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Birchbox: subscribing to a 360-degree retail model

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Birchbox, known for its monthly subscription boxes of beauty samples, is experimenting with bricks and mortar retailing by opening a pop-up store on London’s Carnaby Street. Emma Herrod met up with Savannah Sachs, Managing Director, Birchbox UK, to discover how the company is taking its online innovation offline.

The main interview in the last issue of InternetRetailing featured Ross Clemmow, Managing Director – Retail, Digital, Food & Events, Debenhams. He spoke about how the retailer is trying to transform its business to capitalise on the social aspects of shopping in store as well as capturing a bigger slice of the beauty market through services such as Blow Ltd and finding new ways to engage with the members of its Beauty Club.

In this issue, I again look to the beauty industry for a view on how retail is changing. Instead of speaking to a traditional retailer, however, I’m focusing on Birchbox, a 7-year-old disruptor not just of online – as the pioneer of subscription boxes – but also of business models, and how this new breed of retailer puts the customer ahead of its business model. Savannah Sachs, Managing Director, Birchbox UK, has shared with me some very interesting insights – which are applicable to all retail categories and retailers old and new – into how this new kid on the block sees its customers and its relationship with them.

For readers who don’t know Birchbox (it has only a 17% brand awareness in the UK), the company launched in the US in 2010 with the aim of building “the beauty company of the future”. It conducts part of its business through monthly subscription-based beauty boxes, which each contain 5 beauty samples personalised to the individual customer. It also sells full-sized beauty items direct from its website.

Sachs explains that when the business started, just 2% of beauty items in the US were bought online, so the sector offered an opportunity for growth and was open for disruption. Sampling – as used by department store beauty concessions where shop assistants give free samples of their products to shoppers who have just made a purchase – is about recognising customer loyalty and not driving customer acquisition. “There was also no way to track ROI,” says Sachs.

Birchbox’s founders also based the business on meeting the needs of customers who aren’t ‘beauty junkies’ and don’t know exactly what brand and products they want to buy. Lots of new products are launched in the beauty industry every year and many shoppers are confused about what they are and how to use them.

So, Birchbox acts like a best friend beauty editor, introducing its customers to different skincare and hair care products as well as makeup and accessories, curating the selection in each monthly subscription box to the individual customer. When a new customer signs up for the service online, they are asked to fill in a questionnaire about their hair concerns, skincare regime and beauty style. This information is used to put together their first subscription box. Data and proprietary algorithms are then used to deliver “an exciting and fresh product assortment each month”. It also means that a customer won’t receive the same product in consecutive months.

Tapping into the potential growth of online purchasing of such products, Birchbox also offers a seamless path for subscribers – and other people – to buy full-sized versions of them via its website. While the company has one million subscribers across 6 markets, some 35% of its revenue in the UK comes from the sale of these full-sized products, proving that its try, learn and buy principle works. This goes on to work as an acquisition model for beauty brands, which work closely with Birchbox to ensure they reach the right customers among its subscribers.

As part of the company’s discovery ethos, there are plenty of tips and editorial content across the website and shared on social channels to help its target customers of under 30s learn more about individual products.

“We are competing against non-consumption and creating demand,” says Sachs, so subscribers are happy for someone to find the best products for them. The majority of sales are incremental rather than bastardising other channels for the beauty brands. As she point out: “If a customer subscribes for a year, they increase their spend in prestige beauty by 70% in the following year.”

The average subscription period is 8-10 months, explains Sachs, with customers becoming VIPs after 6. At this point, they get a 15% discount on all full-size products. “We make sure it’s rewarding to stay with us for the long term and that you are both enjoying your monthly box experience and also converting to full-size purchases and getting some value back from our loyalty programme,” she says.

The company operates in the US – where it is headquartered in New York – the UK, France and Spain with deliveries being made to Ireland (from the UK) and Belgium (from France). The UK is its fastest growing market. It has 150,000 subscribers here and delivered 1.5 million boxes in 2017. “35% of our revenue in the UK comes from full-sized products and that portion of the business in terms of net sales grew 84% year-on-year in 2017,” she adds.

“We are a 360-degree retailer with subscription boxes being part of that,” says Sachs. “We are part of the personalisation economy with discovery at our core.” Interestingly, she points out that the company is loyal to its customers and not to its business model, so Birchbox may look different in 3-5 years time. “Today, the subscription model is the best way to meet customer needs, but we could and should and will evolve as customer needs change in the future.”

Sachs adds that staying close to the customer, maintaining its agility and its test and learn ethos, will be important to keeping the customer at the centre as the company gets bigger, rather than it becoming set in its ways and sticking to a rigid business model.

Looking at the growth in its current model, it probably won’t be making major changes any time soon, but even a year can be a long time in ecommerce. Birchbox’s rapid expansion proves that subscription services have great potential – and that it and the copycats it has spawned are “only just scratching the surface”.

It certainly isn’t standing still. “We’re constantly testing different offers,” Sachs says. These include enabling UK customers to pick one of the items to be included in their beauty box, and delivery choices in the US and France which allow customers to buy a full-sized product and have it delivered with their next subscription box for free rather than receiving it sooner but in a separate shipment for which they have to pay.

PLATFORM


Everything that Birchbox does is driven by its websites and the customer data it collects so the boxes, site and marketing can all be personalised. A Magento platform underpins the autonomous businesses across the 4 countries in which it operates. This is managed by a tech team at its New York headquarters.

This team has recently implemented a new mobile front-end on the Facebook React framework to make it more responsive and load faster. This is an important development since 65% of the company’s total traffic is via mobile devices.

As well as the Magento platform and custom pieces developed on and around it, Birchbox also operates a localised layer with content management for each country site. This ensures that the brands offered, the content, the language and the marketing messages match the way that each country team believes is best for their specific market and is delivered in a way that meets the needs of their customer base. “It makes it easier to adapt to local needs and innovation,” explains Sachs.

A UK Product Manager is responsible for the ecommerce site in this country as well as the digital roadmap and digital experience strategy. The digital experience is recognised as part of the Birchbox brand and its core value proposition and not a channel so the Product Manager has a seat at the table in the executive team, Sachs says. The Product Manager works closely with the New York tech team on execution of the roadmap meaning that aspects needed specifically for the UK site are implemented and tested along with developments required globally.

One such implementation is click and collect, which enables UK customers to pick up their subscription box and/or full-sized purchase. Although this service was developed and executed by the US tech team, Sachs says: “This is not an important feature for the US so they will not be rolling it out there.”

She explains that by operating in this way, each business can drive innovation differently. While each country has a need for a mobile-first approach, which can be implemented globally, for example, each has a different type of loyalty scheme. This means that lessons and best practice can be shared across borders, too.

The company is looking to replatform its back-end processes this year. It plans to take a more modular approach to ensure future agility as well as enabling more personalisation. It is also assessing buy versus build options.

Areas that differentiate the business are built in-house but those that require a bigger engineering team and investment that are difficult for the retailer to replicate are bought off the shelf, she explains, adding that the latter includes technology such as AI.

She adds: “The core part of how our subscription model works from a technical standpoint is that we know we have to build it ourselves because no one can or will do it better than us.”

Birchbox is reviewing its CRM and selecting an email service provider that utilises AI to enable it to push forward faster with effective, personalised emails and to make better and more efficient use of the data it has, rather than having to slice and dice it using the current more manual process.

Sachs says there is one main reason why the company has decided to go for a more modular platform: “We’d rather switch and disrupt as we go rather than tying our wagon to one big platform.” She adds that start-ups can offer unique solutions such as search: “There are starts-ups focused on solving unique challenges or opportunities within ecommerce and those companies are doing a great job in each of those areas. So a really interesting and viable way to move forward very quickly is to pick up each of those pieces rather than assuming one platform or provider is going to do the best job possible across each of the ecommerce touchpoints.”

Harnessing the power of data is one of the key opportunities for Birchbox, and it understands how customer information and insight can quickly drive forward personalisation. The retailer already captures data about each customer’s demographic, the samples they have received, what they’ve viewed online, the products they’ve rated and the ones they have bought – and from which brands. Some 75,000 reviews have been written on the UK site alone. All of this is used to deliver a personalised ecommerce site and to personalise emails as well as the samples that each customer is actually sent. In addition, customers are invited to complete a monthly survey.

B2B


Data is also an important aspect of the relationships that it builds with brand partners and is a driver of its try-learn-buy ethos. Brand partnerships are handled by each in-country business and Birchbox works closely with each brand to ensure that they are reaching a qualified and truly incremental customer in a targeted way. Some brands also opt for their products to be offered across the different countries so they can test new markets – as well as new products – and acquire new customers.

In 2017, Birchbox worked with the Estée Lauder Companies to increase the group’s reach to customers aged 25 to 34. Surprisingly, admits Sachs, 75% of Birchbox customers have not bought from some of Estée Lauder’s main brands.

While the ROI is in the sale of full-sized products on its website, Sachs is keen to point out that with 48% of customers aged 30 or below, “we’re a way for brands such as Estée Lauder to recruit that next generation”.

Another brand which has used Birchbox to acquire new customers is Benefit. It discovered that 22% of the customers buying its brand from Boots stores had learnt about it on Birchbox.

This marketing works across all channels with social proving particularly important for the company. It has brought this sense of social fun and gamification into its first store in the UK, a pop-up shop that it opened in Carnaby Street in November to capitalise on the busy Christmas trading period. It was due to close at the end of January once a quieter period had been assessed, but the decision has been made to keep it open until the end of March.

STORE


Birchbox already operates a store in New York and in April 2017 it opened another one in Paris. The London store is its opportunity to test the market further and to gain an understanding of how offline impacts online sales in the UK.

The first thing that strikes you about the store design is the sense of fun. Shoppers are invited to put together their own Birchbox ‘pic-‘n’-mix’ style in an area which contains ceiling-height displays of skincare, hair products, makeup and accessories. As with the online boxes, shoppers can add 5 items to an elegant box, which is then fastened with ribbon and bagged by a sales assistant. Customers can also sign up for further boxes at a discounted rate.

A photo booth area enables shoppers to film an Instagram Boomerang and share it with friends via text or social media. Paper tags are available for them to write messages and add to a display like leaves on a tree.

The store’s major difference compared with most offline shops, though, is that it is merchandised in a completely different way. On display around the store are bottles and containers of the 100 best-selling items from the Birchbox UK website. Rather than being arranged by brand – which is how stores such as Debenhams and Boots merchandise their beauty areas – products in the Birchbox pop-up shop are displayed by product type, which is more akin to how people browse online categories.

Sachs explains that when buying an eyeliner, for example, an online shopper clicks on makeup, eyes, eyeliner and then browses through the products. The same principle has been applied to the physical shop. “We’re taking that digital navigation experience and bringing it into the offline store. That sounds simple but it’s disruptive,” she says.

This all adds to a sense of discovery, try, learn and buy – and hopefully return, either to buy full-sized products or sign-up for future boxes.

As this wave of starts-ups continues to take second mover advantage, pushing forward with its disruption of different market categories, it is a reminder that things can be done differently on the high street. Whether it’s possible to scale some of those ideas such as organising a store around what and how customers buy online or by just stocking the 100 best-selling items, and whether it would work across a store estate the size of some of InternetRetailing’s Top 50 is another matter. But being able to disrupt your business from within and remain loyal to the customer and not to your business model are things that everyone can learn from. Many brands and retailers have already disappeared from UK and global markets because their customers moved on and they then lost sight of them.

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