With Birchbox On The Brink Of Possible Bankruptcy, Are Brands Rethinking Subscription Box Strategies?
At ages 29 and 28, respectively, Katia Beauchamp and Hayley Barna came up with the idea for Birchbox during their last semester at Harvard Business School and launched it in September 2010. By 2019, the updated take on the subscription model, which has spanned everything from milk to music, sent beauty samples to more than 1 million subscribers paying $10 a month.
Birchbox ushered in a wave of boxes—hundreds of subscription businesses popped up—and experimented with a range of tactics to get and stay in the black, from partnering with Walgreens to opening physical stores. But the expectations stemming from raising around $100 million in venture capital and at one point having a roughly $500 million valuation proved too great for Birchbox.
Last year, health and beauty company FemTec Health acquired Birchbox in what the publication Fast Company described as a fire sale—and the fire hasn’t cooled since the acquisition. FemTec Health recently ended Birchbox’s website in the United Kingdom and sent a letter to creditors revealing that a bankruptcy could be forthcoming.
Birchbox isn’t the only subscription box concept that’s struggled of late. After a rush of interest in subscription boxes at the onset of the pandemic, they’ve suffered as interest has rebounded at physical stores, and supply chain issues have made filling and delivering boxes difficult. In the spring, Alltrue, the subscription box company formerly known as Causebox, shut down, although apparently new ownership has swooped in to revive it.
To understand how brands are assessing beauty boxes amid the subscription segment’s challenges, in the latest edition of our ongoing series posing questions relevant to indie beauty, we asked 14 beauty entrepreneurs and executives, including two who’ve spearheaded beauty boxes, the following questions: What’s been your approach to beauty boxes? What results or lack thereof have you generated from them? Are your beauty box strategies changing going forward? What do you see for their future in the beauty industry?
- Sarah Brown Founder, Pai Skincare
Historically, we’ve worked with subscription boxes to reach new customers with a relevant interest (e.g. in clean/natural) or skin type we know we can well serve. We’ve seen high conversion from this type of sampling, and it’s a cost-effective route for acquisition versus more traditional media spend.
1). Tighter KPIs and targeting with our box partners, ensuring we’re getting the right products into the right customers’ hands considering their skin type, age, expected benefits, routines, etc.
2). Post-trial understanding the perception of our products through ratings and reviews alongside conversion rates. Where possible we have also trialed different CTAs (calls to actions) to optimize traffic to our site and increase opt-ins.
Subscription boxes, especially at the upper end of the price spectrum, are the ultimate discretionary purchase so are likely to face a tough time as the cost-of-living crisis continues to bite. The box services that will succeed are likely to be evolved offerings, and we expect to see:
- More sustainable box solutions in terms of product mix, packaging format and distribution model.
- More curated edits with an enticing pull for specific demographics.
- More bespoke boxes where customers can self-select its contents.
- Themed multi-brand partnerships spanning different sectors with shared values, e.g., certified B Corp brands across beauty, fashion and lifestyle.
- Stephy Kim Co-Founder, Moonlit Skincare
As an indie brand, you have no choice but to be incredibly selective with which boxes to work with, especially if you are working with high quantities which can affect your cash flow. You have to possess the cash (or credit) to create 100,000 to 250,000 units, and then even if you do ultimately make money off of the order, it can take 30 to 90 days to actually see the funds after you deliver the product.
Also, if the box is available to Canadian subscribers, be mindful of your packaging and formulations reflecting the standards of that country as well.
Our strategy towards subscription boxes has always remained firm: Must turn a profit, and the deal must make sense within our cash flow calendar. Some other tips include starting early (slower shipping is less costly), making sure you are factoring in shipping into your costs, being upfront with your client about all changes, and to ask if you can split shipping if they are rushing it.
Subscription boxes are less novel than what they were 10 years ago, but they will remain a part of how products and brands are discovered for a certain demographic.
I have worked with Ipsy, Petit Vour, Kinder Beauty, Bless Box (now closed), Goodbeing Box (now closed), and TheraBox. The past seven years I had, at a minimum, four features per year. This year I had two, with none planned yet for next year.
While I have continued to hustle and pitch and try to work the numbers, the MOQs are going down and the cost shares are going up, which makes it all but impossible for a small brand like myself to stay competitive.
My strategy has always been pretty simple: My products are effective, universally flattering, affordable, and made with passion and integrity. If my core values aren't aligned with the boxes, I would rather not participate in a collaboration.
At the end of the day, my values are what I built this business on. It feels like right now, at this moment in time, money and celebrity are driving things more than ever has and not the integrity of the brand and its products.
I wouldn't say my strategy has changed. The amount of my time and energy and effort I used to put into pitching is now spent in other more productive ways.
Even before the coronavirus, the retail industry was reeling as it struggled to adapt with the rise of e-commerce and discount brands. A few years ago, there was a new box popping up every other day. After that came all of the celebrity boxes. Now, it's celebrities marketing for a box.
While changes in trends and technical evolutions are good and can encourage healthy competition, this has just felt like chaos. I believe in the intelligence of the consumer. I think they will start, if they haven't already, to be more discerning with where and what they spend their money on.
If boxes don't deliver value, i.e., because they are choosing cheap products instead of quality ones, the consumer will see through that.
- Sheena Brady Founder and CEO, Tease
Subscription boxes have been an integral part of our increasing brand awareness and customer acquisition strategy over the years, and it's one we plan to double down on moving forward.
We've been able to export into new markets significantly as a Canadian brand thanks to subscription box partners. It's also more expensive than ever to spend on digital advertising these days in terms of generating a profitable ROI.
We will sacrifice slim margins with values and/or demographic aligned partners, especially for larger subscription box brands who order in large quantities, which means we can leverage economies of scale to get our COGS lower for our typical wholesale and D2C revenue channels. We've also been able to bring new products to market we might not have been able to otherwise because of this.
The flip side, though, is the long-term sustainability of these companies. We're continuing to see many of them struggle due to rising costs across the board and not being able to pivot well when unexpected issues arise like shipping delays, etc., while sacrificing the customer experience by turning to cheaper, not always well-made products and often delaying payments to their vendors due to their cyclical cash-flow cycles.
- Sorah Park CMO, Rael
While building the brand over the last four years, we've considered a wide range of subscription box services and tested a few that aligned best with our brand values and goals. While sampling is undeniably one of the best marketing levers to pull, it's been challenging to measure the full impact of these programs as they need more capacity to track purchase rates. We've seen the most value in those with advanced targeting capabilities and the most active communities from which we've gained consumer insights and generated content for social and e-commerce product pages.
When we first entered the beauty category from being a period care brand, we invested in an extensive sampling program with a subscription box partner to establish credibility with the beauty consumer since we were entering a brand new space. While it was helpful to introduce ourselves to a large number of new consumers, it required a hefty investment that took time to justify as an ongoing tactic for a startup like Rael.
Over time, we've built out more cost-efficient ways to sample our products with internal programs and strategic partners who we can build integrated campaigns with beyond the box to maximize impact. Most recently, we sampled an Allure editor favorite, our Miracle Patch Invisible Spot Cover, in Allure's Best of Beauty box with an integrated digital media campaign and also with one of our top retail partners, Walmart, in their upcoming Beauty Box.
Subscription boxes help consumers discover new brands and products effortlessly, but they must evolve with changing consumer values. Now, in an ever-crowded beauty landscape with so many options, consumers have become more and more discerning, seeking clean and effective products that are less harmful to the environment.
However, it's become increasingly challenging for consumers to identify these products versus "greenwashed" products. These companies can add value to their services by curating truly personalized assortments by taking on that due diligence work off the consumers' plates, including individual ingredient sensitivities, lifestyle and educational content.
With the abundance of beauty products being produced, there is also a lot of waste. Subscription box companies have access to high volumes of beauty and personal care products from brands they partner with, usually for free. What happens with the products and boxes they don't use up? These companies have the opportunity to distribute these products to people in need.
For example, Ipsy has leveraged its extra glam bags to give back to low-income communities and homeless women. On Period Action Day, we teamed up with Ipsy to donate 10,000 unused Glam Bags filled with 100,000 Rael menstrual and self-care products to PERIOD., the global nonprofit whose mission is to end period poverty and stigma. With this joint effort, we were able to support underserved, Black and Latinx communities.
Lastly, as a holistic wellness brand, we aim to help connect the dots between hormonal health, menstrual cycles and daily personal care. We've had challenges sampling our products in some boxes because some don't qualify as beauty products. I'd like to see beauty subscription boxes evolve to think beyond what classifies traditional beauty and personal care and explore other ways to promote self-care.
Ipsy continues to be No. 1 and our best partner. Over the years, we’ve worked with several and they have all been different, from their business model to the way they partner with brands. Most don’t exist.
There are many reasons why Ipsy remains No. 1 and continues to thrive. They are true brand partners that help market, distribute, create content and awareness. They really understand their subscribers and target specifically what they want, and this leads to delight and discovery. When Ipsters receive our products, they convert.
One subscription company model was asking brands for free samples, but buying wholesale full size to offset the costs of the samples. We tried a few times, but it was never profitable or benefited us.
Other subscription boxes tout their marketing abilities to bring massive awareness, but want quality products way below costs, and this doesn’t work for us. We are an indie brand and cannot afford to participate in selling products way below costs.
With the skyrocketing increase in overall costs of materials, labor, shipping, etc., we are not able to partner with full-size subscription boxes if they aren’t able to pay for full COGS. Now that we have perspective, we know it’s hard to convert to sales if the boxes are curated or targeted correctly. And the awareness that it may or may not bring is not worth losing on the costs of products.
I believe subscription boxes need to fully understand the production cycle and costs of producing products, especially for smaller indie brands, to be true brand marketing partners. Otherwise, it hurts the indie brand ecosystem, and it’s unsustainable long term.
- Joy Chen Co-Founder and CEO, Pure Culture Beauty
We have not been participating in subscription boxes. We find them not as effective, given now consumers can discover new products through social media, blogs and many other ways.
I believe subscription boxes need to have a target strategy to different consumer groups. For example, there needs to be boxes suitable for a specific skin type and color, focused on specific consumer needs (i.e., wellness-focused), and also consumers’ values (sustainability, clean, sensitivity, etc.). Without this personalization, it will be difficult for them to sustain.
It will be tough for beauty subscription boxes, as they need to address the waste of offering more packages, and perpetuating customers to try more new products to find something that works. They also need to address the diversity of customers’ needs, skin type/goals, and curate brands that align with customers’ values, which differ as well.
Additionally, there are so many other alternate channels to learn about new products—social media, influencers—that were not developed when beauty boxes were popular.
- Julie Campbell EVP and CMO, Astral Brands
Our portfolio of brands were early adopters of sampling programs via the subscription box category. We have had the opportunity to work with an array of best-in-class box programs, and our strategy has always been grounded in the traditional concept of product sampling, specifically with a goal of creating a personal connection with a potential consumer.
The advantage of the early pioneers in the subscription box industry was their unprecedented ability to hyper target the customer based on their beauty preferences and even skin tone shade. Then, the icing on the cake was the in-depth data analytics a brand would receive upon participation. These types of data points were unheard of in the early days of sampling and enabled brands to measure product success and viability very quickly and accurately.
While I believe the industry is seeing subscription box fatigue, I also believe beauty consumers love to sample new products and are willing to pay a small price to do so. Sampling will remain at the core of our brand marketing strategies and we will continue to work with those subscription boxes that are able to help bring our products to the most viable and targeted consumer.
We actively test, execute and refine the methods in which we get product into the hands of viable customers. This is done through traditional ways such as GWPs at point of sale or via our ‘surprise-and-delight’ programs where we include free samples within our direct-to-consumer shipments. We are also tapping into verified beauty communities where experts are invited to experience our products in exchange for genuine, trustworthy and diverse reviews.
- Devon McCutcheon Director of Marketing, In Common
Consumer behaviors are changing, and consumers are getter smarter, doing their own research on products after getting targeted with ads or seeing something on social. Curated boxes giving them products to try are less appealing than they once were.
Consumers do research, and they buy what they want. This makes subscription boxes tricky, and they will definitely need to evolve their offerings to better fit with the ever-changing, modern consumer.
In 2020, we briefly had a subscription box service that was extremely popular and generated significant revenue. Unfortunately, it became clear that it didn't provide a sustainable business model. The unit economics actually get worse as it gets larger, as companies can no longer offer high quantities of free product.
In March 2021, we discontinued our subscription box service to focus on bringing our community value through identifying and manufacturing sought-after affordable alternatives.
Subscription box services are a great way for brands to get trial. I hope they become more personalizable and inclusive. However, large-scale for subscription boxes, particularly ones that want to focus on indie brands, will have trouble making the unit economics work the larger they get.
- Keith Cornelius Jr. CFO, Maison 276
We participated in a subscription beauty box with significant scale prior to the market becoming (in our view) overly saturated. Our participation was a watershed moment for the company and catapulted the brand to national awareness.
However, we view the current challenges facing many subscription beauty boxes as similar to the challenges many TV streaming services are encountering, keeping up with consumers’ never-ending appetite for fresh content. In our view, this puts tremendous strain on subscription beauty boxes to emphasize “new” products to customers relative to emphasizing brand, product innovation, community and storytelling.
We believe the long-term value of subscription beauty boxes will evolve from being a platform that could potentially elevate upstart brands to a product offering that media companies (e.g., Allure, Elle) and interest groups (e.g., AARP, AMAC) leverage to maintain touchpoints with their audience.
These larger organizations will likely have less incentive to scour the beauty landscape for scaling indies and instead source SKUs from larger CPG brands that have less price sensitivity and ample capacity to quickly fulfill purchase orders.
Consequently, our future subscription beauty box participation will be driven by our outlook for the subscription partner’s box frequency and our evaluation of customer engagement on their broader platform.
- Romain Gaillard Founder and CEO, The Detox Market
We see subscription boxes as an amazing way to tell a story. Historically, we focus on one brand that we believe deserves a spotlight. As much as subscription retention is more challenging than before, we believe telling a brand story is more important than ever.
We like to ask our clients for feedback. Overall, the vast majority of subscribers are very pleased with our boxes, and as a result we are not planning to significantly change our model.
I think the model will evolve to where the selection is more curated and thoughtful. Less is more. Fewer items, but with greater purpose.
- Jessica Jade Founder, SunKissOrganics
SunKissOrganics has participated in various beauty box subscriptions, from better-known retailers with millions of followers and thousands of subscribers to beauty boxes curated by small, lesser-known businesses.
Our strategy in the past has been to participate in no more than one to two beauty box subscriptions per year. We focus on exposure versus sales because we learned early on that the ROI in terms of revenue isn't guaranteed with beauty boxes. We offer bestsellers like our Velvet Body Balms to provide subscribers with a high-value product while ensuring no loss in profit on our end.
We've participated in beauty boxes with hyper-focused subscribers and niches that aligned with our own as well as beauty boxes with larger and varied subscribers and have found that subscribers who purchase beauty boxes are more interested in the thrill of testing new products than becoming loyal fans of one brand or product.
Moving forward, our goal is to focus solely on beauty boxes within our specific niche and demographic to better foster a connection with subscribers and encourage future sales and customer loyalty.
I believe that the future of beauty boxes will focus rely on solely highlighting one brand per beauty box to result in better brand exposure for participating brands increasing brand interest and participation. The beauty box subscription model as is isn't mutually beneficial for brands, and the ROI is scarce.
- Danielle Cuccio Founder and CEO, Cuccio Somatology
I still do believe in certain subscription box companies and the power of getting your product into the hands of hundreds of thousands of people to fully enjoy and try the product. An advertisement can only go so far, but actually trying the product and loving it is where true the value lives. There aren’t many other avenues to do that.
As brands, we have to be super selective with who we work and partner with. Brands may also need to change their terms moving forward as we have seen a lot of changes recently.
If you have a question you’d like Beauty Independent to ask beauty entrepreneurs and executives, please send it to email@example.com.