Do You Believe In Stitch Fix?
Stitch Fix has been in the headlines a lot in the past two years. A few weeks ago, on January 5, Stitch Fix announced that it will cut 20% of the company’s salaried jobs, its second downsizing in the past year and that its founder Katrina Lake would return to lead the personal shopping and styling service.
What does Stitch Fix do?
Stitch Fix is a personal styling service that uses data science to personalize clothing items. By paying a monthly styling fee, customers fill out their styling profiles online and a Stitch Fix stylist chooses five items to send them. Once received, the customer has three days to choose which items are worth keeping and which ones to return. If the customer keeps all five items, she gets 25% off the total cost.
A few news articles that can provide context:
The Unraveling of Stitch Fix (WSJ, Jan 25, 2023)
Stitch Fix to Cut 20% of Salaried Jobs, CEO Stepping Down (WSJ, Jan 5, 2023)
A brief history of StitchB2 Fix: how a personal styling service merged fashion with data (B2, Nov 10, 2020)
Stitch Fix shares retreat after IPO pop, close at $15.15 (CNBC, Nov 17, 2017)
I have not always followed Stitch Fix, because as someone who rarely spends money on clothing or shops online, I don’t truly understand Stitch Fix’s mission and market, and I don’t know anyone that is actually using its service or that even mentioned Stitch Fix on social media or directly to me. However, after learning about the company's history, I have a few observations and thoughts.
1. Shifting consumer trends.
Consumer behaviors and preferences are always changing. How, and to what extent, a company reacts to these changes is another topic. But this makes me wonder if Stich Fix was born out of a trend too and if its subscription-based, “data science-based” styling model has a limited market that seems to be declining these days.
According to this WSJ podcast, after finding success in women’s apparel, Stitch Fix expanded into Men and Children – neither succeeded and they are faced with a lot of excessive inventories that they actually own.
Another question I have is that if the world is truly moving to an increasingly environmentally-conscious future, will e-commerce eventually decline? What do the investors that invest in both food delivery and sustainability think about their contradictory natures? How does that affect personal travel? I’m not proposing aggressive changes. I’m just thinking about the good and the bad that all the changes or revolutions brought to our society and the people – e.g. Amazon Go stores don’t mark down the products even though they don’t incur as much labor expenses as traditional stores. Where did the extra profit go and did it make our lives better?
Something that I believe never changes in the consumer world: the mass market, most people that are not the 1%, always care for value. Good products, low price – that’s always a winning strategy.
2. Is Stitch Fix’s data science positioning a solid part of their business model?
“Stitch Fix claimed to track body dimensions, pattern preferences, and which clothing customers kept. They could also compare customer data to track patterns and similarities. With all of this info, Stitch Fix was able to deliver very accurate predictions.” Fundamentally, I believe that data science presents a historical picture and should be used simply as a reference, instead of as a sole input, for future predictions. Saying that these data provide very accurate predictions is a red flag. I have watched a retail data science startup fail closely – they had many issues, but one major issue that I questioned was is what they were building truly that much more valuable than all the priority data that retailers and brands have and the public data out there. What additional, critical insights can they provide that answer any unanswered questions?
As of July 30, last year, the company had about 7,920 full- and part-time employees, including about 3,400 stylists and 3,100 fulfillment-center workers. When a company is positioned as a data science and tech company, why do they still have many stylists? To me, they sound like a tech-forward retailer - which is what Stitch Fix aims to replace.
3. Startup companies need to be rigorous and cautious about what they say.
“In 2018, a number of class action lawsuits were filed against Stitch Fix, claiming the company violated federal securities laws by making misleading statements about its prospects for growth, plans for advertising on television, and overall profit. The class action complaints were filed on behalf of company shareholders. That June, the company announced that the client base had grown by 30% in Q3. However, the next quarterly report in October revealed that its client base had only grown by 25%.” Stitch Fix won the case in 2022 because the judge believed that the statements were broad and not misleading.
A reminder, after watching Stitch Fix go through this legal battle, is that founders and startup companies need to be rigorous and cautious about what they say, even though it might not be in their nature. Lies, once created, tend to pile up. We do not need another Sam Bankman-Fried or Charlie Javice.
4. Leadership seems to be a serious problem.
Read what the employees are saying on Glassdoor about senior management in the past year under Elizabeth Spaulding’s leadership:
“Horrible C-level management, Low accountability”
“CEO is not qualified to run a tech company, makes bad decisions, and talks like she's trying gaslight the company”
“CEO is a deeply insecure career salesperson from consulting; she is completely unqualified to lead the company and resists self reflection on every opportunity”
“CEO has created many toxic dynamics/politics at the company”
“Before Eric, Brad, Mike, and Katrina left, this organization was influential and impactful. Each month, another high level departure is announced, and with it, the org goes further downhill. The most obvious problem is the terrible management. The management issues are so bad that they are now referred to out in the open during all-hands by Data Scientists. We've recently had two entire teams leave the company of their own volition because things are insufferable. Levels make no sense, managers are incapable of feedback, and most ppl in leadership got there via politics. Now they are asking data scientists to make dashboards, and they ignore the experiment results because they're obsessed with pushing garbage features to look like we are making progress. It's a real shame. Look at the attrition and ask yourself why.”
I do not know much about Spaulding. She seems to be a capable strategist - she is a former partner at consulting firm Bain; she joined Stitch Fix as president in early 2020 and took over as CEO in August 2021. But there is obviously a problem.
Was the leadership transition too fast? What are the reasons why Lake handed her baby to Spaulding? Would Lake be able to save the downward trajectory of Stitch Fix? We will see.
5. The stock price has been declining after its pandemic surge.
According to CNBC, Stitch Fix’s few venture-capital investors include Baseline Ventures and Benchmark Capital, which invested in the company at a $300 million valuation in 2014.
When Stitch Fix went IPO in 2017, they had an opening price of $16.90, valuing the company at roughly $1.63 billion.
In January 2021, stock price peaked at about $100 per share due to the pandemic e-comm boom.
Yesterday (Friday, Jan 27, 2023), its stock closed at $4.94 with the market cap being $547.39 M.
What a fun ride. I'm curious about when Stitch Fix’s pre-IPO investors and its leadership sold their stock, if they did.