A CEO's Insight on the McKinsey & Company Subscription Box Report

This article has been cross-posted from the website of Bulu CEO, Paul Jarrett.

This McKinsey & Company report on Subscription Boxes came across my email around 2:00 am on Tuesday, and I can’t stop thinking about it. All the kudos, props, hat tips, etc. to the authors – it’s got some incredible insights into the Subscription Box world. This report would, however, leave me with a few questions if I were not already familiar with the industry. So, I’m thinking through the report like it was about steel manufacturing customers or circus goers instead of something I know… let me break it down since my team and I have been living and building Subscription Boxes 24/7/365 for over six years pioneering the industry. 

The Subscription Box Market Size is...???

The #1 question that I get from brilliant people at top companies is “How big is the Subscription Box market?” What they should be asking is, “How is a Subscription Box defined?”

McKinsey & Company reported that the subscription market is $2.6B, but it’s important to note [as they do on page 1 :)] that their numbers reflect subscription e-commerce revenue for the top 500 retailers only. That leaves out a considerable portion of the pie for "Subscription Boxes"; $2.6B is just a slice of the total Subscription Box market. When you look at StitchFix alone, they’re projecting over $1B in revenue this year. 

My main point? When talking about the Subscription Box market, the first step is to define what a “Subscription Box” is to you. 

Subscribers Buy Subscriptions

Don’t overcomplicate things. Stop marketing on a product or a demographic and market for the behavior: subscription purchasing. Young, trendy women are the Subscription Box market. McKinsey & Company hit the nail on the head but then added information about the broader audience which might distract some readers from the point.

Business Models Matter

A magazine isn’t just a magazine: there are catalogs, local zines, glossy art books, gossip rags, etc. Saying there’s one type of Subscription Box model is like saying there’s one type of print magazine. (This is one of those things we do all day every day - uncover the right model for potential clients that come our way.)

Matching supply and demand, like McKinsey pointed out, will always be the challenge. Taking it back to basics can help! What’s your goal? What's the "why?" of the Subscription Box? Is it customer Acquisition, Activation, Retention, Referral, Revenue?

Your Subscription Box can be a fancy direct mail piece, R&D, excess inventory dump, new product platform and thousands of other things, but your Subscription Box can't be ALL of those things. Know your why. Start with the end in mind. 

Subscription Boxes can work if you have the why and specific goals, model it out and manage your cash wisely (managing your cash is a whole new blog post.). If your plan is “sell more, faster,” you’re fucked. You need to be thinking along the lines of specific units of measurements like 5% conversion rate on the coupon in the box, $5 CAC and $200 LTV, etc. and intertwining those with your why and your goals. Then, a Subscription Box can become a valuable tool in your arsenal. Created and executed correctly, a Subscription Box is a tool that every retailer could use but should at least understand. Not understanding a Subscription Box right now is like not understanding Amazon ten years ago.

Again, hats off Tony Chen, Ken Fenyo, Sylvia Yang and Jessica Zhang from McKinsey & Company! Great report, much needed and hopefully, my commentary helps folks find even more value in the McKinsey findings.