The Majority of Consumer Brands May Offer Subscriptions by 2023

The majority of direct-to-consumer (DTC) brands may offer subscription plans by 2023, according to a report released by e-commerce market intelligence firm PipeCandy.[1]  What is driving this trend?  How may consumers gain exposure to companies offering subscription plans?

 

Factors Driving the Growth of Subscriptions

The PipeCandy report estimates that nearly 75% of DTC companies will offer subscription pricing plans by 2023.  They attribute this growth to two main factors:

  • Ease of Entry – DTC brands can easily set up a DTC website on platforms such as Shopify and utilize third-party apps to enable recurring purchases.
  • Favorable Demographics – Millennials and Gen-Zers, representing 47% of the U.S. population, have entered the workforce in the last decade. They are more tech-savvy than earlier generations and more likely to utilize e-commerce platforms. Additionally, they are avid social media users and engage in online forums to discuss their interests. Companies have seized that data to create personalized, subscription-based experiences.

 

Rapid Growth of Subscription-Based Pricing Models

In the ten years spanning 2012 through 2021, the Subscription Economy Index[2] advanced 437% versus the 132% and 130% returns of the S&P Retail and S&P 500 indexes. 

 

Size of the Global DTC Market

The report also indicated that the global DTC subscription market was worth $58.3 billion in 2021, having grown at a compound annual growth rate (CAGR)[3] of 68%, over the past decade.  The U.S. subscription market, worth about $27 billion, is the largest segment of the global market.

 

According to the report, there are over 27,000 DTC companies in the U.S.  Additionally, there are over 225 million subscriptions and 61 million subscribers in the U.S., making for an average of 3.7 subscriptions per subscriber. 

 

Pandemic Effect

The COVID-19 pandemic helped to accelerate the growth of subscriptions.  In 2020, the gross merchandise value (GMV)[4] of the monthly subscription box segment spiked by 80%, with nearly 25% of U.S. consumers subscribing to this service. While that number is declining as the economy normalizes, it is still estimated to register a 20%-30% year-over-year gain in 2022 versus 2021.

 

Why Do Consumers Like Subscriptions?

The top reasons that PipeCandy’s research indicates that consumers like subscriptions include:

  • Saves time
  • No need to remember to shop regularly
  • More convenient than shopping in a physical store
  • Money-saving
  • Availability of higher-quality items
  • More variety in product offerings

 

The research highlighted the following reasons why consumers initiate a subscription:

  • Financial incentives (discounts, savings, etc.)
  • To try something new
  • Recommendation

 

The research indicates the following reasons consumers stick with a subscription:

  • Value for their money
  • Personalized experience
  • Convenience

 

Potential Growth Suggests an Investment Opportunity

The growth of the subscription economy suggests that there may be a potentially attractive opportunity to invest in companies that offer subscription-based pricing plans.

 

How may individuals gain access to companies in the subscription economy?

 

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 offer an attractive vehicle for individuals looking to invest in companies offering subscription-based pricing models.

 

 

For a complete list of SUBS holdings, please click here.


 


[1] All data sourced from: State of the US Direct-to-Consumer Subscriptions 2022 – Industry Report, PipeCandy, 2022

[2] The Subscription Economy Index (SEI) is designed to measure the growth in the volume of business for subscription-based products and services. The index is constructed by Zuora, a subscription consulting company and is not associated with the SUBS ETF nor is it the index that the fund aims to replicate.  the SP 500 is a stock market index tracking the performance of 500 large companies listed on the stock exchanges in the United States. The S&P Retail Index measures the performance of retail stocks within the S&P 500. Note that some companies that are constituents of the SEI are also constituents of the S&P 500 and S&P Retail Index.

[3] Compound annual growth rate, or CAGR, is the mean annual growth rate of an investment over a specified period of time longer than one year. It represents one of the most accurate ways to calculate and determine returns for individual assets, investment portfolios, and anything that can rise or fall in value over time.

 “Compound Annual Growth Rate: What Is CAGR? – Investopedia”

[4] GMV – the dollar value of all merchandise sold as part of subscription boxes.

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Bong-Geun Choi Chief Economist

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