Memo: Hot Luggage Summer

Away is about to launch a travel accessories capsule in the midst of lingering pandemic. Is co-founder Jen Rubio on to something? The answer lies in the macroeconomic statistics.

On March 16, 2020, domestic air travel reached a notable point in its crash: slow at first, and then all at once. Daily traveler throughput fell to under 1 million. Just a month later and certain days saw only 90,000 Americans travel the country’s airports. Over a year later, as travel returns, so will the brands, marketplaces, and other businesses that serve the industry. It’s shaping up to become a hot luggage summer.

One day last April at Chicago’s Midway Airport, I stood in a terminal that spanned three football fields. I was an hour early to my evening flight and the only customer in the entire terminal. A month later, I returned. Little had changed as the national throughput number climbed to just 190,477. That number wouldn’t return to 1 million or more until Thanksgiving 2020.

Over the pandemic period of March 2020 and March 2021, I safely flew nearly 40 flights between cities like New York, Miami, Chicago, Austin, San Francisco, and Los Angeles. During the months of April through June, it seemed as though air travel may never rebound to its former self. According to Rafat Ali, the founder and CEO of Skift, there will be lingering reminders of the pandemic in the air travel industry well into 2022. Ali:

Even when we’re vaccinated to a certain point, even when we reach herd immunity, we will be wearing masks [on airplanes]. We can expect that this will last for at least through the year.

Even so, the return of domestic air travel seems to be on its way. In March 2021, a group of six entrepreneurs recently organized a business retreat. The air travel date was planned for June 16 and the destination was set for Montauk, New York. In the month of June, there are close to zero available properties on Airbnb and local fixture Gurney’s Montauk Resort is at capacity. These weren’t the only signs of density in New York’s Long Island region. The data proves that domestic travel is in for a leisure boom. Ali later added:

Domestic is in for a leisure boom. Summer is going to be frantic.

The numbers add up. Domestic travel is already back to 60% of 2019’s numbers and hotel occupancy has finally exceeded 60% for the first time since March 2020. Kayak searches are rising 27% week-over-week. Short term rentals are facing a shortage in availability in many of the travel hotspots around the country. Airbnb is reflecting the highest property rental prices in the company’s history. Ali noted that both the United States and the United Kingdom have done well with vaccination rollouts. He anticipates a travel corridor between the two countries. With travel data beginning to reflect a hopeful conclusion to the global pandemic, there is one company who may serve as the bellwether.

Commerce Follows Travel

In February of 2020, Away‘s website was ranked 16,500 on the internet according to the web traffic that it received. By July, that number fell to a ranking of 52,836, but climbed to a hopeful ranking of 24,882 around Christmas thanks to savvy marketing and promotion by new CEO Jen Rubio and her team. Today, Away has steadied around a 30,000 ranking according to data provided to us by Charm.io, representing a 20% drop in web traffic over the previous three months. This may be a lot of information to chew on but consider the implications: Away is perhaps the largest luggage seller in the United States by gross merchandising volume (though Samsonite likely sells more units of luggage and accessories).

Away’s trailing 12 months. More data at 2pml.com/dnvb

In similar fashion, German luggage manufacturer (and LVMH subsidiary) Rimowa followed a nearly identical trajectory of digital foot traffic, though its volume does not yet compare to Away’s and its target market differs. In the conversation with Rafat Ali, we compared notes between the industry-at-large and the consumer companies impacted by the overarching trends. Thanks to a once in a one-hundred year event, Away’s traffic fell.

But given its current position as a market leader, its social reach, employee count, and relative sales metrics (see more here: 2pml.com/dnvb), 2021 may be Away’s year to far-exceed even its highest former expectations.

Prior to the COVID-19 crisis, the travel brand grossed well into the nine-figures in annual revenue. With the decision to release Away’s new travel collection, Rubio’s marketing and consumer investment in this reemergence of domestic travel is significant enough of a decision to serve as a public interpretation of the positive private industry data mentioned above. The travel industry’s trends more than justify her decision to bet on this summer. Like Peloton, Mirror, Tonal, and Rogue dominated the direct-to-consumer fitness narratives of the previous year, I suspect that Away (and other travel consumer companies) will have similar trajectory narratives, finding their way to the top 100 fastest growing digitally native brands that 2PM tracks.

And if so, we may see the public offering that the team and its investors have long-earned. Either way, domestic air travel and the industries that support it are on their way to fuller terminals. That means more carry-ons, more Airbnbs, and everything in between for this hot luggage summer.

By Web Smith | Editor: Hilary Milnes | Art: Alex Remy

Member Brief: Imagined Communities

Rapha

There was a poll administered not too long ago and the result was astounding. Americans have become increasingly non-religious. Until recently, religion was a major line of demarcation for many Americans. Religion influenced one’s culture, social group, and even their politics.  In a recent report by The Atlantic‘s Derek Thompson on the matter, he lays out several of the catalysts responsible for the shift away from religion in America. Ironically, he cites politics, an evolving culture, and a sequence of current events as culprits. But in it, he seems to have omitted a factor.

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No. 298: Retention is the new currency

Contributor. The much mused about sharing economy jump started by disruptors like AirBnB, Rent The Runway, Netflix and Uber is running past its adolescence. In 2019, both Uber and its rival Lyft expect to go public.

According to Fortune, Uber alone could be valued at as much as $120 billion, higher than the valuations of Ford, General Motors and Fiat Chrysler combined.

It’s also close to double Uber’s valuation at a fundraising round two months ago and would be the biggest debut since Alibaba went public in 2014.

AirBnB, too, is expected to file as early as 2019, bringing some of the biggest disruptors of the last decade to Wall Street. But their impact has already been felt beyond their Silicon Valley offices.

The sharing economy has given rise to the subscription economy:

  • An economy preferred by investors for it’s stability.
  • An economy loved by consumers for its accessibility.
  • An economy coveted by entrepreneurs for it’s long-term customer relationships.
2PM, Inc. contributor: Tracey Wallace

The rise is thanks to the ubiquity of internet access and smartphones in the U.S. across nearly all segments. “Customers, the ultimate endpoint of any business, are today just as connected as the employees of any large enterprise,” writes Ben Thompson on The Stratchery.

This gives consumers and businesses alike endless access to on-going services that don’t function like gym-memberships of old. Instead, modern subscription models are gym-like in execution and participation.

  • They are based on service, not product: The product is the means not the ends.
  • They build convenient communities of like-minded individuals with end-goals in mind: Think Shopify users want to be seen as successful entrepreneurs. Spotify users want to be seen as having the best playlists and musical tastes.
  • They rinse and repeat the experience: The service begets the product, the product begets the goal, the goal begets the service.

Retention is the new currency

Costco – perhaps the longest standing subscription business around – has perfected the model. Amazon evolved it online with Amazon Prime. Giants like Apple and Google are touting their subscription services as differentiators for their products.

  • Google is offering six month free YouTube Premium subscription for all Google Home devices (and varying YouTube Premium subscription access for nearly all Google devices).
  • Apple is packaging their streaming music service and phone care services into single packages –– selling you a full suite of services that beget a product.

The success of the model is clear. You need only look at Dollar Shave Club on the consumer side to see the impact on the industry (or look at newer DNVBs like Quip following similar paths). Or, on the B2B side, look at the stock prices of Adobe (up 770% since 2012), Microsoft (up 320%) or Autodesk (up 360%), which have shifted to offer internet cloud-based software for a monthly or annual fee.

Indeed,  many DNVBs are putting their own spin on the subscription model business. In retail alone, there are more than 5,000 brands offering clothing, cosmetic or the like “subscription boxes” each month.

“It is totally faddish right now,” says Robbie Kellman Baxter, a consultant with Peninsula Strategies and author of The Membership Economy. “Most of them are going to fail. How many ties does dad need?”

But in technology, the rent-rather-than-own trend is holding stronger. In health care, too, it is growing in popularity with brands like SmileDirectClub and MDVIP, a direct primary care service, gaining more and more subscribers.

In media is where we will see the most pronounced shifts. After all, subscriptions are the easiest way around an unforgiving advertising world inhabited by Google and Facebook’s duopoly.

That duopoly began hitting media brands as early as 2015, when many considered the “gold standard” of online content to be free and commoditized. Many digital media brands have yet to recover from this mistake.

According to CNBC:

Vice Media has been the gold standard, earning a valuation of $5.7 billion in June 2017. Earlier this month, Disney wrote down some of its investment in Vice by 40 percent, suggesting a declining overall valuation.

Buzzfeed has built itself into a company that tops $1 billion in value. Still, Buzzfeed missed its 2017 revenue forecast by up to 20 percent, the Wall Street Journal reported last year, pushing back hopes of an initial public offering indefinitely. Vox Media, the owner of sites including SBNation, Eater and The Verge, also missed internal revenue forecasts and is not planning to go public any time soon, said people familiar with the matter, who asked not to be named because the company’s financials are private.

Separately, media companies including The New York Times, The Wall Street Journal, The Washington Post, New York Magazine, Quartz, Bloomberg, Business Insider, Vanity Fair and Wired have all returned back to media’s subscription business model roots by completely paywalling, introduced paywalls or hardening their paywalls beginning in 2018.

We’re living in an environment where Facebook, Google, and Amazon are sucking up so much of the advertising revenue,” says Sterling Auty, software analyst at J.P. Morgan. “Subscriptions and ecommerce are an antidote to that.”

These media companies are looking to lower their reliance on Facebook and Google algorithms and return to their service roots through subscription payments –– adding yet another monthly subscription to consumers’ bank accounts.

On paid subscription tolerance

According to eMarketer, 71% of U.S. consumers with internet access subscribe to at least one streaming video service. However, the number for all other verticals drop dramatically beyond video.

This leaves ample room for other verticals to grow their subscription services, especially as consumers become more accustomed to the model and testing out various offerings. Paid subscriptions through Apple’s App Store reached over 330 million last quarter. That’s up 50% year over year and includes both Apple and third-party services like Netflix.

Consumers are downloading. They are trying. They are testing. And there will be winners. Some analysts like Eddie Yoon, a consultant and author of the book Superconsumers, see the subscription economy as a 20-year trend –– just now beginning to hit its growth stage.

But there are caveats:

“All brands will try to offer subscriptions, but only a few will take,” he added. “Consumers will push back if they feel overwhelmed with subscription services,” Yoon says. “People won’t tolerate a world where everything is subscriptionized,” he said. “For the things that you really care about, you’ll definitely subscribe.”

The experience economy edges in

This is where the experience economy matters most. Subscription business models create desirable P&Ls, forecasting models and enable brands to act in the best interest of their most dedicated subscribers (rather than advertisers), but fail to provide the experience and you’ll lose your list and your recurring revenue.

Ben Thompson from The Stratechery pulled out this quote from Bill McDermott, the CEO of SAP, on this challenge on an investor call:

There are millions of complaints every day about disappointing customer experiences. This is called the experience gap. Businesses used to have time to sort this out, but in today’s unforgiving world, the damage is immediate, disruption is imminent. This has shifted the challenge from a running a business to guaranteeing great experiences for every single person.

It’s best here to remember that subscription and membership are separate things. Membership provides experience and community. Subscription just gets you access to something behind a gate.

Take a look at Peloton, for example. The company has long argued that it’s bike ($2,000) and subscription program ($39 monthly) are a bargain compared to regularly attended SoulCycle classes. And SoulCycle is hard to beat. Similar to fitness organizations like CrossFit, Inc., it has a hardened fanbase and community.

But where Peloton succeeds is its content –– the ability to stream classes on your bike, forgoing a trip to a physical class. All for substantially lower costs than regular in-person classes anyway. Peloton reports its churn at less than 1%.

“You have to do delightful things and leave money on the table,” says Peloton CEO and co-founder John Foley. “The monthly service is what you really buy. That was the flaw with the old models. It was just hardware.”

Of course, not every company can be a Peloton. The subscription model itself does not lower the cost of doing business. It cannot, on its own, generate demand.

“As subscriptions proliferate, investors need to dig deeper into the dynamics of their models,” says Aswath Damodaran, a finance professor and valuation specialist at New York University’s Stern School of Business. “Many venture capitalists and public investors are pricing user-based companies on user count, with only a few seriously trying to distinguish between good, indifferent, and bad user-based models.”

What’s next in the subscription era is a dwindling down to those brands, media packages, and services which can offer the experience worth paying for –– the service that begets the product, and the product that begets the consumer’s goal. A subscription model, alone, won’t be enough. Consumers will seek membership and the benefits that come with it: experience, community, and camaraderie. For the product companies, the software companies, and media companies that figure it out – the prize is recurring revenue and stability until the next preferred model comes along.  

Read the rest of your No. 298 curation here.

Additional reading. Member Brief: The Subscription Economy

By Tracey Wallace | Edited by Web Smith | About 2PM

Editor’s Note: Tracey serves as the Editor-in-Chief at BigCommerce and a public speaker. She is launching a DtC pillow brand, this spring. She is a paid contributor of 2PM, Inc.