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Zuora Inc.

08/23/2019 | News release | Distributed by Public on 08/23/2019 18:23

When Will Retail Fight Back?

ByTien Tzuo August 23, 2019

Last week, Bloomingdale's launched a fashion subscription program - four pieces of clothing a month for $149, with unlimited substitutions (Urban Outfitters and Anthropologie have also recently jumped in as well). This week, it was Macy's and Banana Republic. Today there's even a third-party provider called Caastle (Clothing as a Service - get it?) that helps manage these kinds of programs for fashion retailers.

Does this mean retailers finally get it, and are embracing the Subscription Economy? I'm not so sure.

I often get asked about which industry will move to subscriptions next. I always have the same answer: follow the disruption. If there's a new digital entrant that's freaking out an established industry, like Uber did with the automotive industry, then that's also often a catalyst for a broader shift towards services and recurring revenue models. That's certainly what Zuora is seeing right now with regards to connected car platforms.

That's also why retail has been so puzzling to me. They've seen the biggest disruption of all, thanks to certain a Seattle-based book vendor that's currently taking over the world. But they haven't done anything except watch it happen! We've all read the headlines about zombie malls and the retail apocalypse - UBS expects that 75,000 more stores in the US will be forced to close by 2026. So when are these guys finally going to fight back?

Sure, there's been some innovation. We've seen companies like Stitch Fix and Rent the Runway come out of nowhere and define a new category. We've seen the arrival monthly subscription boxes and food delivery services, though there have been some notable flame-outs in that space (as we discussed at Subscribed last year, their churn rates are brutal). Nordstrom went out and bought Trunk Club. But Nordstrom stores still feel very familiar.

Same old, same old.

Retailers still seem to be obsessed with shipping product, and see monthly boxes as just another channel versus part of an overall experience or relationship. They don't create a unified cross channel experience, blending offline with online. Their e-commerce sites and retail stores operate completely independently. Amazon Prime, on the other hand, was never about monthly shipments, or even free shipping. It was about offering every commercial product in your life that's usually within a five mile radius, from books to movies to groceries, so that you go to Amazon to meet all sorts of everyday needs.

Which is why I'm still skeptical. I'm still not seeing the signs of a broader shift. As I wrote in a Linkedin post and later discussed in the book, the few retailers that really seem to get it are flipping the script - emphasizing their online experience first, then supporting it with a great omnichannel brick-and-mortar environment. They're looking at foot traffic not as a means to an end, but as a potential membership acquisition tool. They're focusing on cultivating relationships, not maximizing transactions. And they're turning their stores into compelling showrooms that complement their online experiences, as opposed to tired warehouses.

I quote an analyst named Reid Greenberg who says: 'It isn't that retail is dead. Roughly 85-90 percent of retail takes place in brick-and-mortar locations. But bad brick-and-mortar is. These mall-type department stores are faced with many challenges because they aren't connecting with shoppers in the way they want to be connected with. Consumers already know what to expect when walking into one of these stores.' Again - same old, same old.

I hope it happens sooner rather than later, but this shift feels like it's going to take a while. We shall see.

For more insights from Zuora CEO Tien Tzuo, sign up to receive the Subscribed Weekly here.

And check out his book SUBSCRIBED: Why the Subscription Model Will be Your Company's Future - and What to Do About It.