Subscription Box Model Loses Its Glow After Blue Apron's Epic IPO Fail

Photo Credit: Justin Lane/EPA/Shutterstock
December 19, 2018

By Michael Teich

Subscriber boxes beware. The business model made popular by companies like Blue Apron, Stitch Fix, Birchbox, and Dollar Shave Club is being put to the test as it tries to prove to investors is it a sustainable strategy.

Blue Apron's epic fail in the public market has been seen as a bright red flag for the viability of the subscription box business. Shares of the meal-kit company slid under $1 on Tuesday. Blue Apron's 90 percent drop makes it the third-worst U.S. IPO in the last 10 years, according to research from Bloomberg. Problems for Blue Apron include competition from Amazon ($AMZN) and other grocery companies, as well as high turnover rates, hefty marketing costs, and fulfillment center delays.

Stitch Fix is hoping it can avoid the same fate as Blue Apron ($APRN), but slowing growth has been a real concern. CEO Katrina Lake guided the company through a strong start after the personal-styling service went public in November 2017. Shares hit a 52-week high on September 18 this year, but the stock has cratered following back-to-back disappointing earnings reports. In its first fiscal quarter of 2019, active clients grew 22.3 percent from last year year, to 2.93 million, falling short of analyst estimates for 2.95 million. Stitch Fix ($SFIX) also spooked Wall Street after it projected second-quarter active client growth to be "relatively flat" in the next quarter. However, Stitch Fix told Cheddar it is encouraged by its $443 net revenue per active client, which is a 2 percent increase year-over-year.

Integration with brick-and-mortar retailers could be a catalyst for growth for companies relying on the subscription box model. Birchbox is now breaking into retail through a partnership with Walgreens. Katia Beauchamp, the company's CEO, said in an interview with Cheddar that Walgreens helps Birchbox accomplish its goal of reaching a large pool of consumers who may not necessarily be seeking out beauty products. Curated selections of Birchbox products will be available at 11 Walgreens across major metropolitan markets.

The paltry performance of Blue Apron and the volatile stretch by Stitch Fix may cause private companies with similar models to rethink a future on the public market. An alternative option that could result in less scrutiny and pressure for growth is an acquisition by a larger, more established brand. That's the route Dollar Shave Club selected when it was acquired by Unilever in a $1 billion all-cash deal in 2016. Larger brands have been looking to get exposure to the subscription e-commerce market, which has grown by more than 100 percent a year over the past five years, according to consulting firm McKinsey.

And while Wall Street may be skeptical of subscription box services, trend-setters are still embracing the business model. In November, LeBron James, Cindy Crawford, Arnold Schwarzenegger, and Lindsey Vonn announced they are joining forces to launch a health and wellness company called Ladder, a direct-to-consumer start-up sending energy powders and other supplements to members.