WJR Business Beat: Subscription Services Model Declining (Episode 458)

On this Business Beat, Jeff says subscription services are taking a big hit with the return to in-store shopping.

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Good morning, Paul!

What goes up must come down, right? Well, in this case, yes, indeed, it’s so. During the pandemic, we saw a surge in signups to subscription services. You know, you sign up and each month you receive a box in the mail with, say, your favorite grooming products or perhaps a meal preparation kit, by way of example. And it offered convenience along with that psychological fulfillment due to the surprise and delight of opening up your package and seeing what you received.

But now with consumers returning to in-store shopping and watching their spending due to inflationary pressure, we’re seeing this business model get hit hard as consumers scale back on these subscription service signups. The Kearney Consumer Institute, which tracks consumer behaviors, even calls it the subscription apocalypse.

Payments.com reports that at the end of 2021, the average U.S. consumer had five such subscriptions and spent an average of $38 per subscription. That means that the average consumer spent $200 or more per month on these subscription services. But now the Kearney survey finds that overall 40% of consumers plan to scale back on their subscriptions and reduce their spend to less than $50 per month. And that puts these subscription models back at pre-pandemic levels of adoption and effectively wiping out all of that dramatic growth.

It was a great run while it lasted, Paul. Direct to consumer subscription models are indeed a very attractive way for businesses to do business. They inherently drive recurring revenue while providing a direct connection to consumers, which can be built on, and which provides the opportunity to access valuable data as well. But unfortunately, it’s looking like this gravy train is at least going to see significant slowing in this current climate.

I’m Jeff Sloan, founder and CEO of startupnation.com, and that’s today’s Business Beat on the Great Voice of the Great Lakes, WJR.

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