There’s a reason subscription boxes are popular in the U.S. They’re convenient, they surprise and delight, and if they don’t delight, returning products is a pretty straightforward process.
However, Latin America is a very different market. The infrastructure (or in many cases, lack thereof) makes logistics anything but convenient, both for the initial delivery and if the customer wants to make any returns.
On top of that, two thirds of Latin Americans prefer to pay cash over credit, while 80 percent are unbanked – nor do they want to become banked, as the cultural mistrust of financial institutions runs deep.
Thus, it would be self-defeating to demand electronic payment at the point of signup. Focusing on banked customers only would miss the majority of the population. So, there must be a way for unbanked customers to pay with cash.
Yes, the Latin American market faces unique challenges – but if you ask Heinz Sohm, co-founder and COO of the Colombian fashion subscription service Ropeo, it also faces huge opportunities if companies can meet consumers where they’re at and do business in a way that makes them comfortable.
Sohm explained how Ropeo is making itself available to Latin American consumers and what challenges the rapidly growing company will soon face as it scales across the region.
The Business Model
At sign-up, Ropeo asks customers to share their size, style, favorite brands and budget, as well as pay the monthly $7 fee. A combination of machine learning and style experts then assemble a box of items sourced from boutiques as well as larger, fast-fashion brands.
The box is shipped via third-party delivery service – a local partner in its home city, and FedEx when shipping further. The company currently serves Colombia’s seven largest cities.
Upon receipt, the customer tries on the clothes and chooses which articles to buy. A few days later, Ropeo comes back to collect their payment – in cash – as well as any articles they did not choose to buy.
Ropeo makes its margins on commissions as well as on monthly fees. Customers have the option to opt in and out as they like, so they don’t have to pay the fee or receive clothes every single month if they don’t want – all they have to do is notify the company.
After joining Y Combinator in January, Ropeo began to see 90 percent user growth week over week and has raised $250,000. In other words, it’s scaling rapidly and is going to need to confront some growth-related challenges sooner rather than later.
One of those will certainly be logistics, especially since Ropeo has both delivery and pickup elements – although in some ways, Sohm said logistics can become easier with scale. The company is moving toward daily deliveries instead of just dropping off clothes on Fridays and picking up payment and spare articles on Mondays. That means the company can ship 200 boxes a day instead of 500.
Another challenge will be payment options. While cash is preferred by most, Sohm said customers may also want to pay at businesses they frequent, such as grocery stores, where other subscriptions such as Netflix, Spotify, and Apple Music can be purchased. There’s also Nequi, which Sohm described as a bridge between the banked and unbanked, and a smart payment option to offer for a growing business.
Sohm said Ropeo wants to expand beyond some of the bigger, fast-fashion brands to focus more on smaller, local brands and give those SMBs a boost. Right now, he said, the company is only working with a few small players, but he feels these players have interesting things to offer and may struggle to get those products in front of customers, since they only have a few stores from which to do it.
He also pictures Ropeo expanding into the like-new market via a potential marketplace concept, where people can sell some of their gently used clothing. He noted the success of service marketplace platforms that connect workers with miscellaneous gigs (and consumers with helpers for various tasks).
A similar model could work for Ropeo, Sohm said – though that capability is still very much in the brainstorming phase.