Stitch Fix: e-commerce tailored to your tastes

Stitch Fix stock soared this month as the company managed to report a good set of numbers. Is Stitch another "pandemic winner"? 

What is Stitch Fix?

For all of you who like dressing well but are not fashionista (I feel you), there is now the perfect solution for your problems. Stitch Fix is a company that uses human stylists as well as algorithms to prepare you curated clothing boxes matching your tastes. These boxes are sent to you every month, and you get to decide what you keep and what you give back.

The only thing that you have to pay is a $20 fixed cost when the box is received, as “stylist fees”. However, this money is credited on anything you keep, which means that you only pay it when you spend less than $20 – and believe me, when you get a box of clothes matching your tastes, already standing in your house, it’s hard to be reasonable.

It’s incredibly easy to like a piece of clothing in a store, to try it on and buy it if you like it, even if you do not absolutely need it. However, it is much harder to bring back something you don’t like. The whole system works on this psychological factor. Say you have a pair of black socks in a store, which are inexpensive but leave you rather indifferent. You probably won’t grab them nor order them online. However, if they’re already in your house, it’s way easier to tell yourself “oh well, I might as well keep them”. If you add the fact that you’re supposed to like what you got sent, you get a winning shopping spree formula.

 

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What changed?

Back in September the company ran into an issue. Customers were mostly buying single items, destroying the whole concept of cross selling which the company’s business model was based on. This type of consumption simply does not make ends meet for Stitch Fix.

However, the orders started soaring, with a 25% increase for first-time orders, as other traditional retailers such as Lord & Taylor and Francesca’s went out of business. First shipment performance is critical, as first impressions are critical to determine whether new subscribers will stick and participate in the company’s recurring revenue or not.

It seems that this sudden surge is also attributed to their algorithm, which got way smarter: the company saw fewer returns, surely the result of a higher customer satisfaction. It could also be that people fear heading out to send their package back. Just a though, but I figured this could be a contributive factor. 

 

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Source: Stitch Fix website

 

Unexpectedly good numbers

The company saw a major success last quarter, despite having posted $45 million of loss in the previous quarter. Sales jumped 10% from last year, and overall, the company estimates a 20-25% growth for the full financial year. Their active clients base also grew, with a 10% increase throwing them at 3.8 million. That’s a lot of boxes to send.

Stich Fix was able to show a 9 cents per share earnings, which is impressive compared to expected loss of 20 cents per share. Their revenues came in at $490.4 million, slightly better than the $481.4 expected by Refinitiv.

Their shares are worth around $52 at the time of writing, their all-time high, and up from $11 in April. That’s more than a 300% increase. Quite an impressive comeback on a financial perspective.

 

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Stitch Fix stock (Source: Investing.com)

 

"We're excited about the momentum in our business, confident in the future ahead, and we expect to deliver between 20% and 25% growth for the full year.” Said CEO Katrina Lake. "In a time period where many traditional brick and mortar retailers are still experiencing double-digit year over year revenue decreases in their most recent quarter, we delivered an increase of over 240,000 net active clients quarter over quarter, a return to double-digit, year-over-year active client growth, which we expect will increase further this fiscal year.”

 

The Takeaway

You’ve all heard the common saying that “content is king”. It’s true. However, one element of great services holds in two words: personal curation. You like shopping on Amazon because it is very easy for you to find products you might want to acquire. In the same manner, you binge-watch Netflix because the service knows what will make you renew your membership. Ads on Facebook are laser-targeted in an almost creepy way, but that’s their core proposition and money-making machine.

This trend we saw for online products extends to physical elements, such as clothes. The more personalized a service is, the more engagement it will drive as customers become increasingly excited about a service that “gets them”, even though they are barely aware of it. This results in fewer wasted resources, and in the long run, more money.

 

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Sources:

Stitch Fix stock soars as "the Fix" makes a surprise comeback, in Snacks Daily

Stocks making the biggest moves midday: Stitch Fix, Boeing, Raytheon, Pfizer, QuantumScape & more, in CNBC

Stitch Fix shares rise nearly 50% in early trading after yesterday's earnings beat, in Yahoo! Finance

Stitch Fix Helps Nasdaq Stretch Toward Records; Curis Erupts Higher, in the Motley Fool

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