29
Oct
2020

Physical Goods to Drive Subscription Economy Growth

POSTED BY James Moar
Despite the popularity of digital subscriptions, such as Netflix or Spotify, it is the physical goods market that will drive subscription economy growth. Indeed, a recent Juniper Research study found that consumer subscriptions for physical goods will grow from an expected $64 billion in 2020 to more than $263 billion in 2025.

Although the subscription services business model has only recently been applied to the consumer market, it is already rapidly expanding into many different places. Indeed, there are multiple claims about the inevitable success of subscription business models, that demographic and economic pressures, and shifts are moving away from ownership and towards subscription. Even though these claims were originally referred to digital content, they apply to physical goods as well.

There are many in the subscription economy that claim that subscriptions are something that can be universalised across all industries. However, some industries are closer to that point than others, and many would need substantial change, in order to be able to best utilise a subscription model. For what concerns physical goods, the most successful industries are: groceries & FMCG, beauty and apparel.

The subscription market for groceries is well-established, with specialist companies providing recurring purchases for these goods for many years. This has been primarily for basic groceries, which are routine products. It is this ‘basics’ nature that makes them ideal for subscriptions.

Many of the FMCG providers are using subscriptions as a form of direct order; bypassing retailers altogether. The personal care sector is well-developed here, because it is a category that both needs routine replenishment and has strong potential for upselling. This is also a sector that can establish a strong brand identity through a personal grooming style.

For what concerns the beauty sector, men’s grooming has been one of the strongest categories for replenishment subscriptions, with notable successes for Dollar Shave Club and Harry’s Razors; generating attention from the incumbents in the sector. However, subscription has been used by some of these brands as a route to generate revenue to branch into other sales channels, rather than changing the structure of the market entirely.

Finally, the apparel industry has a strong subscription presence, with curation options from fashion start-ups being particularly strong. The challenge for these brands is less in establishing the business model and more in handling the logistics. Many firms in this space, most particularly Rent the Runway, rely on a model that requires no return fees; making supply chain management a key concern to maintain margins.

Physical subscriptions’ offerings, providing physical products on a recurring basis, will overtake the market for consumer digital service subscriptions in 2022, despite the significant lead the digital sector has had in this area, as many different consumer businesses seek to boost recurring revenue. The space is therefore ripe for being disrupted, although, for some sector such as beauty, it will still be a slow process.

Our latest whitepaper, What Will the Subscription Economy Deliver Next?, explores both the digital and physical subscription business models, as well as providing insight into new trends and opportunities.

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