What The Subscription Market’s 2020 Surge Tells Us About Retail’s 2021 Remake

The holiday shopping season is in full swing — and it’s increasingly looking like “’tis the season for purchasing subscriptions.”

Recurly CEO Dan Burkhart told Karen Webster in a recent discussion that consumers are asking themselves how to give gifts that will have lasting impacts on the intended recipients. He said many are finding that subscriptions are an ideal to check that box. That means it’s looking like a big year for all kinds of subscriptions, extending a trend that’s been building for the past several years.

Burkhart said food and wine subscriptions have been particular leaders this year, but beauty and cosmetics have (as usual) made a strong showing. So have apparel and even jewelry subscriptions.

But other areas have been depressed. Not surprisingly, that includes travel and venue-connected entertainment offers due to the pandemic shutting down physical interactions for the past eight months.

However, Burkhart said the situation isn’t as bad as the industry feared when the pandemic first reared its ugly head in March, and many worried that discretionary spending as a whole was about to plummet.

“What we have observed is to the contrary: that consumers’ discretionary spending in the form of subscriptions has actually done quite well,” he noted. “I think it has been a little bit of a decadent affordance — comfort and convenience for people as they are nesting in work-from-home/shelter-in-place mode.”

But of course, that mode could soon end if progress on vaccines continues at a rapid pace. The question is what comes next — and how subscription services will fit into the landscape.

Building Subscriptions With Staying Power

Given the volume of subscriptions that consumers have started over the past year, it’s probably smart to imagine that we’ll see some “trimming back” once people are out and about again, Burkhart said. There could be less subscription demand once consumers can go to barbecues and movies in person and are less bound to their homes for safety reasons.

However, he pointed out that “some pruning” and “a complete reversal” are very different, given how much the market has expanded over the past year. Given how many consumers have discovered the pleasant convenience of having certain goods and services on a subscription, it’s unlikely they’ll want to give that up.

Burkhart said the massive sea change in consumer lifestyles has led to a reassessment of how we shop and spend, which in turn “has expanded the addressable market” for subscriptions — likely irreversibly.

But he noted that building a subscription offering that remains relevant to consumers over the long term is often a taller order than most firms — even massive global players like Nike — initially anticipated.

“It’s one thing to move to a subscription model,” Burkhart said. “It’s an entirely different kind of challenge for organizations to change the value system and the culture of a company to be truly customer-focused, and to focus on that long-term experience of delivering value.”

He said that successful companies must make sure everyone is “focused on that [long term] — the metrics that define how well you’re doing in terms of engagement and satisfaction and net promoter score, etc. It is never someone else [causing] the organization’s problem. It has to be ‘our problem as a company and as a team.’ Some companies are just doing a far better job of making that transition.”

But that’s a difficult transition to make, Burkhart said. It requires moving away from the “sell the sizzle, not the steak” model of moving retail goods to one of observing the customers and modifying offerings to what the data indicates they want.

The firms that are winning — and will continue to win — in the subscriptions world are those that constantly check in on customers to evaluate how the company is doing and how it can deliver more value, Burkhart said.

The World In 2021

The short-term future is a tough thing to forecast, noted Burkhart, because so much of what comes next relies entirely on getting vaccines into wide circulation.

But whenever the shift back to a more physically interactive world begins, it will also mark a new chapter in retail. Burkhart said it will no longer be enough to offer a “Version 1.0” eCommerce experience — the bar has been permanently raised, and consumers expect much better than basic in terms of merchants’ digital offerings.

Burkhart added that the consumer must be the focus going forward. Artificial intelligence (AI) might get a lot of press, but the whole point of technology is to get into that informational space where one can better build to consumers’ wants and needs.

He said one of the more exciting parts of being in the business is sitting at the “intersection of technology and consumer behavior” to see what the next iterations of the consumer experience will look like.

“In most categories, there’s tight competition, and customers are expensive to acquire,” Burkhart said. “[That] means companies are going to put a lot more effort into developing great user experiences and focusing on delighting customers. And that will manifest itself in a variety of ways.”