Customer disdain for this 'innovative and disruptive' business model is only growing
Mallory Schlossberg
Birchbox
(Facebook/Birchbox) Birchbox is a successful subscription company.
Subscription models are incredibly popular.
Look no further than Netflix, Amazon Prime, Dollar Shave Club, and Carnivore Club. It seems easy; sign up, and you have a product each month for a fixed price.
But at the same time, many subscription-based retailers are being accused of not having clear disclosures about their billing practices.
And some companies, despite seemingly being transparent about the fact that they are subscription-based, make canceling their memberships difficult for customers.
Most recently, the nonprofit ad watchdog Truth in Advertising filed complaints last week with the Federal Trade Commission, the New York attorney general's office, and the Santa Clara, California, district attorney's office against the startup lingerie company Adore Me. The points largely relate to Adore Me's subscription model, which the startup calls a VIP Membership, through which "members" pay $39.95 to receive a set of lingerie each month.
The company's members get the lingerie only if they log on and choose the products they want. Adore Me lets customers skip billing cycles, but they have to make sure they select to "shop" or "skip" by the fifth of each month. Members who don't make a selection will see their credit cards get charged; in turn they get store credit to use at any time.
Adore Me has added a policy in which members can get an automatic refund for the most recent month's charges — without having to go through customer service — if they fail to select shop or skip. Adore Me CEO Morgan Hermand-Waiche highlighted this policy to Business Insider in January.
The policy, however, could be hurting the company. Bloomberg recently reported that Adore Me had a 30% spike in refunds with a 15% dip in subscriptions.
Upon cancellation, which, according to reviews on the Better Business Bureau, is an arduous process, members lose their credits. (One commenter on The Lingerie Addict said she was able to cancel her VIP Membership but had $200 in credit, all of which disappeared once the cancellation took effect.) That's one of Truth in Advertising's primary complaints with the company.
"I think what really focused us on Adore Me was one particular provision in their terms and conditions which I found to be absolutely outrageous," Bonnie Patten, Truth in Advertising's executive director, told Business Insider on Monday, "which was that when a consumer attempts to cancel this membership, that the company takes any unused credit from the consumer."
Truth in Advertising's complaint comes on the heels of many consumers' frustrations; Adore Me has an F rating with the Better Business Bureau and more than 680 consumer complaints.
Some members don't even know they're becoming VIP Members from the start. The company, however, says it makes the details clear to consumers who are shopping on its website — the VIP Membership price is the more heavily flaunted and advertised one. But it's also the default selection.
Adore Me Screenshot
(Adore Me)
Hermand-Waiche maintains that the retailer is transparent and discloses everything through consistent emails, SMS messages, push notifications, and a pamphlet that members receive with their first package. He stressed this to Business Insider in January.
Adore Me, however, isn't the only subscription company to come under scrutiny recently. In the fall, JustFab (which houses Kate Hudson's athleisure line, Fabletics) found itself enmeshed in a scandal after customers called it a scam; they claimed the fine print was exceedingly difficult to discern.
BuzzFeed reported that consumers didn't realize they were being signed up for a membership. Moreover, after finding unwanted charges on their credit cards, they said they had to call customer service to put an end to their billing cycle. The company has amassed over a thousand complaints with the Better Business Bureau.
In late October, Bloomberg reported that the company would be audited. Bloomberg also reported that JustFab was looking into changing its policies; it was going to consider offering members the ability to unsubscribe online. Not being able to cancel memberships online was a huge issue with the company that BuzzFeed outlined in an initial report regarding the scandal.
Still, some experts think that JustFab uses this model to optimize success, even if it's misleading.
"It's a model that allows [JustFab] to make more money ... Unfortunately, misleading marketing works," Patten of Truth and Advertising told Bloomberg. "And that's what this company is, in some part, using to be so successful."
kate hudson fabletics
(Fabletics on Facebook) Fabletics came under fire last year.
That's not to say subscriptions are entirely faulty.
At the end of 2013, Entrepreneur suggested that the subscription-service model was a hot e-commerce trend for the following year.
And there has been no shortage of boxes for consumers to choose from — whether grooming and beauty boxes or boxes with artisanal beer or boxes for dogs.
But the core product that many of these boxes sell is the box and the subscription, as opposed to selling the product, with the membership sneaking up afterward. Birchbox is ostensibly a box of makeup samples; Adore Me markets itself as a lingerie company with fast-fashion prices. That's a reason some people might feel duped.
Still, Hermand-Waiche, the Adore Me CEO, chalks up the complaints, which he told Business Insider paled in comparison to positive reviews (which do exists on sites like SiteJabber), to the fact that some people don't know how subscription services operate.
"I think that the membership and subscription shipping concepts are extremely innovative and disruptive, and used by companies such as Amazon, Dollar Shave Club, Birchbox, and Adore Me," Hermand-Waiche wrote to Business Insider in January. "But sometime there are shoppers who aren't familiar with subscription-based services and memberships and as a result are unsatisfied with their experience."
