This controversial new business model is taking over retail

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Is Kate Hudson's Athletic Wear Line a Scam?


Subscription services are taking over retail.

Birchbox, Carnivore Club, Dollar Shave Club, Stitch Fix — simply pay a monthly fee and you have products ranging from makeup to meat delivered to your doorstep.

But are subscription retail models all they are cracked up to be?

Recently, a scandal involving Kate Hudson's athleisure company Fabletics and its parent company JustFab, shed light on the fact that not all subscription service companies make the fine print so easy to discern.

Once you're a member, many consumers complain it's tough to get out — resulting in unwanted recurring credit card fees.

Just a few years ago, people were praising the e-commerce subscription model. At the end of 2013, Entrepreneur suggested that subscription service model was a hot e-commerce trend for the following year.

Birchbox, Entrepreneur pointed out, was successful in part because customers frequently bought the full-size version of the makeup samples that come in each monthly box.

And subscriptions create customer loyalty, Entrepreneur noted out at the time.

Fabletics home pageFacebook/Stitch FixBut now it's 2015, and Fabletics sheds light on several challenges that subscription based retailers face. Namely, recurring billing problems from indiscernible clauses in tandem with poor customer service.

"Any recurring billing scheme is problematic from a customer service standpoint unless you err on the side of the customer even when you may not be legally obligated to," Sucharita Mulpuru of consulting firm Forrester Research said to Business Insider in an email. "Clearly this company hasn't."

And while it's easy to lure customers in, they don't stay.

"The biggest challenge for these companies is that they have huge churn," Mulpuru explained.

After all, while subscription services may give consumers little tastes of products, the appeal can ultimately wear off, especially if the product doesn't cater to a necessity.

Carnivore ClubFacebook/Stitch Fix

"They grow quickly because consumers are eager to try new things, but then consumers stop buying because they find that they don't need the product or service. Then the company needs to figure out how to reactivate lapsed customers or to find new customers. It's a big challenge," Mulpuru explained.

Ultimately, the way to stay on top if you're a subscription model is to have something people actually want and will continue to use.

"Subscriptions can be powerful," Mulpuru explained, "it just needs to be compelling product and strong customer service to support it. Amazon Prime and Netflix are two outstanding subscription models. Shoedazzle [of JustFab], as an example, wasn't quite so successful or loved."

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SEE ALSO: People are calling Kate Hudson's wildly popular clothing company a 'scam'


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