Stitch Fix, which has started offering customers more freedom to style themselves, is leaning into the literal idea of giving them more of what they love — like a dress they’ve bought in red, but in navy. It’s an age-old play at customer loyalty, and it’s working for the forward-thinking company.
On Monday, Stitch Fix, increasingly known for its effective use of data to personalize the shopping experience, announced its earnings for the first quarter of fiscal year 2020. Founder and CEO Katrina Lake said the company’s felt encouraged by early readings on its recently launched direct-buy option, allowing customers to buy styles outside of those served up in its signature stylist-curated box.
Stitch Fix is the latest company to move beyond its original business model of delivering a personalized, product-filled box to customers, most often based on data volunteered through an online quiz. In July 2018, seven years after its launch, beauty subscription company Ipsy added to its monthly Glam Bag offering by introducing e-commerce sales of full-size beauty products. Late last year, Birchbox started selling through Walgreens.
As brands realize the need to meet customers where they are and cater to more shoppers’ needs, focusing on one channel — in the case of Stitch Fix, the prescriptive “Fix” box — is limiting, to say the least. Stitch Fix is realizing that now.
“This powerful personalization capability we built to support this business can extend far beyond fixes,” said Lake, during the earnings call. “We strongly believe direct-buy will ultimately be incremental to our business from both a wallet share and addressable market perspective.”
Fellow box-based companies have struggled to hit their stride, and staying in their lane for too long could be to blame. Birchbox, which currently reports a 1 million subscribers and 2.5 million active users, sold in May 2018 a majority stake in the company to an existing investor for an extra $15 million. It was once valued at $500 million.
But Stitch Fix, currently sitting pretty, is now making a point to be as nimble as the large business allows. It ended the first quarter with zero debt, delivering a free cash flow of $20 million. According to outgoing chief financial officer Paul Yee, the company’s healthy state has enabled it to self-fund the growth in its newer ventures of men’s, kids’ and the U.K. Stitch Fix is predicting 2020 net revenue of $1.9 billion.
Through Stitch Fix’s app and website, logged-on customers can now shop a selection of items using two tools available through a “Shop” tab: Shop Your Look, where they’re served up styles complementing pieces they’ve purchased, and Shop New Colors, which prompts them to “buy your item again” in a new print, size or color.
The latter, introduced to U.S. customers in June, was driven by customer feedback signaling their Stitch Fix experience had driven purchases at other retailers.
“We heard from clients that they would go directly to vendors or other retailers to purchase additional items in more colors,” said Lake. “Now, we’re able to capitalize on these supplemental purchases and items that were inspired by Stitch Fix, and we’re better able to engage these clients and also serve more of their needs.”
So far, the top-selling items through Shop New Colors have been from Stitch Fix’s exclusive brands. The tool, now exclusively available for the men’s and women’s categories, will be launched for kids’ clients by July, according to a spokesperson. Lake said, moving forward, the company will prioritize continued rollout and improvement of its direct-buy capabilities.
Iterating on top-selling styles is not a new strategy. Sneaker brands have driven big sales dropping new color ways of popular styles. Diane von Furstenberg has been selling new takes on her original wrap dress for nearly 50 years. But it’s a lever brands are getting smarter about pulling, both in terms of how effectively they’re marketing to a style’s fans and how fast they’re answering hype with new options to buy.
“Anything that sells, we react to, whether that’s with a recut or a re-imagination of a style,” said Jane Siskin, founder of contemporary fashion brand Cinq a Sept. “We sell black crepe dresses with white topstitch, and they sell — so we talk about: How many different versions of that can we do? Or if a top flies out the door, it’s: How fast can we get back into it? We have a fast-track [production] program where we can drill down to data at the store level and can quickly react to popular styles with a different print or a new color.”
Footwear designer Sarah Flint said, when her company introduces a style in a new print or color, it emails customers who have purchased the style before. It also emails customers who have bought shoes in the print or color of the new launch.
“This week, we’re launching our Perfect Zip Bootie in a limited-edition leopard print, so we emailed all customers who had previously purchased any style in leopard to give them the opportunity to shop the new launch ahead of the public,” she said.
Among Sarah Flint’s offerings is a core, evergreen collection of shoe styles, each available in multiple colors and prints. Heels are offered in three heights. Flint said many of her customers own their favorite style in more than one material and color.
Flint said she’s aware of the fact that, as brands stick to updates on one style, they run the risk of style fatigue among customers. “But when you’re growing really quickly, you run less of a risk, because your you’re hitting new markets,” she said. “There should always be a balance of new, exciting products for your customer and also having those core products you know they want.”
Since 2016, Stitch Fix has expanded to men’s and kids’ categories, and the U.K. market. It reported $445 million in net revenue for the first quarter of fiscal 2020, up 21% from last year, and an active client count of 3.4 million, an increase of 17% year-over-year.
For the sixth quarter in a row, the company reported growth in net revenue per active client, up 10% year-over-year. “It’s a reflection of our strengthening ability to help clients find what they love,” said Lake.