Growth of subscription economy steadies as cost of living hits Brits hard

The third annual report on sign-up products and services by Barclaycard Payments reveals how the subscription economy has evolved as the cost of living crisis starts to impact consumer spending, following the huge growth seen during the Covid-19 pandemic.

The company found that on average, businesses which offer subscriptions estimate 36% of their revenue has been generated from these sales over the past 12 months, an 11% year-on-year uplift.

However, with footfall on high streets returning to pre-pandemic levels as consumers’ lives get back to normal, the growth of the subscription economy has begun to decline, with Barclaycard proprietary data showing a 5.7% fall in subscription spending in May 2022 when compared to May 2021.

Alongside this, concerns around the rising cost-of-living have also prompted seven in ten Brits to be more selective about the subscription services they use.

36% of consumers say they’ve cancelled at least one subscription because their disposable income has fallen as interest rates and inflation increase, with 31% citing higher prices as a reason why.

On average, Brits have cancelled two agreements each, with entertainment platforms (17%) and beauty and grooming kits (9%) among the categories most likely to have been cut back on. The number of households signed up to subscriptions has dipped by 14 per cent points in a year, from 81% to 6%.

The research does show, however, that the appeal of sign-up products and services remains strong, despite economic uncertainty. 38% of the 2,000 Brits surveyed believe subscriptions offer good value for money and 34% say they help them manage their finances at a time of rising costs.

Convenience (42%), reassurance that key products will be regularly delivered (42%), and the ability to try new items, which they may not normally purchase (55%), were also cited as key benefits.

Many businesses made sizeable investments during the pandemic to increase their subscription offering, and despite inflationary pressures, the majority remain confident in the returns they expect to see.

Seven in ten of the 400 retailers surveyed forecast the subscription economy will continue to grow and 64% will offer sign-up products and services for the foreseeable future. Of those planning to launch a subscription offering, a quarter expect to do so in the next six months and 42% in the next year.

While 51% of subscription providers are planning to cut prices on their subscription products, almost as many (47%) intend to increase prices due to soaring inflation and supplier costs.

Three in five plan to launch lower cost subscription products and services to give customers more choice, and two thirds will do this in time for key retail moments, such as Black Friday.

To encourage more customers to sign up to subscription services, 54% stated they provide free delivery on products, while almost seven in ten offer discounts. Some retailers (18%) also have plans to offer subscription customers a bespoke loyalty programme, in a bid to increase value for money.

The Barclaycard Payments research shows that many Brits continue to prioritise the products and services they obtain digitally or direct to their front door.

Three fifths use subscriptions because they provide exclusive access to content and 54% believe they save them time. Meanwhile, two in five believe subscriptions offer a personalised experience and 37% state subscriptions help them to organise their life.

When asked what would make them more likely to sign up to subscriptions in the future, Brits chose good value (38%– up from 33% in 2021), a free trial (32% – up from 29%), free delivery (27% – consistent with 2021) and flexible contracts (21% – up from 18%) as the most appealing features retailers can offer.

42% also believe subscriptions make great gifts, with 38% expressing an intent to purchase a subscription for their friends or family.

Kirsty Morris, Managing Director, Barclaycard Payments, says: “Subscriptions saw huge growth during the pandemic as Brits spent most of their time at home, so it was inevitable this would steady as the economy opened back up.”

“Yet, as the rising cost of living continues to squeeze finances, many consumers are re-evaluating their discretionary spending and cutting back on some products and services they no longer deem essential.”

“It remains clear however, that consumers still value the ease, convenience and often additional extras they can access through subscriptions; whether that be through digital services, or products delivered regularly to their door.”

“Many retailers adapted quickly during the pandemic to meet changing demands, and those which continue to evolve their subscription offering to respond to this new set of challenges will be best placed to benefit from increased consumer loyalty and satisfaction.”

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