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Is Birchbox starting to hit some scaling woes?


Subscription commerce is hard.

ShoeDazzle pivoted from it. GuyHaus failed with it. BeachMint overdid it. It seemed like the era of subscription e-commerce was seeing its final days. But through the tough times, a few companies squeezed past big obstacles and started to succeed.

Birchbox is one of them. The company sends monthly samples of beauty, lifestyle, and grooming products to users. It didn’t fall into the subscription pithole of paying loads to acquire customers, only to have them quit the service after a month or two.

It just kept growing, going from an estimated 100,000 subscribers in February 2012, to 200,000 in October 2012, to a reported 400,000 by August 2013. I’ve reached out to Birchbox for more current numbers or growth stats and will update this story when I hear back.

As Erin Griffith covered, Birchbox’s value came from being a marketing company that was disguised as a subscription e-commerce startup. It sourced all its box items free from beauty providers, who appreciated the customer leads and the chance to get more people to test and adopt their products after trying a sample. That also allowed Birchbox to have higher profit margins than other subscription companies who supply their own products or have to pay other companies for the products in their boxes.

But Birchbox has stayed largely mum with the press in recent months. Various Birchbox customers have told me anecdotes about their boxes that suggest the company is facing scaling challenges.

I’ve had a range of conversations with people who loved Birchbox but eventually stopped subscribing. One told me, “You can only use so many moisturizers.” Others said they received certain products repeatedly in follow up boxes. That would certainly be a detriment to Birchbox’s ability to provide bigger sales leads to the beauty companies themselves.

One particular subscription fan, who uses fashion subscription service Stitchfix religously and is one of its longest running customers, told me she tried Birchbox for awhile. The variety in each box didn’t keep her interest. She’s switched to Michelle Phan’s Ipsy instead because it sends her more makeup and “stuff that isn’t just anti-aging wrinkle cream.”

Another person trying out Birchbox and Ipsy echoed the sentiment, telling me she is considering canceling her Birchbox and prefers Ipsy because, “The products feel a little less samply and it comes together in a cute little makeup bag whereas Birchbox just comes in a box.”

Birchbox is probably taking on more customers as fast as it may be losing some. But it’s not ideal for a subscription e-commerce company when users start jumping ship for the competitor.

It’s worth noting that this is by no means a proven trend. I’m not a Birchbox user myself, the company’s data isn’t public, and this is entirely anecdotal. I’ve spoken with five or six current or former Birchbox users across a range of geographies.

Regardless of whether their complaints represent a larger trend, their stories are worth exploring because they hold a wider lesson for the larger subscription e-commerce industry. It’s difficult to maintain variety and retain customer interest. If you can’t do the first one, the second may decline.

Birchbox likely knows this, and it’s entirely possible the company has plans to create its own products to fight that issue. CEO Katia Beauchamp told Pando in February that the company was experimenting with sourcing its own supply.

Birchbox investor Ben Lerer has been pushing her to expand such test runs at least since then. That’s when they debated the issue at a Pando CEO Supper Club. Lerer told Beauchamp, “You are also an entrepreneur who raised money and hit your five-year goal in seven months, and you’re sort of a wuss, and you can lean in a little bit here and take some risks.”

At the time, Pando reporter Erin Griffith rightly asked the question:

Beauty brands that were willing to provide 10,000 samples aren’t necessarily interested in providing 100,000 samples. That means Birchbox has to segment its boxes, which involves a lot of coordination. The company sends between 20 and 50 different versions of the box each month.

If the anecdotes I’ve been hearing are any indication, Birchbox is struggling with that scaling woe.

[illustration by Brad Jonas for Pando]


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