As Stitch Fix works to attract a wider swath of customers, it could risk losing those who valued its very specific point of view.
By guest author Laura Forman from the Wall Street Journal
Stitch Fix reported solid results for the period ended July 31 on Tuesday afternoon with revenue topping analysts’ forecast, driven by record net revenue per active client. The company said gross margins in the quarter hit an all-time high, noting gains in product margins and shipping efficiencies. Importantly, the company posted net income of more than $21 million in the period; Wall Street had been expecting a loss.
Shares of the e-commerce company soared 18 % after hours immediately despite the fact that it reported fewer clients than expected and revenue guidance for the current quarter came in below analysts’ consensus expectations. For Stitch Fix’s investors, recent profits clearly matter: In March, shares fell more than 28 % the day after the company said it swung to a loss for the quarter ended Jan. 30. After hitting all-time highs in January amid pandemic-related physical store closures, Stitch Fix’s shares were down nearly 40 % year-to-date before Tuesday’s report.
The past several months have seemed to signal a significant costume change for the company as it leans into growth. Stitch Fix was built a decade ago to disrupt online clothing shopping with a combination of algorithmic styling and human help. In a news release Tuesday, Stitch Fix said it would continue to leverage that unique combination of data science and creative human judgment.
On a conference call Tuesday, September 21, 2021 Stitch Fix said stylist engagement will remain critical to its operations. But asking stylists, whom the company recruits with the promise of a flexible schedule, to be much less flexible, seems like a move in the other direction.
It isn’t an isolated event. Earlier this quarter, Stitch Fix launched a la carte purchasing for all its shoppers. The option, which doesn’t require a styling fee, had previously only been available to existing clients who had purchased a “Fix,” or a box of stylist-selected items. Stitch Fix appears to be going all in on the launch, rebranding a la carte buying as “Freestyle” with a multichannel go-to-market ad campaign. Enabling customers to choose their own items could cut down on items shipped back to the company. Stitch Fix hasn’t said on average how many pieces out of a typical handful of styled items a customer keeps, but it does pay for shipping and returns.
Stitch Fix already has added a preview option for Fixes so customers can sign off on what is coming to them. It also has tested drop shipping models, in which inventory is shipped directly from a brand to a client without Stitch Fix having to hold it.
The expansion of a la carte buying is a clear attempt to lower barriers to entry toward growing its active client base. Stitch Fix was founded on the notion that a handpicked shipment of new clothing would surprise and delight its customers. Now it hopes a greater emphasis on self-service can have the same appeal.