Here are Three Considerations for Subscription Commerce Startups
By Kirk Anderson
The irony was lost on no one when, last summer, Amazon announced it planned to construct a new fulfillment center inside one of the world’s largest abandoned malls. Big box and anchor stores are re-evaluating their business models, with many facing extinction.
This shift is driven by a growing on-demand economy and powered by eCommerce giants such as Amazon. Consumers expect more options and faster delivery, preferably without leaving their couch. They’re also willing to pay more for convenience – and the companies that capitalize on retail disruption stand to profit significantly.
What’s the next step in convenience-focused shopping? Subscription commerce, or subcom, providers believe they’ve found it: automation. Rather than providing a virtual store for one-off purchases, subcom offerings deliver a new box of pre-determined goods each month.
For eCommerce retailers, subcom can be an intriguing investment – however, building the box and determining a shipping strategy can be time-consuming. Before you launch a subscription box, consider these three questions about your warehouse operations.
Where Would Your Product Fit in the Subcom Market?
Most subscription box offerings fall in one of two categories: continuity or curation. In a continuity model, convenience is paramount. Customers order specific items to arrive in self-selected intervals – for instance, receiving a bag of the same dog food brand every three weeks. In a curation model, customer experience is paramount. Customers inform the subscription service of their likes and dislikes, and the service mails out a box of goods – for example, clothing or pop culture items – within a predetermined time frame.
Continuity models allow businesses that would otherwise have to purchase brick-and-mortar locations to keep their square footage to a minimum, and because there are no showrooms to fill, businesses save money on stock delivery. Customers, in turn, don’t have to make a special trip to pick up items such as dog food or razor blades. However, because each customer is on their own shipping schedule, you’ll need to maintain their order frequency and make sure your stock levels are appropriate for demand.
Curation models provide customers goods based on their preferences, with every part of the offering – including the package itself – serving as an important part of the experience. When done right, curation offerings can help grow your following and set your company apart. Still, curation is a precise science, adding a layer of complexity not present in a continuity offering – you predict which items your customers will like, rather than sending them exactly what they ask for. Because each box is unique, consider investing a solution that tracks each customers’ box and provides your employees the data they need to fill it properly.
How Will You Manage Returns?
In a standard business model, return policies aren’t always prominently displayed and customers won’t focus on them unless they dig for the rules online. In the subscription commerce world, return policies aren’t only listed on highly-visible webpages, they’re actively promoted.
Especially within a curation box, you’ll need a generous returns policy to appeal to risk-adverse customers without giving customers too much leeway. If your returns policy is too lax, your profits could take a hit – reselling subcom inventory is notoriously difficult. Consider asking customers to send back any items they don’t want within three to five business days. If you’d like to offer a longer window, keep it within the same month to avoid managing returns from one subscription box while trying to ship another.
Subcom also requires a comprehensive plan for dealing with returned merchandise. As soon as products re-enter the warehouse, you’ll need to determine why they were returned. Was the item defective, or was it the wrong size/mismatched with the customer’s taste? You’ll need different procedures for each scenario.
Are You Prepared to Handle Growth?
If your box takes off, the demands on your staff will increase exponentially – and quickly. Shipping more boxes means not only streamlining packing processes, but also managing extra stock. If you offer a curation box with a mystery set of items each month, large-scale growth may also require you to manage extra SKUs. Customer expectations for your box will only increase, as your ability to successfully produce the box without altering your processes decreases.
It’s a good idea to decide early whether you want to keep operations in house or outsource to a third-party logistics provider. If you’re considering a 3PL, ask yourself whether you feel comfortable placing your product in someone else’s hands. You’ll receive the praise if the item arrives on time, and the criticism if it doesn’t, so don’t place an unnecessary burden on your brand. You’ll also need to determine how much control you have over 3PL operations – for instance, if you can use a favored shipping carrier, or if the 3PL can implement your preferred warehouse management technology.
Investing in the right warehouse technology
No matter if you choose continuity or curation, in-house or 3PL fulfillment, the unique demands of subcom require advanced warehouse management solutions. With a best-of-breed WMS, you’ll gain the visibility you need into your warehousing data to drive better decision making. If you’re interested in launching a subscription offering, consider your potential pain points – picking, packing, inventory management, returns – and take the time to research warehouse management systems that fit your specific needs.
Kirk Anderson is executive vice president at Snapfulfil North America.