Subscription Retailing and Order Fulfillment – Hollingsworth

Q: Why are major retailers going all-in on subscription services?

A: Subscription boxes such as Birchbox, Stitch Fix, Blue Apron, and the Dollar Shave Club have become popular new avenues of retail in recent years, and now major retailers are jumping in on the trend. Apparel brands like Old Navy, Gap, and Nordstrom have launched their own subscription services, and retailers such as Target and Walmart have also created specialized subscriptions for kids clothing and beauty items.

Of course, the largest draw with subscription services is additional revenue. The subscription and/or membership model increases revenue while improving sales forecasting accuracy because the service ensures a steady monthly revenue from subscribers or members. This is particularly true with apparel rental services like Rent the Runway and Le Tote, which charge a monthly fee for the ability to borrow their clothing, in addition to revenue from sales when the customer decides to keep items.

Not only does subscription retail create new opportunities for revenue generation, these services are also a treasure trove of valuable data. Subscribers typically provide important data about inventory, which retailers might not otherwise be able to access or be able to obtain as easily. This insight can help a retailer’s buyers more accurately follow consumer trends on the front end, while helping increase the optimization of inventory management when ascertaining which products to purchase more of or discontinue. Data can also be used to create loyalty programs and deeper connections with a broadened knowledge of their customers.

Major retailers also have the benefit of size. Standalone subscription e-tailers like Blue Apron have to deal with the challenge of balancing sales with the steep cost of marketing, which is required in order to retain their membership. In contrast, subscription services only make up a fraction of a major retailer’s business, typically creating far more revenue opportunity than added cost.

Q: What are the pain points in fulfillment faced by subscription retailers?

A: Merchandising is the key for success with subscription services, although the vast amount of subscriber data is very helpful for direction. Retailers must also constantly evaluate their assortment of products, new product additions, price points, and customer service to compete in this highly saturated market.

But there are some specific challenges with regard to supply chain management and order fulfillment that subscription retailers must overcome. Amazon has "trained" today’s consumers to expect rapid delivery windows, quite often within 2-3 days and certainly no more than 5 days. Fulfillment centers must be strategically located to meet this demand, with highly optimized operations and streamlined processes to minimize time in the supply chain. Picking accuracy is also something to address, since the products included in each individualized subscription box must be picked and packed to an extreme degree of accuracy and speed in order to satisfy the customer’s expectations.

Q: What is the projected future of subscription retail services?

A: Time will tell if subscription retail is a viably long-term innovation for the retail industry as a whole, or merely the next iteration of online shopping. But it’s a retail trend that has certainly not yet reached its peak. New standalone subscription businesses, as well as major retailers, are joining the game every day, and it will be an industry-wide challenge to keep a subscription business’ products and customer experiences fresh in an ever more competitive marketplace.

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