Bloomberg Businessweek - USA (2019-06-17)

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says,shenowhasa bettersenseofherstyleandfeels

moreconfidentshoppingonherown.Shestoppedusing

theserviceabouttwoyearsago.

ButforeveryMeganLong,cuea customerlikeNancy

West,whotriedthe“transformative”servicea yearago

andhassincereceivedabout 10 boxes.“OnlyonceI

startedusingStitchFixdidI realizehowmuchofa differ-

enceit couldmakejusttofeelconfidentthatI wasdressed

nicely,”saysthe52-year-oldBoston-areafreelancewriter.

Herstylistperfectlyunderstandsherrequestfor“age-

appropriate,casual,andcute,”andshegenerallykeeps

twoorthreeitemsfromeveryStitchFixassortment.

Customers—mainlywomen,althoughthecompany

alsocaterstomenandchildren—receivetheirpackages

afterfillingouta styleprofilesoStitchFixcanfigureout

whattheylike.Forthe$20stylingfeetheygeta selec-

tionoffivepiecesin theirpricerange,chosenbya styl-

istbasedonthealgorithm’ssuggestions.Theycanbuy

whattheylikeandreturntherest.(The$20feeis applied

towardthepurchaseprice,andusersgeta discountfor

buyingeverythingin thebox.)Themorea personusesthe

service,thebetterit getsatnailingherlook.

If thissoundssomethinglikeNetflix,that’sbydesign.

Thestreamingservice’sformervicepresidentfordata

science,EricColson,joinedStitchFixaschiefalgo-

rithmsofficerin2012.(He’snowCAOemeritus.)Just

asNetflixInc.usesonemovieasthebasistosome-

timesrecommend a seemingly unrelated one, Stitch

Fix looks at detailed attributes to figure out that a cus-

tomer who typically likes conservatively cut blazers and

dresses might go for a black leather motorcycle jacket

in her next order. (The unexpected link: She’d been buy-

ing more mixes of prints and patterns, indicating an edg-

ier streak.)

Lake already was drawn to this type of expertise as an

undergraduate. A data geek, she wrote her honors the-

sis at Stanford on econometrics and health results, and

It takesgutstotella fortysomethingwomansheshould

weara romper�theone-pieceshorts-and-shirtcombi-

nationtraditionallywornbysmallchildren.Still,that’swhat

KatrinaLake,36,co-founderandchiefexecutiveofficer

ofonlineretailerandstylingserviceStitchFixInc.,didin

earlyJunewhenshepulledtogetheranassortmentof

clothingfora customer.Besidestheromper,Lakeadded

a floralwrapblouse,a tanktop,redshorts,anda skirt.

“Whenouralgorithmis recommendingtomea romperor

jumpsuitfora 40-or50-year-old,I totallytrustit,”Lake

says,talkingaboutthestatistics-drivenprogramshe

consultsbeforeselectingpieces.Humanbias,shesays,

wouldhavecounseledagainsttheitem.

Removingbiasis a largepartofthesuccessofStitch

Fix.Fora $20fee,theservicemailsoutclothingtocli-

entsbasedonwhatit’scometoknowabouttheirtastes—

notbasedontheirageorZIPcode.Overthelastyear,

StitchFixsays,3.1millionpeople,mostlyin theU.S.,have

useditsservice.OnJune5, amida terribleearningsseason

fortheapparelsector,thecompanyreported$408.9mil-

lion in revenue for its third quarter, which ended in April, a

29% increase from the year-earlier period. It also posted

$7 million in net income. Analysts had projected a $2.3 mil-

lion loss. Stitch Fix expects revenue for the year to rise to

$1.58 billion, up from $1.23 billion for 2018.

The recent results helped send shares up to around

$30, but before that the company had been a tough sell

among investors, who say they’re skeptical it can continue

to grow at a solid pace. Late last year, when Stitch Fix

reported lower-than-expected revenue, its shares plunged

to just under $17. It didn’t help that retail giant Amazon.com

Inc. had just invaded Stitch Fix’s space: It brought out Prime

Wardrobe, a service that lets Prime customers try cloth-

ing for free, and started testing Discover Your Style, a pro-

gram that makes personalized shopping recommendations.

Lake says Stitch Fix’s relatively unusual approach to

selling apparel has made it hard to win the confidence of

investors, a situation she finds frustrating. “We’ve done

what we told the Street we would do,” she says, adding that

as investors see she can deliver, she should gain their trust.

Stitch Fix opened for business in 2011 and listed on the

Nasdaq almost two years ago, with shares priced at $15.

“Their biggest problem is customer retention,” says

Sucharita Kodali, a retail analyst at Forrester Research.

Stitch Fix can encourage customers to increase the fre-

quency of delivered boxes, increase the number of items

in each box, or play with pricing. “They’ve probably tried

all of that, and there’s a natural limit.”

Megan Long, 33, a music theorist at Oberlin College

in Ohio, tried Stitch Fix about six years ago, when she

needed professional clothing. Initially, she was thrilled.

The items, including a houndstooth jacket she still wears

frequently, fit well and matched the “gently preppy vibe”

Long aspired to. In large part thanks to Stitch Fix, she

◼ SOLUTIONS Bloomberg Businessweek June 17, 2019

Stuck in a Rut

StichFixshareprice

11/16/17 6/7/19

$ 50

30

0

Day of earnings release

DATA: COMPILED BY BLOOMBERG