Case Study: Is subscription based model useful to retail

ShoeDazzle Ditches Monthly Subscriptions For Boutique-Style Pampering

The online shoe company cofounded by Kim Kardashian announces it's scrapping the monthly subscription model and adding lingerie and dress lines. The moves reveal its true secret sauce.

ShoeDazzle started out as one of the new generation of consumer startups centered around a monthly subscription model: Sign up for the service and you get a new pair of pumps (or wedges, or boots, or stilettos, or…) every month for a mere $39.95. And they were celebrity-endorsed, no less.
But today, after just three years in operation, ShoeDazzle is announcing it is jettisoning the subscriptions. Does that mean they were a bust? Or is there something more profound at work?
The latter, say ShoeDazzle executives and investors. The subscription angle certainly garnered the company signup-fueling coverage when it first opened its doors back in March 2009 (as did the fact that cofounder Kim Kardashian was helping curate the company's selection of proprietary footgear).
But ShoeDazzle's real insight, CEO Bill Strauss tells Fast Company, and the thing executives say will send it zooming ahead of its competitors, is something that has gotten a little less play: the site's personalization and pampering strategy that is perhaps the real key to the company's astronomic growth. Over the last year, the site's number of "members" has tripled from 3 million to 10 million.
(The company doesn't release revenue figures, but Strauss says the growth in those numbers is "following in a similar growth pattern" to the surge in users.)
Every month, the ShoeDazzle system culls its new inventory and drops a curated selection into each user's personal "Showroom." The curations are based, initially, on a survey the user fills out to establish their taste profile. Over time, the recommendation algorithm gets more sophisticated as it takes into account the user's actual purchases. The result is a collection of items users feel have been handpicked just for them.
Strauss calls this experience akin to one you'd receive at a high-end boutique, where salespeople know your name and your tastes. "If you walk into a boutique, and they say, 'These new shoes just came in, and they fit your style and personality,' you feel good about that, and you're more likely to buy," Strauss says.
Therein lies ShoeDazzle's real innovation. If Zappos got us all used to shopping online as easily as we would our local department store (with a wide selection of items and a free-returns policy that lets shoppers try items on risk-free), then ShoeDazzle believes consumers are ready for the more intimate shopping experience they get at real-world boutiques.
In fact, the idea for ShoeDazzle came out of an exchange between cofounder Brian Lee (a tax attorney who previously cofounded LegalZoom with O.J. Simpson attorney Robert Shapiro) and his wife. "She came home one day from the expensive showrooms in Beverly Hills, and he asked her, 'Why do you buy these expensive shoes? Why don't you go to Payless or DSW?'" Strauss says. "She replied, 'Brian, you don't understand. When women shop, they want to feel beautiful and pampered.'"
ShoeDazzle's stab at simulating the boutique experience doesn't end with the website. Its customer service agents are rigorously trained to answer customers' fashion and styling questions, as well as more prosaic inquiries about shipping and returns.
"Customers will call in and say, 'Look at these dresses. Which one do you think goes with those shoes?" Strauss says.
Questions like these have led to another decision ShoeDazzle is announcing today: It's expanding its inventory to lingerie and dresses. "Our customers want us to dress them from head to toe," Strauss says.
As with just about every successful consumer startup these days, ShoeDazzle has spawned a passel of imitators and competitors. Executives and investors say they're not worried. "It's relatively easy to get an e-commerce company to $15 or $20 million in revenue," Andreessen Horowitz partner John Farrell tells Fast Company. "But it's the ability to execute at a large scale that gets you to hundreds of millions of dollars."
Last year, Andreessen led a $40 million Series C round of investment in the company. It also helped lead the search for a replacement for Lee, who had declared his intention to step down from the CEO slot in order to start yet a third venture (The Honest Company, cofounded with actress Jessica Alba, which sells chemical-free baby products).
Strauss, the cofounder and former CEO of ProFlowers, was tapped for the top slot at ShoeDazzle because of his experience retaining high levels of customer satisfaction at a booming consumer Internet company. "He's very heads-down and focused on operational execution and delighting the customer at a large scale," Farrell says.
The decision to jettison the subscription model was one of Strauss's first major strategy decisions. The subscriptions were a clever way to get the company off the ground, but it turns out they don't match customers' real-world purchasing preferences. "Some people liked the model," Strauss says, "but a lot of customers told us they'd like to buy two or three times in one month and then maybe not for a few more months."
Opening up the purchasing model will allow the company to "capture as much of that demand as possible," Strauss says.
The practice of using celebrity stylists--of which Kardashian is just one (actress Denise Richards recently signed on to "create" a pair of high heels)--will persist. In an era where Hollywood stylists have become celebrities in their own right and the number of magazines and websites showcasing the latest trends has exploded, consumers are hungrier than ever before for a trusted, gilded source to guide them through the fashion wilderness.
But the key to busting out of the pack remains execution, Farrell and Strauss say--the ability to retain the "high touch" experience even as the company grows to tens of millions of customers. "Celebrities and subscription models are great ways to get a business going," Farrell says. "But what will differentiate ShoeDazzle in the next phase is building the company out to a gigantic scale."