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General & Grocery Retailers Look to Subscriptions

1 min read · 188 views Bong-Geun Choi Oct 11, 2022

General and grocery retailers[1] are increasingly looking to subscription models to counter plummeting consumer loyalty and competitive pressures from e-commerce, subscription boxes, and quick retail.  How are retailers using subscriptions to differentiate their products and shopping experience?

 

Increased Challenges Exacerbated by the COVID-19 Pandemic

Retailers faced competitive challenges prior to the pandemic.  However, 62% of consumers changed their shopping habits during the pandemic, and 30% changed the stores they patronize for better value and convenience.[2] 

 

Quick retail and subscription boxes have posed considerable challenges to retailers.  For example, quick commerce digital retailers generated about $20 billion in revenue in 2020 alone.  Subscription boxes like Dollar Shave Club and Harry’s shrunk Gillette’s market share from 70% to 50% in the nine years ending in 2021.

 

Shifting Consumer Preferences

Subscriptions may help retailers adjust to shifting consumer preferences.  Subscribers list convenience as the top perceived benefit, followed by cost savings and more variety.

 

Potentially more important to retailers is that 64% of subscribers feel more connected to companies with whom they have a direct subscription experience versus companies whose products they can purchase one-off. Thus, subscriptions may help retailers appeal to consumer preferences and build brand loyalty.

 

How Are Retailers Using Subscriptions to Improve the Customer Experience?

An examination of 15 retail subscription programs found the top five similarities among plans:

  • 13 out of 15 offer free or fully discounted delivery.
  • 11 out of 15 have discounts at the core of their value proposition.
  • 11 out of 15 have started using free trials to bring in customers.
  • 9 out of 15 are within a comparable range - $10.70-$12.99/month.
  • 9 out of 15 propose annual subscriptions providing customers with a discounted deal compared to monthly payments in exchange for extended commitment and upfront payment.

 

How Are Retailers Using Subscriptions to Differentiate Themselves?

Five major differentiators among retailers offering subscriptions include the following:

  • In-store – using subscriptions to improve a shopper’s in-store experience.  This may include early shopping hours, dedicated in-store priority lines, priority access to frequently sold-out items, etc.
  • Out-of-Store Shopping Experience – using subscriptions to focus on the out-of-store or online shopping experience. This may include priority delivery times for subscribers, personal online shoppers, priority access to items that sell out quickly, etc.
  • Lifestyle Experiences – creating unique experiences for subscribers that are often linked or adjacent to core offerings and overlap with the consumer’s interests.  These may include food and wine experiences, free lifestyle publications, monthly goodies like pizza or chocolate, etc.
  • Loyalty Perks Beyond Discounts – which may include early access to promotions or events, members-only deals, double loyalty points, etc.
  • Financial Services – retailers may offer financing for subscribers, including no-interest or no-fee credit cards.

 

As competitive pressures increase, subscription models may help retailers counter these challenges while building loyalty by providing differentiated products and services for subscribers.

 

The Fount Subscription Economy ETF (SUBS)

The Fount Subscription Economy ETF (SUBS) seeks to provide investment results that, before fees and expenses, generally correspond to the total return performance of the Fount Subscription Economy Index.  The Index was designed to measure the performance of companies engaged in the business of providing subscription services, i.e., companies that sell products or services for recurring subscription revenue.

 

SUBS may present an attractive vehicle for individuals to gain exposure to companies offering subscription-based pricing models.

 

For a full list of holdings, please click here.


 


[1] A general retailer sells a wide variety of goods, excluding grocery and food products; we will refer to general and grocery retailers collectively as retailers

[2] All data sourced from: How General & Grocery Retailers are Fighting Back with Subscription Models, Subscribed Institute, March 2022


 

Bong-Geun Choi

Chief Economist

bchoi@fountinvestment.com

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Investors should consider the investment objectives, risks, charges and expenses carefully before investing. For a prospectus or summary prospectus with this and other information about the Fund, please call 855-425-7426 or visit our website at www.fountetfs.com. Read the prospectus or summary prospectus carefully before investing.

Exchange Traded Concepts, LLC. serves as the investment advisor to the Funds. The Funds are distributed by SEI Investments Distribution Co., (SIDCO) 1 Freedom Valley Drive, Oaks, PA 19456. SIDCO is not affiliated with Exchange Traded Concepts, LLC. or Fount Investment Co. Ltd.

Risk Disclosure:

 

Investing involves risk, including possible loss of principal. There is no guarantee the Funds will achieve their stated objectives. In addition to the normal risks associated with investing, international investments may involve the risk of capital loss from unfavorable fluctuation in currency values, differences in generally accepted accounting principles, or social, economic, or political instability in other nations. Emerging markets involve heightened risks related to the same factors, as well as increased volatility and lower trading volume. 

 

The Funds’ concentration in an industry or sector can increase the impact of, and potential losses associated with, the risks from investing in those industries/sectors. For MTVR, the Fund may be concentrated in the entertainment and interactive media & services industries. The entertainment industry is highly competitive and relies on consumer spending and the availability of disposable income for success, which may cause the prices of the securities of companies to fluctuate widely. The prices of the securities of companies in the interactive media & services industry are closely tied to the overall economy's performance. Changes in general economic growth, consumer confidence, and consumer spending may affect them. MTVR may also be subject to the specific risks associated with metaverse companies. These risks include but are not limited to small or limited markets, changes in business cycles, world economic growth, technological progress, rapid obsolescence, and government regulation. Smaller, start-up companies tend to be more volatile than securities of companies that do not rely heavily on technology. Metaverse Companies may rely on a combination of patents, copyrights, trademarks, and trade secret laws to establish and protect their proprietary rights. There can be no assurance that these steps will be adequate to prevent the misappropriation of their technology or that competitors will not develop technologies that are equivalent or superior to such companies’ technology.

 

For SUBS, the Fund may be concentrated in the software industry. Technological changes, pricing, retaining skilled employees, changes in demand, research & development, and product obsolescence can affect the profitability of software companies causing fluctuations in the market price of company securities. 

 

Both Funds are subject to communication services sector risk, which can involve the same risks as being concentrated in the software industry. Network security breaches, potential proprietary or consumer information theft, or service disruption can negatively affect companies’ stock prices.

 

The Funds are non-diversified. The Funds are new and have limited operating histories for investors to evaluate. New and smaller funds may not attract sufficient assets to achieve investment and trading efficiencies. In addition to the normal risks associated with investing, investments in smaller companies typically exhibit higher volatility. 

0 MTVR · SUBS
MTVR · SUBS