Tapping into the growth of the subscription economy
by Jonathan Hurvitz. The idea of pay-as-you-use is not a new one - and renting appliances, electronics and furniture is simply the next step towards a more goods-accessible future.Monday, 04 Apr 2022
by Jonathan Hurvitz. The global economy has undergone a dramatic transformation in just a few short years. From the way we shop and pay, to the way we consume goods and access services, the world is continuously changing.
One of the biggest examples of this shift has been the emergence of the sharing economy which is expected to grow to more than $300 billion by 2025. Driven by accelerated digitalisation, the sharing economy is characterised by assets and services that are shared between people. And so, today we have transportation companies that don’t own any vehicles; and hospitality businesses that don’t own any hotels.
Taking its cues from the sharing economy, the next level in this economic evolution has been the rise of the subscription economy – and it is gaining significant traction. Offerings within the sector have experienced a boom in the US and the UK over the last decade. Now, this “rental revolution” has expanded into South Africa and the local subscription economy is experiencing a rapid growth spurt. While technology is the main driver of the sharing economy, what exactly is propelling the shift towards an increasingly subscription-based economy? A key factor contributing towards the shift in consumer preference from purchasing goods to renting them is a fluctuation in consumer wants and needs.
Access over ownership
From lay-bys, wherein the consumer reserves an item in store and pays it off in instalments, to streaming or premium music subscription services, to mobile phone contracts; the idea of pay-as-you-use is not a new one – and renting appliances, electronics and furniture is simply the next step towards a more goods-accessible future.
Today people, particularly younger generations like Millennials and Gen Z, invest in goods only when their long-term value is greater than its price. According to a recent report from market research firm Lab42, 57% of consumers prefer to rent items in order to try them before they purchase them; 55% are in need of temporary solutions; 52% need access to these items for a short period of time; while 43% believe that renting is less expensive; and 42% feel it is more convenient for them. The report notes that furniture currently tops the list of goods consumers are flocking to rent instead of purchase, followed by other products including gaming systems, clothing, tools, and electronic appliances.
In a world where shelves of books, music, movies and so much more, can fit into the palm of your hand, people simply don’t need to own so much stuff anymore. This is shifting consumers towards an easier-to-manage and more minimalist lifestyle. The subscription economy delivers on these consumer needs by essentially offering more flexibility and convenience without the risks and responsibilities of outright ownership.
What does this mean for traditional retailers?
Retailers should not be looking at the growth in the subscription industry as a threat, but rather as an opportunity that can be leveraged to meet consumer needs across a wide spectrum; as well as catering to the younger generation who might prefer flexibility over ownership; and those who would like to test products before purchasing; and, of course, there are still generations who prefer to own what they pay for. This could become a key differentiator for retail businesses to remain competitive, particularly in the uncertain environment defined by the COVID-19 pandemic.
Good examples of this have been the launch of UK department store John Lewis’ furniture rental service, which was introduced last year in collaboration with peer-to-peer rental marketplace platform Fat Llama; as well as Ikea’s new subscription-based pilot program which has allowed traditional retail stores to tap into the opportunities that the subscription economy offers, while providing their customers with the best of both worlds.
The retail industry is already experiencing substantial transformation at the hands of the pandemic, increased digitalisation, and changes in consumer behaviour, and there are no signs of this returning to “normal”. As the subscription economy offers consumers a more affordable and safer alternative to ownership, the preference for access over ownership will continue to grow. Retailers can therefore no longer afford to ignore its impact and must rather look to take advantage of the opportunities it affords.
Main image credit: Pixabay.com.
Jonathan Hurvitz is the Group CEO of online retailer Teljoy and a registered Chartered Accountant in South Africa.
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