Commentary

Why subscriptions are literally sucking the life out of stores

Chris Petersen offers insight on why the tremendous potential growth for subscription-based purchases is literally sucking the life and traffic out of bricks and mortar stores.

Photo: iStock.com

September 1, 2017 by Chris Petersen — Owner, IMS

I met my best friend Mike about 10 years ago. He did not own a smartphone or have any orders from Amazon. On my last visit, I found a very large heavy box on Mike's porch. When I asked what was inside, Mike replied: "Oh that's just my dog food subscription. I can get it $4 a bag cheaper online than in the store, and I don't have to carry a 40-pound sack to my car. Plus, it shows up the week when I need it."

It's not just my friend Mike; consumers worldwide are turning to the convenience of subscriptions across many categories. With each subscription another sale transfers from the store to online. More importantly, a subscription eliminates store visits. The tremendous potential growth for subscription-based purchases is literally sucking the life and traffic out of bricks-and-mortar stores.

Subscriptions aren't new, but growth is impacting store traffic

Subscriptions are not new. We have essentially been signing up to purchase our light and power by subscription for decades. For medicine prescriptions, we have a subscription for regular fulfillment from our pharmacy. What is new and interesting is how subscription-based purchasing has exploded across many areas of products and services:

We don't purchase CDs or movies — we subscribe to music and video streaming.
As smartphone prices skyrocket, we now purchase iPhones on a subscription model.
The success of Harry's shaving has forced Gillette to offer blades on subscription.
Meal kits and fully prepared meals are increasingly available by subscription.
"Monthly box" subscriptions are available for a host of items from clothes to jewelry.

And, the list goes on and on. Smart companies like HP have figured out subscription services so that you never run out of ink. New moms have overwhelming choices for subscribing for diapers, formula and a host of products needed for newborns. And increasingly, customers like my friend Mike are signing up for the convenience of having a host of routine consumable products from dog food to toilet paper delivered to their door on schedule.

How subscriptions literally suck the life out of bricks-and-mortar stores

The classic case study of the impact of "subscription consumption" has to be in the entertainment category. We used to go to stores like Best Buy in the U.S. to purchase our music on CDs and movies on DVDs. In fact, Best Buy built store traffic based upon the day that the new music and movies hit the shelves. Along came Blockbuster, and then Netflix. Today, we essentially have a model where consumers pay a monthly subscription to have streaming access to an incredible library of content. Bottom line: very few customers go visit a store to purchase their own copy when they can stream what they want to their own device.

Physical stores were built upon a model of attracting consumers to a physical place to shop and purchase. The classic metrics of store success have been consumer traffic and conversion rates for sales transactions of products in store.

Subscription-based services are not only highly disruptive, they suck the life out of bricks-and-mortar stores in a number of ways:

With a subscription purchase delivery, stores lose both a trip and the sale of product.
Ongoing subscriptions represent the loss of many future store trips and sales.
Each lost store trip represents lost store opportunities to sell other things.
With the convenience of online subscriptions, the value of the store starts to erode.
Each online subscription represents a big loss of store customer relationship.

With each online subscription, the physical store starts to lose its core base of customers and their life-time purchase value.

Don't blame Amazon, they just innovate faster based on how you shop

The current headlines declaring the apocalypse of traditional retail store chains most often point to Amazon as the cause. It is easy to see why. While as many as 10,000 stores will close their doors in the U.S. this year, Amazon continues to achieve double-digit annual growth. Why? Amazon is one of the very best at adapting to how you the consumer wants to shop, makes the purchase very easy, and goes the last mile to deliver to your door.

Subscription-based services and purchases are projected to double this year. Amazon is in a unique position to offer a breadth of millions of products, delivered to your door based upon your schedule. And, the very core of Amazon Prime is setup to appeal to your increasing preference for "subscription consumption." To make it even more enticing, Prime essentially is a paid annual subscription fee that then gives you "free" subscriptions to music, movies and cloud storage. As a consumer, what's not to like about choice plus convenience.

3 key ways retailers must adapt in "subscription consumption" world

No, not everything will be purchased via a subscription model. However, the increasing shift to purchasing consumables and routine services via subscription will have a major disruptive impact on traditional stores. Local retailers cannot be Amazon. The key to their success is adapting to how consumers want to shop and consume.

Understand that the "store" is NOT bricks and mortar. Today's "store" is where and how consumers want to shop and purchase. Retailing today must transcend time and place. A sale online or via a subscription is a sale for the whole retail enterprise (not a loss of sale at a particular store). Retailers must find ways to offer their own "subscriptions," especially services that differentiate.
Customer relationships are the foundation of future success.Individual sales transactions at the cash register are still important, but it's relationships that bring them back to purchase. Subscriptions are the new core building blocks of relationships and repeated customer contacts with the brand. Every retailer can and must innovate when creating subscriptions, especially for highly valued maintenance and support after the initial sale.
Customers want personalization and choice. Smaller local retailers have the advantage of knowing their customers more intimately. They should be able to personalize subscriptions and services in ways that Amazon and Walmart can't. Subscription deliveries are not based on speed of one day delivery — subscription success requires reliability and accuracy within the reach of most any retailer.

Future retail success is not a selling model, but a mosaic of customer services

Will another retailer win my friend Mike's subscription for dog food at his door? It could be possible if they deliver quality, reliably, at a competitive price. They would be even more likely to win his business if they delivered tasty snacks for Mike along with his dog food. Why doesn't the local retailer offer a "bundled subscription" with multiple choices personalized for both Mike and his labradors? It would be far more cost effective to deliver multiple things in a subscription delivery than to just deliver a sack of dog food on schedule.

The innovative retailers and brands of the future will think outside of the "box" (store) and beyond selling a product at a time. Harry's Shaving subscriptions are built upon personalized solutions for the customer, delivered on their terms and schedule … and they have been very effective in competing with Amazon.