'Subscription' retailers deliver surprises

Annie Lakatos is a mom, wife, nurse practitioner and unapologetic nonshopper.

Trying on skirt after skirt, top after top, wondering what works and what doesn't -- the 37-year-old hates the whole mess.

But even the most shopping-challenged among us need clothes, and Lakatos thinks she may have found a solution: She has joined the consumers who are letting a swelling chorus of online retailers essentially shop for them and send a surprise package every month or so.

Lakatos' choice, a San Francisco-based outfit called Stitch Fix Inc. that seemed to size up her style better than she could herself, is one of hundreds of "subscription box" companies that have sprung up over the past few years.

Also known as discovery commerce or subscription commerce, the trend has seen upstart retailers packing everything from cosmetics to socks to sex toys into boxes that get shipped monthly to subscribers.

Numbers on the niche are slippery, but it has attracted hundreds of millions of dollars in venture capital. And one review site, My Subscription Addiction, lists more than 500 boxes in its directory.

Among them: BarkBox (doggy treats and toys), Bulu Box (vitamins), Little Pnuts (eco-friendly toys), Gizmonthly (gadgets), Yarnbox (um, guess), FrisquéBox (sexual products) and Manpacks (underwear and other man stuff).

Part of the appeal, retail analyst Kelly Tackett said, is "the thrill of the hunt. It's the thrill of opening a package. It's like Christmas -- not sure what's going to be in there."

For retailers, the business model offers the lure of a steady revenue stream. To cancel, customers must take action, and many put that off.

"Once you've signed up, if the price points are kept relatively modest and low, inertia is such that there are people who will take months before they finally get around to canceling," said Larry Chiagouris, a marketing professor at Pace University in New York City.

Many subscription boxes have come and gone, and some observers smell a fad. But seasoned entrepreneurs such as Milwaukee's Jalem Getz -- who two years ago started Wantable Inc., a growing cosmetics, accessories and intimates service -- believe the field will prove profitable.

Getz points to the early winners such as Trunk Club, a personalized clothing service for men, which was acquired by upscale department store chain Nordstrom Inc. for $350 million in stock. The deal also includes a long-term management incentive plan of up to $100 million. Another is Citrus Lane, a $6 million-a-year service for moms and young children, that was just sold for $31 million -- plus another $17.6 million if the business meets certain benchmarks.

"We think that there's so much opportunity just given the size of the market and the type of customer that we target," Getz said of Wantable, which has grown to 23 employees and recently moved to larger quarters.

Having someone more or less shop for you is another attraction for customers, said Tackett, research director for consulting firm Planet Retail.

"Part of the proposition of these subscriptions services is that they are designed to combat decision fatigue," she said.

Getz said Wantable's selections are supplemented by human input and are highly personalized. Any given customer receives less than 2 percent of the firm's assortment of, say, cosmetics in her $36 box. Returns -- the company has a liberal return policy -- run less than 10 percent, he said.

The idea, at least, is spot-on, Chiagouris said. But the execution has to follow.

"If they really do nail it, if Mary has one profile and Sue has a different profile and they each get different packages that each satisfies their respective needs, that's a home run," Chiagouris said. "...Word-of-mouth will spread, and they're going to make a lot of money."

SundayMonday Business on 08/31/2014

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