As the cost of living crisis begins to tighten its grip, retailers are having to find new ways to engage with shoppers and entice them to spend. While the traditional tropes of marketing and personalisation are of increasing importance in these fiscally challenging times, some retailers are exploring how else they can get their share of increasingly skinny wallets.
Perhaps the most striking has been the switch to subscriptions. The subscription economy has grown strongly over the past few years, with some goods being ideally suited to this model. What is interesting is that this way of locking customer in is being expanded into a range of other categories.
In fact, research out this week points to many businesses that already offer subscriptions looking to expand what they do. More tellingly, however, the model is seeing even greater growth among retail sectors that, traditionally, haven’t entertained the idea.
The research suggests that DIY and home improvements, homeware and furniture, technology businesses and department stores are all looking at how to tap into this area. In fact, 76% of DIY retailers are actively looking at how they too can benefit from offering subscriptions.
The downside is that many of these businesses – those new to offering subs and those that are already doing so – are having to cut prices to sweeten the deal. Pragmatically, retailers know that consumers are spending less – and are likely to continue to spend less and less in the coming months – and so loyalty and repeat business, even at a lower price point, is attractive. Subscriptions that offer real value lock consumers to that brand – something that will be crucial in the downturn ahead.
One businesses that knows this better than others is MusicMagpie. Reporting its H1 22 results this week, it has seen revenues and profits drop – a direct result it says of restrained consumer spending – but has seen its rental scheme for tech, essentially a subs service, grow over the year so far. Consumers, it seems, are increasingly looking at renting some goods.
This is especially true among younger shoppers. Across the country, an average of 21% say they are likely to sign-up to new subscriptions before the end of the year; with those aged between 18-34 reporting the highest intention (35%), and regionally, those in London are most likely (33%). The same two demographics are also more likely to buy subscriptions as gifts for others: 55% and 56% respectively, compared to a national average of 42%.
The other tack that many retailers are taking is selling through marketplaces. Third-party marketplaces, led by Amazon, Alibaba, Pinduoduo, JD.com and Walmart, already account for 56% of global ecommerce. By 2027, this is going to be 59%, accounting for $4.3trn in sales.
This is emblematic of how both retailers and consumers are embracing marketplaces as a way to shop. The drivers here are very similar to those pushing the subscription economy: cost efficiency. For shoppers, marketplaces are the place to look for the best price for the goods they are after. As the cost-of-living crisis intensifies, they will be increasingly driven by price and will increasingly look to shop where they get the best deal.
Combining marketplaces with subscriptions is perhaps where the sweet spot exists – as Amazon knows only too well. 200 million people subscribe to Amazon Prime – although it will be interesting to see how this changes as its latest price hike kicks in – and even Asos has 1.3 million premium customers who pay to get free delivery and other perks. Within these sites, actual subscriptions to individual goods is relatively low, however it is growing. As the cost-of-living continues to pinch, there will be more of these services which will continue to reshape how retail works.