How long until subscriptions take over high street shopping?
The subscription economy is booming, and many businesses are turning to this model to futureproof in line with evolving consumer payment habits.
For several years the subscription payment model has been growing in popularity within a variety of industries such as digital entertainment, at-home fitness, online news services, eCommerce. Feeding into this trend, consumer and business-facing infrastructure is growing increasingly connected in an “Internet of Things”. The Economist reports that a trillion internet-connected devices may be online by 2035, and many will have in-built subscription-based services such as fridges that automatically order food when stocks are low and electric cars that automatically pay for parking and charging access.
At the same time there has been a shift towards eCommerce and mCommerce more generally. On the other hand, high street stores have been experiencing a decline in footfall over the same period, and so are having to look at new strategies to stay relevant and get consumers back through their doors. COVID-19 has accelerated these trends. We recently surveyed over 1,450 small and medium-sized businesses and 93% of in-store businesses that saw a decline in business due to the pandemic told us they are yet to fully recover their level of sales; in a previous survey 38% of consumers told us that they plan to shop online more even when COVID-19 is no longer a factor in their lives.
The issue for stores
Data from our latest research report Lost in Transaction: How COVID-19 has reshaped the SMB checkout shows that getting customers in and out of stores and checkouts as quickly as possible is a priority for businesses. 46% of stores say they have lost business recently because checkout times have been too slow, and 57% of businesses say reducing the amount of time customers spend at the checkout is their most important concern.
As consumers have increased their online shopping habits, launching an online presence has also become a priority for in-store businesses. 58% of physical businesses say that COVID-19 has forced them to refocus their business towards online sales for the foreseeable future. 23% of in-store businesses have launched an online checkout since the start of COVID-19 and a further 17% plan to do so in the near future. Overall, 60% agreed that COVID-19 has resulted in digital transformation being critical to the future of their business.
Data from our consumer research report Lost in Transaction: How COVID-19 is impact consumer payment trends’ which was based on the opinions of 8,000 consumers in April this year highlights convenience as the main reason why consumers are turning to subscriptions; 53% of respondents find subscriptions to be a more convenient method of paying for goods or services than what they normally use. Consumers have also become more familiar with the subscription payment model during the pandemic via entertainment subscriptions such as Netflix, Amazon Prime Video, Disney+, and meal prep box services like Hello Fresh or Gousto. Even brands such as Coca Cola have launched a subscription service for super fans.
In addition to convenience being the main reason consumers prefer subscriptions, 44% find subscriptions to be a better value than alternative options for a similar service of product.
Overall, 27% of consumers told us that they plan to increase the number of subscriptions they have in the next 12 months. And this trend is even more pronounced with younger demographics; consumers aged 18-34 already average 2.35 subscriptions (compared to an overall average of 1.78) and 37% plan to increase their number of subscriptions in the next 12 months.
The future of high street shopping
So, with the priority of getting customers out of stores as quickly as possible, how will stores make sales? Focusing on online sales is one strategy stores are implementing; moving customers through the store, and particularly the checkout, is another. In both cases, operating a subscription service is a payment option that some businesses should strongly consider, particularly considering consumers’ growing appetite to increase their number of subscriptions.
The subscription model solves the issue of keeping customers serviced and satisfied and removes the checkout bottleneck stores are currently experiencing. The subscription payment model is also growing in popularity, and it is clearly something that businesses have explored and actioned with 18% of businesses having already launched a subscription service where goods are regularly delivered during COVID-19.
An example which demonstrates that in-store subscriptions are becoming more of the norm on the high street is Pret a Manger, which recently launched the UK’s first coffee subscription service. An example where a well-known retailer has launched a subscription service online is department store Selfridges, which has rolled out fashion rental where consumers pay a monthly subscription for unlimited delivery in order to access clothes from physical stores.
The long-term outlook for subscriptions
The growth of subscription payments is set to be an ever-present trend in the future of commerce, and businesses need to react to this shift in consumer preferences. Even from personal experience I can attest that the subscription model is seeping into all facets of consumer spending; I am not a coffee drinker myself but have a wide variety of subscriptions beyond traditional services, including car club membership, printer ink and even flowers.
So retailers should approach the subscription model with the same attitude and rigour as they would any alternative payment type, first by understanding the benefits diversified checkout options would mean for them and then seeking a payments partner with expertise in maximising those benefits.
One important step to highlight in this process is to minimise the number of failed recurring transactions that occur once a subscription has been created. Paysafe partners with subscriptions management provider Vindicia, that specialises in this area, to recover more than 35% of failed transactions. These failed transactions may occur for reasons such as the recurring transaction causing the consumer to exceed a credit card limit, a card used to set up a recurring transaction is blocked by the issuer due to suspected fraudulent activity, or the card used to set up the recurring payment has subsequently expired. Regardless of the stage that a subscription business has reached, retention is the key to sustainable long-term growth.
For more information on recovering failed subscriptions, read our case study with TJC (formerly The Jewellery Channel).
The reasons for consumers being turned off from subscriptions must also be addressed. Tracking the number of subscriptions is a concern for 34% of respondents, while 35% said they had overpaid for a subscription they no longer use. The largest concern for consumers is subscriptions being too difficult to cancel, with 45% agreeing that they find themselves being tied into frustrating long-term financial commitments.
However, these concerns will not dampen the future of subscriptions in the main. High street stores that integrate this new payment method, maximise the benefits of operating a subscription model, and quell these potential consumer concerns will hold a significant advantage over their competitors. User experience will undoubtedly drive acquisition and retention for subscription businesses; a diverse and frictionless payment process is an essential element of user experience for reducing passive churn and increasing the customer lifecycle value.