Mike Smith, president and chief operating officer for Stitch Fix, was interviewed in a lively session Monday at NRF 2020 Vision: Retail’s Big Show by Jason Del Rey, senior correspondent, commerce for Recode Vox.
Stitch Fix, founded in 2011 by Katrina Lake while she was a student at Harvard, is basically a personal clothes recommending service: Users tell them a price range along with size and style preferences plus a small styling fee, and they send clothes to try on. Assuming it fits, members pay for and keep what they want and send the rest back. Stitch Fix added men’s clothes in 2016 and extended the women’s selections to plus sizes in 2017.
No system is perfect, including this one, and Del Rey asked Smith what he would say to someone who had had an unfortunate fit experience. Such a customer should find reassurance in the company’s scale, Smith responded, noting that the company, which has been public since 2017, has had nine quarters of delivering exactly what it said it would deliver, and is delivering a profit.
The number of measurements and fixes the styling team has made, plus an inventory matching algorithm developed about a year ago, has made them both faster and more accurate.
“But I think the main thing is the scale we have attained. We’re valued at almost $2 billion in revenue. And that scale, from a data perspective, allows us to get a lot better at understanding your size.”
Asked how he would compare the way Stitch Fix stylists were using data two years ago as compared with today, Smith noted that the big difference was the richness of data. The sheer number of measurements and fixes the styling team has made, plus an inventory matching algorithm developed about a year ago, has made the styling team both faster and more accurate.
Del Rey brought up a fairly recent development at Stitch Fix, in which, instead of the customer being provided a collection of take-it-or-leave-it items selected by a stylist, they can now choose from a variety of merchandise on the website. How, he asked, can the company do that and remain consistent with its model?
It’s a natural outgrowth, Smith said. One way the customer can do some of the choosing is “shop new colors,” in which they are encouraged to select from different color versions of a product they have already bought. The other is “shop your style,” in which the customer is shown items complementary to another, already purchased, item.
When asked about the possibility of smaller competitors going public, Smith said, “I have two questions, always: What are the unit economics, and how big is the market? In our market, it’s $430 billion in apparel sales between the U.S. and Europe, and we have been able to demonstrate great unit economics. We run at a 45 percent gross margin, and we’ve been cash-flow positive since 2014. And again, we’ve achieved scale — at $2 billion in apparel, you’re taking share from somebody.”
In other words, if you don’t have the numbers, don’t try it. Looking around at the audience, Smith commented that, though they are in a sense competitors, “If there really was a retail apocalypse, like ‘the death of the department store,’ that’s not good for the economy and it’s not good for us. We’re still a want-based thing versus a need-based thing, so we want the department stores to do fairly well,” he said.
“We’re not specifically targeting any retailer, and we’re very focused on the client. Katrina built this company with the client in mind. The stylists aren’t commission-based. They select on the basis of the client’s needs, which provides a better experience than most in-store shopping these days. In a sense, old department store is what we do.”