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Subscriptions Shine as Retail Salivates Over Recurring Revenue

More than 80 percent of retailers describe nudging one-off customers into long-term recurring revenue relationships as a significant priority in their overall strategies, according to a study released by relationship commerce company OrderGroove in the January lead-up to the NRF Big Show.

Now, Urban Outfitters Inc. is the latest company to take the plunge into the recurring revenue clothing rental model, announcing the forthcoming debut of Nuuly, a platform built in house that gives women access to a selection of styles from the company’s stable of brands plus select vintage and third-party pieces for missy, petites and plus sizes. Pricing starts at $88 a month for a box filled with six items.

Retail guru Scott Galloway hammered home the recurring revenue opportunity at NRF, highlighting Amazon’s subscription membership as key to the e-commerce giant’s outsize performance and growth.

“If you look at companies that are adding extraordinary amounts of shareholder value, I would argue that the majority of them have this recurring revenue bundle central to their propositions,” he said.

Rent the Runway deserves much of the credit for demonstrating to the fashion retail industry that renting clothing not only works, but can create significant profits. Gwynnie Bee co-founder and CEO Christine Hunsicker developed a plus-size apparel rental business to prove the business case for access-based clothing subscriptions before bringing to market CaaStle, a turnkey rental platform used by Ann Taylor, Express, New York & Company and others. American Eagle and Tchibo also have bowed their own rental businesses recently.

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More than half (54 percent) of the companies OrderGroove surveyed believe recurring purchases will boost revenue this year and beyond, and most (86 percent) describe their subscription customers are more satisfied than nonsubscribers. Brands like Tommy Hilfiger and Michael Kors have admitted that new business models like rental and resale have them flummoxed at the moment but present a puzzle that must be solved.

Ordergroove CEO Greg Alvo said consumers inundated by a wealth of options are choosing to give their business with merchants that give them what they most want: convenience.

“Retailers who are not investing in frictionless relationship commerce programs are merely acquiring customers and absorbing the Cost of Customer Acquisition (CAC), only to lose profitability and Lifetime Value (LTV) to Amazon,” Alvo explained. “Amazon’s investments in programs like Prime for memberships, Subscribe & Save for subscriptions, Dash for IoT reordering and Alexa for voice reordering are all part of a master plan to build a recurring revenue business centered around the highest level of consumer convenience.”

Today, OrderGroove unveiled a new partnership giving merchants using BigCommerce’s e-commerce platform access not just to customer-facing subscription services but also options like text message-based reordering and membership programs.

“Online subscriptions have become a primary strategy used by brands to cement long-term customer relationships and differentiate their direct-to-consumer shopping experience,” BigCommerce CEO Brent Bellm, said. “By integrating Ordergroove, we equip BigCommerce merchants with the market-leading enterprise solution for product-based subscriptions.”

Research conducted by McKinsey last year found that 15 percent of surveyed consumers had signed up for at least one subscription and the largest retailers with subscription businesses had generated $2.6 billion in 2016. The consulting firm cited an appreciation for time savings and the value add of automated purchasing as a factor in why more men (42 percent) versus women (28 percent) have three active subscriptions.

RSR Research managing partner Paula Rosenblum believes subscription-based services are a useful tool to gather data on changing consumer tastes and preferences and a smart way to introduce new brands, but make less sense as standalone businesses separate from established companies.