Stitch Fix’s new growth strategy: Letting nonsubscribers shop directly, too

08.06.2020 23:30

Fortune.com

The e-commerce site says its technology will make accurate suggestions even for non-clients.

Stitch Fix has thrived by often correctly guessing what items its more than 3.4 million clients will want to keep when the e-commerce company sends them a box of five pieces of clothing.

The company uses sophisticated algorithms and human stylists to choose which items to send in each shipment, called a “fix,” based on input from the client and their past purchasing behavior.

Now, with its business under pressure from the COVID-19 outbreak, Stitch Fix is looking to bolster that approach by letting nonsubscribers shop as they would on a traditional e-commerce site. This follows an initial test launched in February that enables its active clients to buy items à la carte separately from the fixes through a service it calls “direct buy.”

The company has long been a Wall Street favorite, using technology to “personalize” suggestions for its clients far better than most traditional retailers—or other e-commerce players for that matter—have. But it has been under pressure to show it’s not destined to be a niche company with limited potential clientele. So the company’s new tactic is a big test to see if its tech can help offer a better version of conventional online shopping on top of its bread-and-butter fix model.

“If you imagine a future for Stitch Fix, it’s one where many clients may want to join for the ‘fix’ experience and then shop, and where others may want to start with the shopping experience without beginning with a fix,” Stitch Fix president Elizabeth Spaulding tells Fortune in an exclusive interview. “This is a foray into that chapter of our future.”

To stoke interest in the direct-buy offering for the broader public, which is set to be launched later this month, Stitch Fix will launch a size-inclusive collaboration with fashion influencer Katie Sturino.

Stitch Fix on Monday reported sales of $371.7 million in third-fiscal-quarter, a 9% year-over-year decline that was well below Wall Street estimates. Still, that much better than most apparel retailers. It helped that the company was quick to send customers cozy clothing and athletic wear as lockdowns began and that most physical clothing stores have been closed. According to SimilarWeb, traffic to Stitch Fix’s site rebounded quickly, rising 15% to 5.6 million visits between March and May.

Still, while the company has a unique business model, it has not been exempt from the wreckage wrought on the apparel industry by the COVID-19 outbreak. Apparel sales industrywide plunged in March before beginning to recover in April. Stitch Fix will still be dealing with enormous sales on clothing in the coming months from its competitors, even the indirect ones. And with working from home so prevalent and few new big fashion trends prompting the need to refresh wardrobes, the impetus for buying new clothes is muted. The company is feeling the heat to find more ways to drum up sales.

“A better recommendation model won’t make you buy more clothes or visit the site more often,” says Jason Goldberg, chief commerce strategy officer at Publicis.

The Wall Street Journal recently reported that Stitch Fix was laying off 1,400 stylists in California, or 18% of staff, replacing them with 2,000 people in lower-cost cities.

Buying directly from the site

Stitch Fix’s direct-buy service, launched in February for current clients, was a risk for the company in that it was a foray into more straight-up e-commerce. But the company says customers are taking to it: In April, 13% of female active users bought an item that way, up from 5% in February. “This is a way that people want to shop,” says Spaulding.

To aid adoption of the service, Stitch Fix is also now launching “Trending for You,” a section that gives clients what it hopes are very targeted looks based on their style profiles, rather than what they’ve purchased, gingerly expanding the universe of potential purchases.

Spaulding says direct-buy is a way to earn business from customers looking for something for a special event like a wedding or graduation that Stitch Fix algorithms don’t necessarily know is approaching, even though such events are rarely happening much these days. Now, Stitch Fix is offering this option to the general public. Casual shoppers will still have to answer a few basic questions, but the process will be less involved than creating the style profile required for a fix.

Spaulding, who joined Stitch Fix in January after 20 years at consulting firm Bain & Co., says the company’s technology will help avoid misfires in recommendations and lessens the risk that direct-buy will turn Stitch Fix into just another shopping site.

To refine its algorithms, one key tool the company has relied on has been Style Shuffle, a feature added last year that shows customers prospective products one at a time and lets them vote on each. The information collected through the tool—some 5 billion ratings have been submitted—has refined its algorithms. That helps it limit the number of items a person sees, in contrast to the endless scrolling on many e-commerce sites.

“[It’s] the fun of window-shopping, but highly curated for you; it’s like your own personal store. No two customers see the same thing,” says Spaulding. The goal is for Stitch Fix to be so on point in its suggestions for direct-buying that you don’t even want to use the search option, she says, citing Netflix as a model for the accuracy of its recommendations.

Elizabeth Spaulding-Stitch Fix — Stitch Fix president Elizabeth Spaulding

“If they are truly better at recommendations to the extent the customer notices it and appreciates it, that’s absolutely a reason they should win customers over,” says Publicis’s Goldberg.

Still, the fix remains the centerpiece of the company’s business. Stitch Fix is about to start piloting a live styling service in which a customer has a video call with a Stitch Fix stylist and plays a more proactive role in choosing what goes in the fix, akin to a Saks Fifth Avenue or Bergdorf Goodman shopper who stays in regular contact with her favorite salesperson.

“Styling is probably something people are interested in more than ever in this environment, where you still want that high-touch and personal feel without going into a store,” Spaulding says.