In an industry that’s all about fashion, it turns out the geeky algorithm is proving to be what’s separating winners from losers.
Online personal styling clothing service Stitch Fix saw its shares surged more than 26% to close at $25 on Friday, up more than 60% from its November IPO price, when the company’s fiscal Q3 profit and sales both beat expectations.
For one, its “active clients” surged to 2.7 million, or 30%, in the quarter ended April 28. That translates to an increase of 614,000 customers at a time when many fashion stores have shut doors and some — including shoe label Nine West, teen accessories chain Claire’s and department store Bon-Ton — that have declared bankruptcies this year.
Stitch Fix said sales rose to $317 million, the fifth straight quarter when its sales jumped at least 20%. It also forecast sales this fiscal year to rise as much as 26% to $1.23 billion, topping $1 billion for the first time. To spur growth, the company is introducing an on-demand styling service for kids after expanding to the men and plus-sized fashion categories last year.
What’s perhaps more important is the fact Stitch Fix posted a profit, in contrast to the still money-losing meal-kit subscription service Blue Apron. Blue Apron’s stock closed at $3.20 on Friday, less than a third of its 2017 IPO offering price of $10.
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What separates Stitch Fix? Data, and its claim of using data science and algorithms to deliver to its customers the personalized fashions they would like and keep. In its S1 filing before going public last year, the company pointed to its team of over 75 data scientists at the time, many of whom have Ph.D degrees. The filing also referenced “data science” some 64 times and “algorithms” 76 times. That’s the magical sauce that helps Stitch Fix digest over 85 “meaningful” data points its customers voluntarily give it, from such basic information as their size or price preference to details including the parts of their bodies they would like to hide.
On top of that, Stitch Fix said in the filing it had about 3,400 mostly part-time stylists, who also write personal notes to customers, to give that extra human touch.
So far, the combination appears to have done the trick. Founded in 2011, Stitch Fix has doubled online sales each year between 2012 and 2017 to become the 11th largest U.S. online apparel and shoe retailer in the nearly $70 billion e-commerce market, up from 32 in 2012, according to Euromonitor. That’s more than double the 42% growth rate Amazon, No. 1 in that space, saw over the same period, and more than three times the average annual growth rate of Macy’s and Nordstrom, No. 2 and No. 3 respectively, according to Euromonitor.
Stitch Fix also has outpaced the 18.5% in average industrywide online apparel and shoe sales growth over the same period. Brick-and-mortar space sales for shoe and apparel rose a meager annual average of 1.4%, Euromonitor data shows.
As the subscription industry is getting more crowded than ever and increasingly a market share battle, Stitch Fix is one of the few among the top 10 subscription sites across various categories that saw an increase in year-over-year traffic in April, while industry giant Blue Apron’s declined, for instance, Hitwise data shows.
“Stitch Fix is revolutionizing fashion,” RBC Capital Markets analysts said in a report.
To be sure, the revolution may be able to only go so far. On Stitch Fix’s Facebook page, as much as it has fans praising it for helping them to pick the styles they want, there were plenty of others who complained that the boxes they received, each called a “fix” and costs $20, didn’t deliver anywhere close to their expectations.
I asked a friend of mine for her take. After trying the service four times since November, she told me she canceled in March. Why? Out of four boxes and a total of 20 items she received, there was only one pair of $88 pants she really liked — and was willing to pay for.
“Honestly the curation for Stitch Fix wasn’t great,” my friend said, adding she thought a lot of things Stitch Fix selected for her were too pricey. “It gave me grandma-looking stuff. Other times it was too sexy for work.”
It looks like the promise of data science can only go so far. And that could be a risk for Stitch Fix.
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