Problem: Given the rise of drop culture, consumers are becoming increasingly frustrated by the exclusivity of drops:
“These limited merch drops are once again extremely frustrating. I missed buying merch from this drop to by a few minutes because I unfortunately had work today and was dealing with a customer when the merch dropped. I would be okay with this merch going out of stock quickly due to production limitation IF THEY CAME BACK IN STOCK. Limited time merch is ok for certain events like the limited time worlds jersey or rift rival jerseys. LIMITED TIME DROPS SHOULD NEVER BE THE MAIN WAY MERCH IS SOLD. ughh this fucking blows that Cream hoodie was so cool.” — From Reddit
Solution: A business that sells memberships to give users the opportunity to purchase exclusive VIP memberships before drops to give them an edge in the competitive drop economy. This business would model pricing and strategy off of existing physical retail memberships like Costco. Below is a brief history of membership retail.
One of the first companies was Fedmart, started by Sol Price. As described by The Hustle,
On 1954, an attorney named Sol Price inherited a vacant airport hangar in San Diego.
He raised $50k in capital, stocked up on wholesale jewelry, furniture, and liquor, and launched Fedmart, a warehouse-style store where government employees could pay a $2 membership fee to access an assortment of deals.
By the time Sol sold Fedmart in 1975, he’d grown it into a $350m-per-year, 40-location chain — and ushered in a new age of “membership club” retail.
Costco built off of this when James Sinegal and Jeffrey H. Brotman started a warehouse distribution in 1983. The Hustle describes how they’ve grown since.
As of 2018, 51,600,000 people pay Costco membership fees, good for $3.14B in annual revenue. More impressively, the renewal rate is a whopping 90%.
Unlike other discount chain customers, the majority of these cardholders are largely affluent ($100k+ income) and college-educated. They’re also, as it turns out, extremely cultish in their devotion to the wholesaler: There are Costco blogs, Costco forums, and Costco Facebook groups with thousands of followers.
“I love spreading the word of Costco to anyone who will listen,” writes one fan, who goes by ‘The Costco Connoisseur.’ “I have been to over 179 Costco Warehouses across 33 states and 5 different countries.”
Retail experts attribute this rabid devotion to the membership card, and the shared appreciation of frugality that it signifies.
There are a few companies attempting to do this in the online space such as re—inc for clothing (you can join their membership for $90/year here), Otis for art investments (take a peek here for their VIP membership), and more. Of course, there are other website and companies that host drops and have been incredibly successful at it such as Hypebeast, Instagram (with new features), Supreme. This business would serve as a Shopify, Squarespace, or Wix: these website enabled anyone to build a website; the business would allow anyone to build a membership-based drop retail store online.
Monetization: Percentage of revenue from membership.
Contributed by: Michael Bervell (Billion Dollar Startup Ideas)