Birchbox is in trouble.
The subscription company — which mails monthly boxes of makeup samples to members — laid off 45 people or 15% of its staff. The company also announced it would cease operations in Canada.
Birchbox ‘s CEO Katia Beauchamp released a statement to Business Insider confirming the layoffs. The company told Pando Daily the challenges are a result of a difficult funding environment.
But Birchbox’s issues are another blow to the controversial subscription business model that is taking over retail.
Companies like Adore Me, Fabletics, and Birch Box send products to their customers monthly. The consumers are auto-charged, and canceling can be difficult.
This gives the retailers something all companies dream of: built-in repeat customers.
But consumers are starting to wise up to their strategies, and now the credibility of the industry is being called into question.
Other subscription companies have recently come under fire for suspicious billing practices.
Fabletics was part of a huge scandal this fall, after a Buzzfeed report surfaced detailing how many people were calling it and its parent company JustFab scams. Customers said it was extremely difficult to cancel their ‘memberships.’ (The company has since announced it was undergoing an audit and was considering making changes to its criticized setup.)
Adore Me, a much-lauded lingerie company, has received ample praise for its inclusive selection of models and its low prices, but the company has an F rating with the Better Business Bureau. The company only ships members lingerie if they select something for the month, and the rest get turned to ‘credits,’ all of which are forfeited upon cancellation. The company will only refund up to one month of membership fees.
Birchbox didn’t seem to be plagued with as many complaints as these other companies.
Birchbox’s initial growth was fueled by its genius model — many subscribers would end up purchasing the full-size version of one of their samples. But in an era defined by Marie Kondo’s “The Life-Changing Magic of Tidying Up,” how much stuff do people really want to keep around anymore? This, ultimately, adds yet another problem for any company trying to make it in the subscription world.
“They grow quickly because consumers are eager to try new things, but then consumers stop buying because they find that they don’t need the product or service. Then the company needs to figure out how to reactivate lapsed customers or to find new customers. It’s a big challenge,” Suhcarita Mulpuru of Forrester Research explained to Business Insider in the fall.
“Subscriptions can be powerful,” Mulpuru explained, “it just needs to be compelling product and strong customer service to support it. Amazon Prime and Netflix are two outstanding subscription models. Shoedazzle [of JustFab], as an example, wasn’t quite so successful or loved.”
Further, in August, Fortune reported that Birchbox’s former co-CEO and co-founder, Hayley Barna, had left the company.