Subscribed, Sealed, Delivered – Embracing the Subscription Box Retail Model

The Australian retail sector is experiencing significant structural change – and this leaves businesses with no choice other than to start thinking outside the box…or rather think about the box itself…

Enter the subscription box. By paying a regular fee, subscribers can receive a recurring delivery of products, often picked for the customer by the supplier.  This model has gained traction in the US with several large clothing and accessory brands rolling out subscription services which looks set to transform the way customers access their favourite brands and products.

However, as with any model that involves engaging with consumers in a novel way, retail businesses in Australia should be aware that this doesn’t change the applicability of the Australian Consumer Law (ACL) – especially the obligations to ensure consumer guarantees are met, there are no unfair contract terms and that they do not engage in misleading and deceptive conduct.

SO, WHAT’S IN THE BOX?

Benefits to business include that regular deliveries allow businesses to build stronger and more direct relationships with their customers, who are essentially captive audiences.  This has the potential to build brand loyalty while securing a regular income stream for the business and ensuring turnover of their inventory.  Consumers benefit where suppliers offer discounts and regular deliveries take away the hassle of making orders or (the horror) actually going to a shop. Similarly, where consumers are unable to choose what is in their box, the “reward uncertainty” can be a powerful tool to keep consumers engaged with the brand.

The main challenge is sustainability. The era of fast fashion has drawn criticism for the volume of waste produced by the industry, but, counter-intuitively, subscription boxes represent an opportunity for improvement. If retailers can offer an optional recycling system for their products (i.e. one box in, one box out), they can contribute to reducing their environmental footprint.

TICKING ALL THE BOXES (LEGALLY)

Monthly subscription payments may not be put towards a specific product or service per se, however, the consumer is still making a “purchase” that is captured by the ACL.  It is therefore important that retail businesses adhere to the same laws that would apply to a standard online or in-store purchase of the same item.

Subscriptions should be offered ensuring:

  1. it is governed by a terms of supply document that:
    • includes a refund and returns policy that, as a minimum, meets the mandatory consumer remedies prescribed under ACL with respect to products being:
      • of acceptable quality – safe, lasting, having no faults, looking acceptable and doing all the things someone would normally expect them to do;
      • fit for purpose – the product should do what the business told the consumer it would do before it was purchased;
      • accurately described – it corresponds with its description at the time of purchase.  Subscription boxes are unique in that they rely on a degree of uncertainty, however, the fundamental character of the contents must be described in a way that indicates to the consumer what they will receive.  If completely random items will be provided, this would need to be disclosed to consumers prior to, or at the time of purchasing the subscription; and
      • able to meet any express warranty – to mean it meets any representation made about the product by the supplier at the time of purchase;
    • does not contain any unfair contract terms – to mean terms that would create a significant imbalance in the subscriber’s rights, are not reasonably necessary to protect the legitimate interests of the business offering the subscription and it would cause detriment to the subscriber if it were to be relied upon by the business;
  2. consumers are given notice of any key terms that govern the subscription prior to, or at the time that they subscribe – or – they are provided with a link to the terms of supply and are required to confirm their acceptance;
  3. it is not set up as a “subscription trap” whereby it is unclear to consumers that an original purchase leads to an on-going subscription.  Though this is unlikely to be an issue for businesses where the product is being clearly sold as a “subscription box”, however, the ACCC has indicated that it is closely watching for such schemes in the market; and
  4. there is a clear and simple mechanism for consumers to unsubscribe, and there are no unreasonable cancellation penalties.

This post was co-authored by Tom Williams (Trainee Solicitor), Valiant Warzecha, Jessie Buchan and Melinda Upton.