Stitch Fix: The future of Retail is Personal

Stitch Fix has created a real buzz around what makes a great apparel business work in today’s retail landscape, where Amazon looms high and mighty in online commerce. The company, which has focused on a profit-first approach since day one, may be the most innovative and cash efficient e-commerce retailer in the modern digital era.

As Amazon devours an increasing amount of the online purchasing economy, companies like Stitch Fix that have focused on profits and premium personalized service, have developed a way to differentiate themselves - no easy feat with Bezos lurking in the background.  

The company, which began operating as Rack Habit, got started out of founder Katrina Lake’s Cambridge MA apartment in 2011. Later changing the name to Stitch Fix, Lake, who was studying at Harvard Business School, partnered up with Erin Morrison Flynn, a former buyer at J Crew to hash out a new “assisted commerce” concept targeting fashion forward females. 

The business works as follows: When customers sign up to Stitch Fix, they fill out a form detailing style preferences, clothing needs and price points. Algorithms then churn out a set of potential choices, which one of the company's stylists then tailors to the individual customer before shipping five items for a $20 fee. Anything a customer doesn’t want can be returned free of charge. Should a customer keep any of the items, the $20 styling fee is applied toward the purchase - customers who keep all five items, receive a 25% discount. What they get each time varies, but typically items from trendy brands like Citizens of Humanity, Scotch & Soda and Barbour fill each box.

While Stitch Fix shies away from calling itself a true subscription company, customers can set up automatic deliveries for subsequent boxes, choosing desired shipping frequencies. Perhaps not the “norm”, the automated shipping option, creates a nice derivative on the traditional sub-box model.

Stitch Fix is not the first company to try this out. In 2009, Trunk Club found a real demand for assisted commerce, specifically with curated apparel targeting men. The Chicago-based company was ultimately sold to Nordstrom for $350 million in 2014.

Trunk Club’s success planted early seeds for the category online – in a way, allowing Stitch Fix to watch from the sidelines, and later carve out a better version of their own.

By the numbers, Stitch Fix has surpassed expectations. The company has doubled sales every year between 2012 and 2017, becoming the 11th-largest U.S. online apparel retailer in the e-commerce market. And, the ramp up was quick, with Stitch Fix tallying $73 Million in revenue in 2014, followed by sales of $343 million in 2015, $730 million in 2016 and just shy of $1 billion before filing to go public in October of 2017. Its stock price has more than doubled since.

There are several factors contributing to the Stitch Fix upswing. The company nailed obvious business fundamentals early, like product-market fit, fulfillment, customer service, and profitable growth. Yet, Stitch Fix’s killer moat is its lethal combination of subscription, with a resounding emphasis on hyper sophisticated data science.

The leader driving the data bus at Stitch Fix is Eric Colson, the company’s Chief Algorithms Officer. Colson, a former VP of data science and engineering at Netflix, was largely responsible for architecting the Netflix recommendation engine, so you can bet it was a real coup when Lake convinced him to come over to the world of data-driven fashion.

In addition to things like recommendations, human computation, resource management, inventory management, algorithmic fashion design and many other areas, Stitch Fix’s data driven centricity pushes this company way beyond the status quo.

How serious is the company about data? Stitch Fix provides a full Algorithms tour of how everything works, and how data is woven into the very fabric of the company on its website. If you’re a real nerd, you can geek out here: 

https://algorithms-tour.stitchfix.com/

Under Lake and Colson, the more than 75 data scientists have helped Stitch Fix to become a technological pioneer in retail fashion, painting a clear picture of what the future of personalized shopping looks like. The company’s robust execution has left Stitch Fix in a league of its own. Forget the Trunk Club for women. Stitch Fix is the Netflix of fashion – a moniker that properly underscores what distinguishes this great company from the rest.

References:

https://www.nytimes.com/2017/05/10/business/dealbook/as-department-stores-close-stitch-fix-expands-online.html

https://algorithms-tour.stitchfix.com/

https://en.wikipedia.org/wiki/Stitch_Fix