Why Subscription Boxes Flopped in China | China Decoded, BoF Professional

In 2015, Birchbox was looking eastward. The New York-based beauty start-up was at the fore of a subscription box boom: it operated across six countries, formed relationships with a million users and was valued at $485 million the year before. China was a potential goldmine.

Besides the mainland’s evident size and rising spending power, co-founder and chief executive Katia Beauchamp was drawn to the fact that unlike shoppers in the West, which saw Birchbox’s core offering of curated beauty samples as a consumer’s right, Chinese had “been selling and buying samples for what seemed like decades,” she said. “We thought, well, we wouldn’t have to establish the why.”

The plans didn’t come to fruition. The company prioritised its home market, the US, before eventually expanding to countries like the UK and France, where it continues to target uninitiated “white space consumers” who “not only were not obsessed but were never interested in becoming obsessed,” said Beauchamp.

Entering China, an already beauty-obsessed market worth over $79 billion in 2019, according to Goldman Sachs, seemed incongruous with Birchbox’s core pursuits. Moreover, there were other significant obstacles: credit was less ubiquitous, people were skeptical about auto-rebilling and logistics were a challenge.

More than five years on, Birchbox isn’t the only subscription box player that opted out of China, even as the market became a crucial growth engine and progressive testing ground for fashion, luxury and beauty players alike. Tellingly, few Chinese upstarts have successfully localised the business model, a well-worn move that has grown domestic start-ups into beauty empires and tech giants.

Birchbox x Refinery29 subscription box collaboration. Getty Images.

Even as subscription boxes spanning beauty, food and wellness regained momentum in Western markets over the last year — two in five consumers signed up to a service since the pandemic began, according to British cashback firm TopCashback — China’s response remains muted. The reason, largely rooted in the market’s highly engaging digital ecosystem, reveals differences in consumer habits that even players outside the subscription business should note. And while subscriptions fail to take off, a similar offering is gaining traction.

The product discovery pipeline

“Chinese consumers are not used to subscription services as a way of making purchases, not just for beauty but in any categories,” said Alice Li, senior beauty analyst at Mintel. “They want to leave their options open and don’t want to commit, maybe out of mistrust in the brands.”

This explains why the likes of Birchbox, Ipsy, Glossybox, Shoedazzle and Stitchfix haven’t launched Chinese arms; it also signals the challenges that local companies like beauty sample subscription 1p1g, which went quiet on Weibo in late 2018, are facing.

China’s aversion to subscription boxes also comes down to the highly engaging and convenient nature of local e-commerce, which according to eMarketer will account for more than half of the country’s total retail sales this year. Subscriptions are a less attractive proposition when a shopper can repurchase a needed essential item and receive it in a few hours.

It doesn’t help that discovering products through influencer reviews and interactive social media livestreams has become a national pastime. “Consumers have gotten used to learning a lot about the products they are buying and really hyper specifying what it is they want to buy,” said Ben Cavender, Shanghai-based managing director at China Market Research Group. “Against that, it’s difficult for subscription boxes to succeed as consumers are giving up so much curation power to the subscription service.”

Once they get one product they don’t need or don’t like, they don’t think it’s value for money [anymore.]

Some fashion and beauty categories could defy the odds, but outliers are few and far between, and relatively small for the market. Take Nanrenwa, a men’s sock subscription, which was founded in 2011, raised 3 million yuan (around $460,073) in 2014 and has a community of 68,000 followers on Weibo. Cavender predicts that rather than apparel or accessories, the business model could better suit lower cost items like snacks, as vendors will find it easier to use data to tailor subscriptions to shoppers’ tastes.

And while value for money is a tenable reason for shoppers, especially younger ones, to subscribe, relying on this is a risk. “Young consumers [have] low budgets, low tolerance and low loyalty, but know beauty brands and products very well,” she said. “Once they get one product they don’t need or don’t like, they don’t think it’s value for money [anymore.]”

Buying into the unknown

Though subscription boxes haven’t caught on, China is proving much more welcoming to a different kind of box: the mangxiang surprise box, also known as mystery box or blind box.

The trend originated in Japan, where shoppers queue for fukubukuro, or “lucky bags,” at the beginning of every year despite not knowing their exact contents. The trend has since caught on across the globe and has been adopted by brands from Burberry to Colourpop Cosmetics.

Lucky bags, Fukubukuro in Japanese, lined up at a shop in Japan for New Year’s Sale, in December, 2019. Shutterstock.

In China, the trend gained ground with toys, a space led by Pop Mart, which sells collectibles for around $8 apiece without revealing which specific models customers will receive (the brand releases a line-up ahead of each launch). The business was founded by multi-billionaire Wang Ning in 2010 and is now worth around $7 billion; it listed on the Hong Kong Stock Exchange last December.

According to Pop Mart, over 90 percent of its shoppers are 15 to 30 years old; a report released by Guotai Junan Securities in 2019 revealed that almost 200,000 customers on Tmall spent over 10,000 yuan ($1,533) per year collecting blind boxes.

The concept quickly caught on in the beauty world. Take OnlyWrite, a beauty retailer that opened its first store in Wuxi last January. Since then, it has unveiled 11 stores across China and founder Zhou Jianlei plans on opening 100 more in 2021. As successful as the company may be, surprise boxes form only a small part of OnlyWrite’s business. The same goes for other brands, like Fresh, Sephora China, local beauty retailer The Colorist and L’Oréal’s My Beauty Box.

During Lunar New Year, Sephora even collaborated with Popmart on limited edition dolls and beauty blind boxes. Luxury brand Lanvin dipped its toes into the space last year by launching a WeChat game for Qixi festival featuring a virtual blind box vending machine where users could bid for chances to win items like sneakers and coffee mugs.

This kind of concept is better for fashion brands than beauty brands.

“It’s more of a marketing activity for now, to attract consumer attention, rather than a revenue stream,” said Li. At present, surprise boxes are largely being used to promote limited edition, rather than core, products. According to Li, most of them are being targeted at loyal customers, rather than new users. “It’s difficult for brands to attract new users that way,” she said.

And while surprise boxes are proving more popular among beauty players, fashion brands could also get involved. Considering luxury brands like Gucci have released collections featuring the likes of Doraemon and Mickey Mouse, dropping toys with Pop Mart’s strategy probably wouldn’t be a stretch too far. The concept could also be extended to accessories.

“This kind of concept is better for fashion brands than beauty brands,” said Li. “If customers want to buy skincare or cosmetics, trials are necessary. For fashion or accessories, it’s easier to like or buy it without seeing what it looks like [on your face].”

时尚与美容

FASHION & BEAUTY

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科技与创新

TECH & INNOVATION

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消费与零售

CONSUMER & RETAIL

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政治、经济、社会

POLITICS, ECONOMY, SOCIETY

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