Across fashion, membership models have become a normal part of everyday shopping. Companies like Stitch Fix, rental platforms like Rent the Runway and Nuuly, big brands like Nike, and cosmetics retailers like Sephora all have introduced paid membership programs in order to build a loyal, recurring audience. But when these programs break down, either through poor communication or intentional misdirection, the effect on brand perception takes a hit.
Savage x Fenty, Rihanna’s lingerie brand, recently received some criticism from customers who found themselves charged for a monthly membership without even realizing they had signed up for one. Similar stories abound from customers of Fabletics, which backs a membership that is infamously difficult to cancel, and Guthy-Renker, a beauty company that was forced to pay nearly $9 million in a legal settlement over illegal auto-renewal payments it collected from customers.
“These types of memberships may be an easy way to make money up front, but they can create larger long-term ramifications,” said Krista Corrigan, retail analyst at Edited. “It can tarnish the brand’s reputation and almost gives off an illusion of deceit. The digital age has given more power to consumer reviews where any feedback or criticism about a product is readily available before purchase. Brands are leading with great deals like freebies and large discounts to entice customers to sign up, and hoping they’ll love the product once received.”
Fabletics, for example, took a big risk by requiring customers to either make a purchase (at any price point) or skip each month within the first five days, or be charged $49, which can then be applied to any future purchase. While this approach may be helpful for driving initial revenue spikes and maintaining a prestigious aura around a brand, the long-term sustainability is not guaranteed. Fabletics alone received hundreds of complaints against it through the Better Business Bureau in its first three years of business. Its membership policy requires that customers pay every month or notify the company within the first few days of each month if they would like to skip that month.
“In general, having a membership fee can drive value if the programs are simple and there is a significant value returned for the fee,” said Perry Kramer, senior vice president and practice lead at Boston Retail Partners. “In the online fashion business, however, it is a delicate balance between getting a quick revenue boost and enjoying long-term success. With few exceptions, when a membership fee is required to shop, the initial revenue spike drops off significantly and falls short of customer loyalty and lifetime value in programs that do not require a membership fee. The long-term growth, membership size and membership growth rate is usually substantially higher in programs with no fees. The bottom-line risk for companies that have a high membership fee is that they will alienate customers who do not see a significant value every month.”
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Still, Fabletics has managed to grow considerably. Forbes reported that Fabletics’ revenue was over $300 million in 2018 and is growing each year. The company has opened more physical stores this year, including its first New York store last April.
Savage x Fenty does not require a customer to be a member, but when checking out, a membership is automatically added to the customer’s cart and must be manually removed. Once a membership has been purchased, there is no option to cancel it online. Customers must call over the phone in order to remove themselves from the program.
Fabletics and Savage x Fenty are both part of the TechStyle fashion group. In the years since Fabletics first launched, when there was the largest backlash to its model, TechStyle said it has invested heavily in making sure every element of the membership is clearly communicated and transparent on the company’s website.
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“As an early pioneer in membership, we have had to address the challenge of how best to educate consumers on how our membership program works and the benefits of the model,” a spokesperson for TechStyle said. “We have invested heavily in customer service, moving to 24/7 customer care, live chat and adding the ability for members to cancel online.”
“If a brand feels that a fee-based program is needed to either differentiate a select set of products, or ‘guilt’ a consumer into shopping monthly, they need to deliver significant differentiation and value each month,” Kramer said. “But this is something that is very hard to do in the highly-competitive fashion industry.”
Outside of TechStyle brands, rental platforms like Rent the Runway and Nuuly tend to have more forgiving and easy-to-navigate membership models. Customers can pause their membership for up to three months at any time on either platform, without the complications of having to notify the company at the beginning of each month whether they will skip or pay that month.
“Issues arise when brands make it difficult to redeem points and when extraneous fine print keeps a customer from being able to cancel or pause their membership,” said Syama Meagher, chief retail strategist at Scaling Retail. “Poor customer service could lead to negative net promoter scores as customers will amplify their bad experiences over social media and word of mouth.”
This doesn’t mean memberships are a bad idea. The consumer loyalty market was at just under $2 billion in 2016 and has since jumped up to almost $7 billion, with 3.8 billion loyalty memberships being held in the U.S. alone. Brands like Stitch Fix and Rent the Runway have popularized the idea of the circular closet, of which membership models are a key part.
“Membership programs are a great way to get recurring revenue and increase transactions and sales,” Meagher said. “Most consumers are looking for experiences as well as discounts/points. Membership programs should be designed to engage customers, as this increases the likelihood of them actually continuing to use the program. These brands need to keep their membership programs simple, and staff up customer service to help loyal members understand how to use their program and what the benefits are.”
