How Stitch Fix Survived and Thrived During the Coronavirus

Stitch Fix’s success during a year that battered apparel retail seemed to defy the odds. But founder and chief executive officer Katrina Lake’s latest comments to Goldman Sachs on Wednesday make more sense of her company’s remarkable buoyancy in a pandemic that sunk other fashion purveyors.

It all goes back to a few fundamental scenarios that drive the tech-powered styling service. Lake spelled them out for Goldman Sachs managing director Heath Terry at the firm’s virtual Technology and Internet Conference. “We’ve done surveys on this, and something like more than half of the people who live in the United States don’t like shopping…there’s no other kind of apparel commerce player out there that actually caters to that customer,” she explained.

The comment feels like a ringing — perhaps stinging — truth in a fashion industry that seems convinced that everyone loves to shop. Not everyone does, Lake emphasized, and Stitch Fix is in a unique position to play to those preferences.

The core service ships a personalized mix of merchandise picked by a combination of machines and human stylists, or “fixes.” People only pay for items they keep, and shipping for returned products is free.

Several companies, including Amazon, now offer a similar model. But Stitch Fix is largely credited with establishing and popularizing this form of try-before-you-buy fashion e-commerce. As the company often states, its data science-driven approach to personalization was designed to take the fuss out of finding and purchasing fashion.

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“With fixes, you’re entrusting a lot in our process and the stylist, and so fixes are a little bit more of like a sit-back-and-do-it-for-me experience,” she explained.

The premise may be particularly appealing in the coronavirus era.

Among the strengths Stitch Fix touts are its algorithmic-driven styling and fit recommendations. That personalized approach is not just limited to the fixes, but also extends to the company’s direct-buy business, which allows customers to see recommended products and purchase specific items.

In essence, the company can now boast a big tent. The business can capture people who don’t care for shopping, as well as consumers who do, but feel vexed by all the online choices or perhaps by rapidly changing needs — according to a study published by the Journal of Obesity Research & Clinical Practice, 22 percent of adults reported gaining weight during the COVID-19 pandemic. So some shoppers may be challenged to fit a figure that’s suddenly unfamiliar. Meanwhile, other consumers might simply prefer to directly purchase specific items.

All of these different sorts of shoppers can find what they need in one place. So even though the apparel retail market was shrinking, with homebound consumers “buying less clothes, on average, our business is growing,” Lake added.

Stitch Fix also managed to build on a number of expansions over the years, including its direct buy channel; penetration into the U.K. market, and new categories covering men’s, plus sizes and children’s. The kids business alone saw sign-ups, first fixes and keep rates increase significantly in early 2020, during the onset of the pandemic, and stay there. First fix shipments for kids grew 60 percent year-over-year over the back-to-school period.

All of those efforts generated $1.7 billion in net revenue last year, amounting to 11 percent growth over the 2020 fiscal year. After a tough fourth fiscal quarter, the company roared back to life in the following three months ending in October, reporting $490.4 million in revenue, for a 10 percent jump year-over-year. Now it expects to record 20 percent to 25 percent growth for the current fiscal year, ending in July.

Those results would be particularly impressive considering the company can’t quite cash in on a peak holiday period, like other e-commerce operations. The personalized nature of the business model is “not really giftable” apart from gift cards, Lake admitted.

Still, it was enough to ignite stock performance and send the Stitch Fix founder to the billionaire’s club for the first time in January.

Not that she or the company will take it easy now. Stitch Fix continues to invest in its technology, and it’s in a constant state of evaluating its warehousing, inventory and staffing needs.

After shedding some 1,400 California-based stylists last year to hire talent in other regions, the company revealed plans to open a distribution center in Salt Lake City in October. But before then, it will let a warehouse lease in South San Francisco expire this spring.

Such moves will underpin morphing warehousing needs, as the business considers new moves — like “decoupling personalization from fixes and being able to address many more types of clients out there,” the CEO said.

In the nearer term, the company is queuing up new features, like “fix previews.” The idea is to let customers see what will arrive in an upcoming package to instill confidence in the service. The feature was tested and proved popular in the U.K. market.

“It was very successful there and so now we’re bringing that over here to the U.S., and that’s been a very exciting evolution of our service that, I think, improves the experience that people are having in fixes,” Lake continued. “But it also actually helps us with conversion and helps people who might have been on the fence about Stitch Fix be able to feel like they have more control over that experience.”

Goldman Sachs’ Terry asked if Stitch Fix is looking to monetize its tech and offer the tools to other companies. It’s an intriguing thought that would turn Stitch Fix into a true e-commerce technology platform.

While she didn’t say no, Lake sees the bigger opportunity in keeping the tech tied to her own company. At least for the foreseeable future.

“I think there’s probably an opportunity to monetize some of the capabilities. To me, the bigger opportunity really is to capture greater share,” she said. “I think, especially now compared to pre-pandemic, we are just in this moment where I think there is going to be a lot of share opportunity that comes available in the next three years to five years. And so our focus is really focused there.”

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