Revealed: The Untapped Profits Inside Your Subscription Boxes

With 8 in 10 households now having one or more, subscription services are big business. The reserve of newspapers and magazines for nearly a century, two years of COVID-19 stay-at-home restrictions took the business model mainstream. Today, from shaving equipment to pet food, if consumers need it – there’s a subscription box for it. 

But even with this wealth of choice, our ‘lockdown love affair’ with these services could be coming to an end. The market is crowded, and shares in even some of the most popular providers have fallen by 85% over the past few years. VC investment is a fraction of what it was in the mid-2010s, and one in three people are now cancelling after just three months.

‘The Great Unsubscribe’ is underway. Cost of living concerns have left consumers wary of getting tied into monthly payments.

Today, they’re more likely to spend money on activities like eating or drinking out rather than services that brought a bit of weekly excitement during the pandemic.

Brave New World 

Clothing boxes still make up a quarter of the industry – and are one of the few delivery offerings curated for beyond home living. That puts them in a favourable position in this brave new world for subscriptions. 

In fashion, the e-retail playbook is constantly being rewritten, and where apparel brands have made the subscription model work, it has come to represent an incredible stream of recurring revenue. 

This is not without its difficulties. Building a subscription delivery network is challenging enough. In clothing, retailers also have to contend with industry-specific inventory management challenges like long lead times, the size curve, and a high rate of returns.

“[Subscriptions] work well when the economy is robust [and] there is cash sloshing around. As soon as those things end, the model comes under pressure.” - Neil Saunders, Retail Analyst

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These, along with some of the lowest retention rates in the market, mean that fashion brands need to think differently when it comes to how they manage what goes into their home delivery boxes.

Think Outside of the Box 

The fashion industry has already witnessed some of the fastest adoption of customer-facing artificial intelligence out there. Personalization tools, behavioural analytics, and intelligent ad campaigns are all providing retailers with more crucial customer data than ever before.

Fashion outlets know what their customers want to see inside of their subscription boxes, but meeting that demand with what they have in their existing inventory is the real challenge. It's only by applying these same artificial intelligence technologies inside the stockroom and warehouse that the clothing subscription model is best placed to succeed. 

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Holistic Forecasting and Optimization

Pendulum’s AI-powered solutions enable retailers to fill subscription boxes most effectively using their stock-to-hand, in line with their customer preference data, and without compromising on product availability across other sales channels. 

Predict\Products – an AI-powered forecasting solution – does this by enabling more accurate, granular forecasting across the highly variable subscription landscape. It takes ERP data from across multiple distribution channels and then uses machine learning to create unique, differentiated demand predictions for each product at the SKU level. 

These can be produced at weekly, biweekly, or monthly horizons, depending on the cadence of subscription deliveries. Once retailers know their relative demand across each of these channels for any given period, allocation decision-making not only becomes more informed – but can also be automated – using Plan\Products. 

Plan\Products holistically distributes inventory across subscription boxes, online, and physical stores in line using the more accurate forecasts created by Predict\Products. This ensures that subscribers only receive items closest to their size, fit, and stylistic preferences without compromising on their availability across other sales channels. 

In the stockroom, this two-pronged strategy enables retailers to optimize on multiple fronts. In preventing overstock across certain lines through strategic distribution – retailers can reduce the likelihood of waste through overstock, historically a serious challenge across the sector. 

Pendulum’s solutions simultaneously prevent understock and stockouts across more popular lines by preventing missed sales opportunities through poor allocation between sales channels, while still ensuring subscriptions remain tailored to customers’ preferences. Read more about what that looks like in practice here. 

Boost Retention and Recurring Revenue 

While subscription services are still trying to find their place in a post-Covid economy, curated fashion boxes represent a huge opportunity for retailers looking to diversify their offerings, and provide customers with an alternative to one-time purchases. 

It’s by harnessing operational machine learning solutions in the stockroom alongside customer-centric data that retailers can effectively integrate the model into their wider sales ecosystem and make it a pivotal driver of long-term recurring revenue. 

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Want to see a demo for yourself? Get in contact with one of our team at predictproducts@pendulum.global

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