Daily Consumer #5 - Unboxing the Subscription Commerce Trend
Daily Consumer #5 - Unboxing the Subscription Commerce Trend
Plus big shifts are happening within the large ad platforms.
My Work
Why Subscriptions Matter and What’s to Come
I’ve been fascinated by the notion of subscription-driven commerce. Companies like Stitch Fix, BarkBox, HelloFresh, Dollar Shave Club, Pretty Litter, and others have pioneered this approach which entails sending a box to customers at a certain cadence. Subscription commerce is estimated to be a $15B market today that is growing over 30% annually, and my sense is this is an understated growth rate.
Why is the concept of subscription compelling?
Maximizes lifetime value of a customer because a customer needs to put little to no effort into making another purchase.
Increases the predictability of customer behavior as customers churn behavior tends to follow a pattern.
Forms a tighter relationship with your customer allowing a brand to learn more about how to serve the customer and get feedback on what can be improved.
What are the challenges?
Not all products need to be replenished. It’s tough to get customers to opt into a subscription for a fashion product for example given a product can be worn for a long time and you generally don’t want two of the same item (unless it’s a staple item like a white shirt or underwear).
Some products need to be replenished but figuring out the right cadence is tough. Deodorant, toothpaste, and body wash are routinely used and run out, but knowing when to ship the next product is tough as consumers may use different amounts. Some brands, like Bite, are reinventing the form factor of the product to make it more predictable.
Customers don’t necessarily want the same product every time. I may want to get body wash on subscription (I’m actually a subscriber of Black Wolf), but perhaps I don’t want the same fragrance each period.
Subscriptions can be a great way to package product discovery, but you end up not solving a perpetual need. Many startups like Ipsy, LootCrate, FabFitFun, Kiwi, and Barkbox have built significant scale businesses putting a “treasure hunt” experience into a subscription box. Consumers get to discover new products each period, but at some point, a consumer is likely to fatigue of trying something new.
So what are the outstanding opportunities around subscription?
Innovate on your form factor and messaging to make your product experience more habitual. On the form factor front - I think we’ll see companies continue to innovate on design and packaging to make usage more predictable (think the Nespresso pod of X). On the marketing side - all items wear out and are ultimately consumed. But consumers may not be educated on how long to hold onto a shirt or a pair of socks (for example) before they should recycle the original and refresh. Layering recycling or re-selling into the subscription flow may also make it a more approachable behavior in less intuitive categories.
Allowing consumers to personalize their subscription themselves and easily add/remove products. Most subscription churn is driven by not wanting the same item over and over again (aka fatigue). My software portfolio company Bundle Payments is soon releasing Build a Box, a capability that allows subscribers to choose what they want to receive in each box (see it live here). This is similar to what HelloFresh recently launched where meal kit customers can also select grocery items they want to layer in each period. Separately, a fast-growing Index portfolio company in the beauty space, BeautyPie, has built a unique membership-based business model to solve for fatigue.
Manage timing more intelligently. Locking consumers into one specific cadence may not be the most ideal approach. Allowing consumers plenty of opportunity to adjust their cadence (for example, via SMS before each shipment cycle) and allowing them to shift in and out of subscription will likely drive stronger long-term retention. Repeat is an enabling software company that is taking a thoughtful approach around how to opt consumers into subscriptions and how to define their cadence.
Know of a brand or software enabler that is truly innovating around subscription? I’d love to learn about it. Lastly, sharing some more thoughtful writing on subscription from McKinsey here.
News
Advertising.
Apple’s privacy changes are shifting advertiser demand from Facebook to Amazon. Marketing agency Belardi Wong said more than 40% of its roster in June reported a decline in the performance of their Facebook ads sending them rushing for other options. “We’re seeing more and more of our clients branch out to marketplaces like Amazon. More clients are selling on Amazon and having a huge marketplace business.”
Facebook is rebuilding its ads infrastructure to be more aligned with user privacy. “A big part of building for that future is developing new privacy-enhancing technologies that allow us to do the kinds of things that we have done in the past, like measurement and ad optimization, but in a way that is far more privacy conscious, that doesn’t allow either party, the advertiser or the ad platform — in this case Facebook — to learn new information about individual users.”
Instagram tests ads in its Shops tab. “How many ads an individual consumer sees will be based on how they use Instagram and how many people are shopping in the Instagram tab”.
Bytedance’s director of the Artificial Intelligence Lab leaves the company to go into academia. Is described as “one of the authoritative Natural Language Programming (NLP) scientists of our time.” Rumors are that the move was induced by the Chinese government’s interference in Bytedance’s operations. Bytedance is the company behind TikTok.
Apparel. Business Insider profiles Figs, the medical wear brand that recently went public and now trades at a $6.3B valuation. “Figs brought innovation, in terms of both product and marketing, to a sleepy yet large market.”
Buy Now Pay Later.
Menswear brand Indochino saw a 16% lift in average order value and a 20% increase in conversion from paid ads after implementing Klarna. Also attracted a new demographic consisting of young shoppers.
Yoox Net-A-Porter partners with Klarna to offer BNPL to their 4.5M active luxury consumers.
BigCommerce announces Sezzle as their preferred Buy Now Pay Later partner. Mirrors Shopify’s partnership with Affirm.
CNBC profiles the BNPL behavior. “Breaking up costs because it ‘feels smaller’ is not uncommon among younger generations, who struggle to think about or plan for the future.”
Cloud Kitchens.
Travis Kalanick, the founder of Uber, is expanding his cloud kitchens business into Europe aggressively.
Wendy’s will open 700 delivery-only (aka cloud) kitchens in the US, Canada, and UK in partnership with Reef after successfully testing 8 delivery kitchens in Canada in late 2020.
Collectibles. Pokemon cards, baseball cards, and other scarce collectibles are seeing resale values skyrocket. This is due to 1) people rekindling their interests due to the pandemic, 2) new marketplaces that supercharge FOMO, and 3) due to “eroding trust in American financial systems” which are driving people to invest their savings in alternative assets.
Counterfeit Goods. Vice explores the growth of counterfeiting online, a behavior estimated to account for $500B of ecommerce.
Ecommerce Software.
Fortune releases their annual list of top 100 private software companies. Ecommerce-focused companies like Klaviyo, Attentive, Yotpo, and Shippo made the list.
Fitness. Nautilus partners with FitOn. Will integrate FitOn’s content into Nautilus fitness equipment. Shots fired at Peloton.
Gaming.
JD.com is ramping up its presence in gaming. “Ultimately, I think what we want to do is to build a platform where when you think about gaming anything you need on gaming you go to JD".” Wants to own spending on gaming products, plans to work with manufacturers to produce better phones for mobile gaming, and launched its own e-sports team.
WSJ shares some perspective on Ryan Cohen’s rise to chairman of Gamestop and his plans agitating for investment in ecommerce. Ryan was previously the co-founder of Chewy.com, the leading online retailer of pet products, which is now a public company valued at $40B. “In one instance, Mr. Cohen asked a company executive to sign a deal to lease a new fulfillment center, hoping to speed up delivery times for customers’ online orders. The executive pushed back, arguing that such a request from a director was unusual and against company policy that called for such contracts to undergo vetting that included multiple executives. The project later moved forward.”
Grocery Delivery. Grocery Outlet will begin investing in ecommerce. “You have listened to us for a couple of years talk about e-commerce, and our attitude is quite simply that stores continue to really represent the most important growth driver for us. But what’s hit us for e-commerce is particularly foods that took about 10 years to go from 1% to 5% penetration and then in two quarters it went up to 10%. The reality from our perspective is that it’s not going to go back to 5%, but it’s more likely to go to 15%.”
Influencer-Driven Commerce.
eMarketer estimates that influencer marketing spending will rise by 34% in 2021 to $3.7B. Close to 66% of U.S. marketers worked with influencer marketing last year, up from 55% in 2019. Instagram, Youtube, and Facebook are the main platforms that marketers are focused on today.
Forbes profiles Rihanna who has amassed most of her $1.7B net worth not from music but from her ownership in brands Fenty Beauty (most of it at $1.4B) and Savage x Fenty. Rihanna owns 50% of Fenty Beauty with luxury house LVMH owning the other 50%. Only appropriate - Rihanna brings the customers with her 101M followers on Instagram and 102M on Twitter while LVMH brings their expertise in product manufacturing to make sure that customers are happy with the design and quality of product that they receive.
Social media star Addison Rae (39M followers on IG, 5M on Twitter) launches her beauty brand Item Beauty in Sephora.
Latam Ecommerce.
Mercado Libre, the Amazon of Latam, is on fire. Q2 GMV grew 46% YoY to >$7B. Has 38M unique buyers and sold 245M products in Q2. “I want to remain somewhat cautious until we get through H2, but the two-year stacks actually look better coming out of the pandemic than they did going into the pandemic, which means that a lot of this demand that has moved online probably stays online.” In response, Amazon is now offering Prime subscribers free one-day delivery in 50 Brazilian cities.
Ecommerce in Brazil crossed $10B in the first half of 2021, a 31% increase YoY and a new record for the geo.
Live Shopping.
Pacsun is hosting its first live shopping event around the release of their A$AP Rocky Vans shoe collaboration.
Per eMarketer, 320M people in China will buy from a livestream this year, representing about 40% of Chinese internet users.
Beauty brands like Charlotte Tilbury and NYX are flocking to Twitch and increasing their association with gaming. 45% of gamers identify as female.
Luxury Ecommerce. The Business Times profiles Farfetch and how they battled through the pandemic.
Payments.
Checkout.com has been making a lot of executive level hires, including a CFO most recently. Possibly beginning preparations for an IPO?
Venmo will allow their credit card users to auto-purchase cryptocurrencies with their cash back rewards.
Resale. H&M is launching a resale component to their website, starting in Canada. The capability will be called H&M Rewear and is enabled by tech platform Reflaunt. H&M is taking sustainability seriously and resale may play a growing role in keeping items out of landfill.
Restaurants. The restaurant industry is shifting quickly to online ordering. “More than 90 percent of Bluestone Lane’s business comes from electronic payments. Liam Farrow, head of the chain’s digital team, said he thinks the shift will be permanent.”
Same Day Delivery.
Rumors that Doordash and Instacart were considering a merger but that talks fell down due to concerns over anti-trust.
Doordash launches DoubleDash, a new feature that allows customers to add their favorite items from nearby stores to their original order for no additional delivery fee or order minimum. Products can be added from 7-Eleven, Walgreens, Wawa, QuickChek, The Ice Cream Shop and DashMart.
The rise of GoPuff and Doordash hasn’t been lost on incumbent convenience store chains. They are exploring their own alternatives on the delivery side.
Rite Aid partners with Target-owned Shipt to bring same-day delivery to its 2K stores.
Delivery Hero takes a 5% stake in its competitor Deliveroo which recently went public. CEO believes Deliveroo is under-valued.
Social Commerce. Ana Andjelic shares a great summary of the implications of social commerce. “Social commerce will turn us all into shoppable product demos, and our lives into a catalog of stylized products.”
Sustainability. Levi’s steps away from board membership at the Better Cotton Initiative due to the group’s division over how to respond to alleged human-rights abuses in China’s cotton-rich Xinjiang region and the Chinese government’s response to certain statements by the group. Earlier this year, H&M, which also serves on BCI’s board, was largely erased from China’s internet leading to a sales decline of 28% in the region.
Trust and Safety.
Amazon will now directly reimburse customers who buy defective products from Amazon Marketplace sellers. Comes on the back of the U.S. Consumer Product Safety Commission suing Amazon for facilitating the sale of defective carbon monoxide detectors, hair dryers, and children’s sleepwear.
Amazon merchants are going to great lengths to get negative reviews removed including finding customer contact info via third-parties and using incentives to get unhappy customers to remove reviews.
Used Cars. Carvana achieves $45M of net income in Q2 2021, its first profitable quarter and more than a year earlier than equity analysts expected. Who says buying cars online doesn’t make sense?
Funding and Exits
Brands
Athleticwear. Authentic Brands Group acquires Reebok for $2.5B. Adds to Authentic Brands’ existing portfolio which includes Sports Illustrated, Shaquille O’Neal’s name and likeness, Airwalk, Volcom, Spyder, etc.
Fitness. Hydrow, makers of a connected rowing device, is rumored to be considering a SPAC transaction to go public at a potential valuation greater than $1B.
Fitness. Aviron raises $4.5M from Samsung Next, Formic Ventures, and others for its connected rowing product.
Food & Beverage. Kitu Life, makers of Super Coffee, raises $106M from Durable Capital Partners. Super Coffee is currently available in only 40% of U.S. retail outlets and describes itself as the 3rd-largest manufacturer of bottled coffee in the U.S., behind Starbucks and Dunkin’.
Food & Beverage. v2Food raises $53M from Astanor for its plant-based ground beef and patties, sausages and a ready-made Bolognese sauce.
Food & Beverage. Miyoko’s raises $52M from PowerPlant Partners. Currently sells its plant-based cheeses and butters through 30K stores.
Food & Beverage. Fable Food raises $4.8M from Blackbird Ventures for its mushroom-based meat products. Already retails the products in restaurants and grocery stores in Australia, the UK, and Singapore and will expand to the US.
Hair Extensions. L Catterton acquires a majority stake in Beauty Industry Group, a leader in professionally-installed and DIY hair extension products. BIG serves a global customer base reaching more than 100K hair salons and stylists and millions of consumers across 165 countries.
Petcare. Butternut Box raises $55M from L Catterton for its UK-based D2C dog food brand.
Marketplaces
Athleticwear. Fanatics raises $325M from SoftBank, Silver Lake, Eldridge, and others at an $18B valuation. Plans to expand its business beyond selling sports apparel and memorabilia online into offering ticketing, media, sports betting and more. Claims to have 83M people in its database. Company expects to generate about $3.4B in revenue this year, up from $2.6B in 2020 and is profitable.
Beauty. The Hut Group acquires Cult Beauty, a UK-based online beauty retailer, for $380M. Vogue profiles The Hut Group and their ambitions here.
Brand Rollup. Wonder Brands raises $20M from ALLVP and Mountain Nazca to acquire brands in Latin America that operate on MercadoLibre and Amazon.
Brand Rollup. SellerX raises $117M from L Catterton to acquire brands in Europe, the US and China that operate on Amazon. Has already acquired 30 brands across art and pet supplies, fitness and DIY tools.
Cannabis. Leafly files to go public via SPAC at an expected valuation of $532M. Provides content and a directory of dispensaries to consumers. Also offers a subscription-based platform that 7.8K brands and 4.6K retail subscribers use. The company is expected to generate $43M revenue in 2021.
Custom Goods. Shutterfly acquires Spoonflower, a custom furniture marketplace, for $225M. “The move is beneficial both for Shutterfly’s 21M users and Spoonflower’s more than 3.3M unique artists. Current Spoonflower offerings include fabric by the yard, tablecloths, duvet covers, pillow shams and wallpaper.”
Food and Beverage. WoodSpoon, a marketplace for meals from verified local chefs raises $14M from Restaurant Brands (owners of Burger King, etc.). Claims 16K active customers in the NYC area.
Logistics. Frontdoor Collective is formed. Is a coalition of more than 100 small delivery companies aiming to become a compelling alternative to UPS or Fedex. Claims to have capacity to do 1M package deliveries per day, compared to 20M for UPS and Fedex.
Same Day Delivery. Lunchbox, a restaurant online ordering software provider, acquires Spread, a marketplace for restaurants with 1.5K members.
Same Day Delivery. Orchata raises $4M from Y Combinator, JAM Fund, and others for its Mexico-based 15 minute grocery delivery service.
Same Day Delivery. Delivery Hero sells Yogiyo, its Korea-based food delivery service, to GS Retail for $685M. Was required to sell this asset in order to complete its acquisiton of Woowa, Korea’s largest food delivery player.
Sex Products. WOW Tech Group, a sex toy manufacturer, is merging with Lovehoney, a UK-based online retailer in a $1.2B transaction. “The deal comes as homebound consumers during pandemic-induced lockdowns spurred demand for sexual wellness products. Together, WOW Tech and Lovehoney, which will be known as the Lovehoney Group, will be profitable and expect to generate sales of more than $400 million this year. That is about double the combined 2020 level, making it the world’s largest sexual wellness company measured by revenue.”
Social Media. Reddit raises $410M from Fidelity of a potential $700M round at a $10B valuation. In Q2, Reddit broke $100M in advertising revenue for the first time (192% YoY growth). Now has 50M DAU and 100K active subreddits.
Social Media. VerSe, the India-based parent firm of popular news aggregator Dailyhunt and short video app Josh, raises $450M from Siguler Guff, Baillie Gifford and others at a nearly $3B valuation. Claims that Josh has amassed over 56M DAU and 115M MAU and that Dailyhunt has amassed over 300M MAU.
Wholesale. Omnibiz raises $3M from V&R Africa, Timon Capital, and others for its Nigeria-based B2B marketplace that connects brands with retailers
Software
CPG Platform. Aforza raises $22M from DN Capital and Bonfire Ventures for its software platform that allows CPG brands to manage in-store merchandising, promotions, store delivery and other workflows associated with growing their revenue.
Customer Support. Talkdesk raises $230M from Whale Rock Capital Management, TI Platform Management, and others at a $10B valuation for its customer support platform.
Ecommerce Platform. Cart.com raises $98M from Oak HC/FT for its vertically-integrated ecommerce platform which provides software and logistics to ecommerce brands. “Currently serves over 2K ecommerce brands, including GNC, Haymaker Coffee and KeHE, and processes more than $700M in GMV per year. The company saw revenue increase 400% since the platform’s launch in November. In addition, the company has 9 fulfillment centers across the country, and is increasing its access to reach 80% of the U.S. population with two-day shipping.”
Influencer Marketing. Snipfeed raises $5.5M from CRV, Abstract Ventures, and others for its link-in-bio product. Plans to build out its ecommerce tools so that its 50K active creators can sell physical products on their link-in-bio.
Reviews. Yotpo, a leading provider of reviews software to ecommerce merchants and an acquirer of other marketing software products, files to go public at an expected $2.5B valuation. Claims to have over 30K customers.
Subscriptions. Upscribe raises $4M from Uncork Capital for its subscription enablement software for D2C ecommerce merchants.
Wholesale. Agora raises $33M from Tiger Global to enable ecommerce for construction material suppliers. Agora’s catalog offers more than 400K SKUs and eliminate manual data entry from transactions.
Fintech
Auto Insurance. Carvana invests $126M in Root Insurance, an online auto insurance provider, and announces plans to integrate Root into Carvana’s online car buying process. Root’s stock jumped 22% after the announcement.
Business Lending. Trust raises $9M from Lerer Hippeau, Lightspeed Venture Partners, Upfront Ventures, and others for its provides businesses with credit that can specifically be used to grow marketing spend. Also announced a strategic partnership with ecommerce platform Verishop whose 3.5K merchants will receive priority access to the Trust card and community.
Product of the Week
I love Italic’s business model and their products even more. Big fan of this backpack which I use daily. Buy it here.
