a company founded this spring that does the same for men’s razors. Then there’s Santa Monica, Calif.-based BeachMint, which offers a monthly celebrity-chosen cosmetic or fashion item; Tie Society, a D.C. business that sends men three ties a month; and Larder Box, a relatively new site that mails out tasting boxes of artisan food.
Even as e-commerce sales rise relative to overall retail sales, weak consumer spending continues to plague businesses. In a recent survey, small-business owners cited “weak sales” as their most pressing problem, according to the National Federation of Independent Business.
The new crop of subscription-based sites has found a way around the stiff competition for discretionary dollars by locking customers into a monthly commitment that — in some cases — leads to more piecemeal purchases down the line.
“It’s demand generation, not demand fulfillment,” said Katia Beauchamp, co-founder of Birchbox. “It’s how you motivate someone to purchase something if they didn’t have an intent to prior.”
Need vs. want
Subscription start-ups essentially come in two varieties: those, like Umba Box, that serve up curated products, and those, like Dollar Shave Club or Tie Society, that automate basic purchases.
“One is about necessity, and one is about giving yourself a gift, or some sort of serendipity,” said Andy Smith, a California tech marketer and co-author of the “Dragonfly Effect.” “Either way, the holy grail for marketers is that you sell them once and they pay forever.”
Dollar Shave Club was founded with the idea that when it comes to male routines, shaving is as basic as sleeping and eating. Plans start at $1 a month for a two-blade model called the “Humbled Twin,” and the company rose to Internet fame in March with a viral ad. But founder Michael Dubin was gaining traction earlier.
“We were able before too long to get 1,600 members without doing any advertising in the first six months,” he said. “That was the proof we needed that customers enjoyed the convenience of a monthly shipment of high-quality razors.”
For curated businesses, the allure is in the feeling of exclusivity and the break from the dizzying choices that e-commerce offers, according to Brian Walker, principal analyst at Forrester research in Seattle. Beauchamp said she aims to make her customers feel as though they have a savvy shopping companion: “You have a best friend who has the key to the fashion magazine editor’s closet and can give you the best items.”
The rise of businesses like Umba Box comes as the subscription model is catching fire in the tech world. Birchbox, which was founded in 2010 and has more than 100,000 members who pay $10 a month. It’s raised $11.9 million in venture funding. Dollar Shave Club has raised $1 million. Both are backed by Forerunner Ventures, a Silicon Valley firm that specializes in consumer behavior start-ups. BeachMint has attracted $73.5 million in investment from firms such as Accel Partners and New World Ventures.
Even Microsoft is entering the subscription market with its newest Office 365 program, which will allow users to stream the software by paying a monthly or annual fee.
This month, UmbaBox and Tie Society will wrap up a workshop at 500 Startups, a prominent incubator program that ends in demo days before top-dollar investors. Thorp sent 15 boxes the month she launched last year; these days it’s around 600.
“Every time I talked to Lauren, the numbers kept moving in the right direction,” said Paul Singh, co-founder of 500 Startups. “What I found particularly compelling about it is that she’s solving the core problem of discoverability.”
Thorp began mulling the idea for Umba Box last year while she was planning her wedding — she wanted to use handmade decorations — and had grown tired of sorting through hundreds of online postings for lackluster crafts. (Thorp is married to Justin Thorp, marketing manager of another local start-up, HelloWallet.)
“People love Etsy, but it’s cluttered and hard to find things,” she said.
One reason the numbers for subscription sites keep going up is because entrepreneurs turn their customers onto a product and encourage them keep buying — preferably, from their own sites.
“Let’s say you have a curated food box,” Singh said. “Maybe I want to try the marshmallow and chocolate flavor, as well? You help me discover a vendor I wouldn’t have figured out myself.”
Thorp plans to expand beyond monthly boxes into a full e-commerce site.
“Right now, we direct people to the artist’s Web site to buy more, and frequently hear that they do in fact go back to buy more,” she said. “We’ll soon be launching the ability for subscribers to buy more from the artist directly from our site, and some will even be exclusive designs that can only be found on Umba Box.”
Birchbox also sells full-size versions of the samples the company sends out each month. Forerunner founder Kirsten Green said that, because of social media, businesses like Birchbox have far more opportunities to gauge customer reactions than the subscription companies of yore, like Columbia Music or traditional fruit-of-the-month-type clubs.
“You can send customers samples and go online and see how people are using them,” Green said. “You can build a relationship with a customer. It’s similar to a department store. . . . It’s about having a brand representative there with a few samples.”
For all the investor enthusiasm, these start-ups have their roots in an old-school idea. Pets.com became a portrait of dot-com failure in the late ’90s by hemorrhaging money on expensive TV ads (who can forget that sock puppet?) and even pricier warehousing and shipping.
Today’s e-commerce services, subscription-based and otherwise, hope to avoid those mistakes. The sites also don’t advertise through traditional channels. Thorp relies on outreach through bloggers, and Dubin, from Dollar Shave Club, wrote and produced his viral Web video himself.
They depend on warehouses that offer pack-and-ship services, which means that Thorp doesn’t touch any of the goods she sells — a company in Florida does it for dollars on the box.
“When I was looking for a center, I literally Googled ‘small business warehouse’ — and that’s their name,” Thorp said.
The smaller fulfillment centers take pains to make each box feel personal, even if it’s not. Her first month, Thorp ran out of a specific color of tissue paper for packing.
“The warehouse’s owner, Rachel Ratledge, called me and said, ‘I’m at Target right now, and these are your options,’ ” Thorp said. “She totally went out of her way.”
As subscription companies proliferate, experts say they risk cannibalizing one another. After all, how many subscriptions can one credit card absorb? Would people drop their Birchbox subscription when they hear about Umba Box, and vice versa?
In the eyes of investors, Singh said, it’s essential for these companies to grab up as much of the market as possible, as quickly as possible.
“How many will people sign up for before they’re like, ‘Wow, I’m spending so much on subscriptions?’ ” Singh said.
The companies would be wise to allow members to skip months, experts said. ShoeMint, the footwear branch of BeachMint, sends members an e-mail with that month’s offering, and customers then can opt out — but if they forget, they’re charged $79.98. That makes each customer immensely valuable, even if he soon tires of the commitment and quits.
“The key is you’re making the customer take action every month,” Green said. “If you can get five purchases out of a person in a short period of time, that’s no better or worse than the same number of purchases over a longer period of time.”
Inertia, it seems, might be the best brand representative of all.