Are Subscription Goods Startups Hitting a Wall?

ShoeDazzle, which launched as a subscription-based shoe sales site that delivered a pair of shoes every month for $39.99, has gotten rid of its subscription model in favor of a much more standard, pay-per-item ecommerce setup. Founded in 2009 by a group that includes reality TV star Kim Kardashian, ShoeDazzle was at the forefront of the new trend of online subscription-based goods sales, and has secured an impressive $60 million in funding to date. But is its departure from the subscription scene a sign of things to come for the still-nascent monthly buying market?

The shoe sales site, which is also expanding into dress and lingerie sales in addition to shoes and accessories, will still be offering monthly content, says CEO Bill Strauss, via a curated selection of ShoeDazzle content, but the monthly fees are being chucked in favor of a pay-for-anything model.

“With monthly fees as part of the model, we’ve been able to build a great business with 10 million members and now is the time to expand even further,” Strauss said about the decision. “We view this as an expansion of the model, as we want our fashions to be available to every woman in the country – this shift away from monthly fees will help us accomplish that goal.”

The change makes ShoeDazzle much more like a traditional ecommerce site, but Strauss emphasized in our interview that ShoeDazzle’s model still offers plenty to differentiate it from big players in online retail like Amazon and Zappos. He pointed to the site’s price point (everything on ShoeDazzle costs $39.99, with free shipping), its styling advice and personal service, and its philanthropic programs as examples of how ShoeDazzle is different.

Still, subscriptions were arguably the main defining trait of ShoeDazzle at launch, and it’s a model that’s been embraced by a number of services, including DollarShaveClub, BeachMint and BirchBox. Subscriptions are everywhere, but ShoeDazzle’s move could be the crack that precedes the crumbling of the entire dam.

On the surface, ShoeDazzle isn’t saying anything bad about the subscription payment model it’s scrapping. In fact, Strauss repeatedly framed the decision as one of enabling the site to go after more users and revenue, not a way to reverse any negative trend.

“By reducing the friction to buy and adding new options for apparel, we believe these changes will have a positive impact on new members and revenue, but as a private company we do not comment on specific revenue numbers,” Strauss said, when asked whether average revenue per user has remained steady along with user growth, which is up to 10 million from 3 million in June 2011. “We’re pleased with current client engagement on our site and we expect that with the changes announced we are poised to increase that engagement.”

But a company doesn’t just make a decision like scrapping the revenue model that caught them so much attention to begin with lightly. And subscription payment models for goods have a checkered past; Columbia House eventually shut down much of its operations, with its Canadian wing filing for bankruptcy in 2010 and its business practices called into question with a 2011 class action lawsuit.

Most modern subscription services offer no commitment agreements, which avoids a lot of the bad memories brought up by Columbia House. But BeachMint, which operates celebrity-backed niche subscription sites like StyleMint and JewelMint, doesn’t sell anything on a per-item basis, it requires users to sign up for a monthly subscription and items are sent monthly based on a user’s taste profile. And the fact remains that selling anyone on a recurring fee service for something that arrives at their door physically and often involves limited buyer choice is a tough prospect. If a buyer is disappointed even once by what arrives, they’ll likely drop out and not sign up again, whereas having an isolated bad experience with a traditional ecommerce store doesn’t mean you’re on the hook month after month, so you’re much more likely to become a customer again down the road.

Subscription services sell themselves as serendipitous discovery tools in some cases, and as personalized delivery mechanisms in others, but in all cases the chances of running up against customer ennui or exasperation is much higher than with a traditional business. ShoeDazzle’s change in focus is about increasing its flexibility for users, in the hopes that it will help it continue to grow, and that could work for a company with its kind of critical mass, but don’t expect all subscription-based startups to fare quite as well.

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