There are about 5.7 million subscription box shoppers in the U.S. today, according to Hitwise. What’s more, the potential opportunity for additional growth is significant. Over a third (38%) of consumers say they are interested in signing up for a subscription service, a Forrester study shows.
Retailers are taking notice. Recognizing that the subscription market gives them a new way to sell existing products and tap an additional monthly revenue stream, a growing number of retailers are beginning to offer subscription services.
Interested in joining the ranks? The subscription box business should not be entered into without careful consideration. Even if you have a compelling product line that delights your customers, the business model can be difficult to sustain. Subscription fulfillment, in particular, poses a number of unique issues not seen in other retail arenas.
Top 5 Challenges for Subscription Box Fulfillment
Here’s a look at the biggest fulfillment challenges retailers encounter when offering subscription services:
1. Peak order processing
With a monthly delivery cycle, you’ll typically have periods of intense volume. When you’re filling hundreds of thousands or even millions of orders with a shared drop date once a month, adjusting labor and space to suit these dramatic peaks can be very challenging. And, when operations are only at capacity for one week, paying for space and staffing to accommodate the highest volume each month can be very expensive.
The ability to personalize is an important element of many successful subscription boxes. Customers pick and choose the contents of their subscription to suit their unique tastes. While popular, this model can be very labor-intensive, requiring significant product customization within a tight timeframe, not to mention a sophisticated technology solution to handle the complexity of numerous kitting configurations.
3. Advanced technology
As business grows, increasing operational velocity and efficiency is critical. You’ll need systems that can grow with you. Sophisticated order management systems (OMS) can optimize inventory, improve visibility, and process orders faster. In addition, material handling equipment such as conveyors, scanners and label applicators increase speed and accuracy while reducing labor for moving components and finished goods. Technology solutions like these can be expensive to implement and require frequent updates, however.
4. Tight delivery windows
Coordinating the timing of subscription deliveries can also be important – especially when the contents of each month’s box are promoted extensively in social media (a popular marketing strategy). When arrival dates must be carefully synchronized, deliveries need to be coordinated according to customer location so that subscribers in different parts of the country receive their orders at approximately the same time.
5. Cost control
Subscription services tend to have slim profit margins, so it’s critical to keep a close eye on costs. Transportation is one of the biggest cost centers. To minimize expenses, it can be helpful to use multiple, strategically located distribution centers, so you can reach customers via cost-effective two-day ground service. Rate negotiation, planned shipping volume and zone skipping to specific sortation hubs can further help to control costs.
Seek Support of an Expert
While these challenges may seem daunting, don’t let them deter you from adding this new service offering. Instead, consider partnering with an experienced third-party provider with subscription fulfillment experience.
Because they work with multiple customers, a third-party fulfillment provider has the flexibility to accommodate dramatic peaks and valleys in order volume. They can flex space and labor to meet your needs each month. They will also have the resources and established processes to customize a variety of configurations based on customer profiles, wants, interests, etc.
Successful fulfillment providers will have state-of-the-art systems and automation in place so you can benefit from the latest technology without investing in unnecessary overhead. Chances are, they also have a nationwide network of facilities you can leverage to help minimize transit times. Since they work with multiple shipping companies, you can leverage their buying power to help control transportation costs. You also can leverage their expertise to optimize transportation management.
Successful providers will have an efficient start-up process that includes thoughtful pre-planning and proven processes. They are also likely to have expertise in handling multiple sales channels.
Subscription services offer retailers an exciting new sales channel. An experienced third-party provider can give you the competitive advantage you need to stand out from the crowd.