The world is full of people who want to look nice but don’t have the kind of enthusiasm (or time) for retail commerce that would keep them hitting the malls. For that world of emerging high-style, low-energy, low-time shoppers, there is StichFix: an online fashion retailer that comes with a built-in personal shopper.
And now, after several years in the retail industry, StitchFix has moved on an initial public offering (IPO). As the company noted in its IPO filing yesterday, “We save our clients time by doing the shopping.”
It’s a tempting value proposition: fashion made easy by handing off the curation to those with the time, skill and interest in turning around on-point looks — and all with minimal investment of intellectual energy on the part of the consumer.
According to StitchFix, getting to know its customers comes from the somewhat low-tech — though undoubtedly effective — method of simply asking them. As part of the signup process, shoppers fill out surveys denoting their preferences and the company sends them a box of clothes that match their listed desires. Shoppers keep what they want, return what they don’t and await their next delivery to start the process again.
StitchFix is not the originator of the model, but it is, by and large, the most successful. After all, the company is known for getting curated subscription commerce right.
Once the initial preferences survey is completed, there aren’t many questions or interactions the consumer needs to have with the company. The learning algorithm develops a good idea of what each customer likes and wants to wear based on items kept versus those returned, and all with a little additional tailoring. For example, customers can set delivery frequency and preferred price range, among other preferences. As much as possible, StitchFix wants to focus only on consumer preferences, filtering out extraneous data to the greatest degree.
After all, sending someone a killer designer version of the outfit of their dreams and having them return it over the killer designer price tag not only fails to please the customer and convert the sale, but also does not give the system much in the way of useful knowledge about the customer’s preferences.
“The vast majority of our client data is provided directly and explicitly by our clients, rather than inferred, scraped or obtained from other sources,” the firm noted in its recent S-1 filing. “We also gather extensive merchandise data, such as inseam, pocket shape, silhouette and fit. This large and growing data set provides the foundation for proprietary algorithms that we use throughout our business, including those that predict purchase behavior, forecast demand, optimize inventory and enable us to design new apparel. We believe our data science capabilities give us a significant competitive advantage, and as our data set grows, our algorithms become more powerful.”
That algorithm has become powerful enough to keep StitchFix uniquely good at finding that look — a fact that is backed by not only $977.1 million in clothing sales and fees last year, and but also its active client base of 2.2 million customers. In fact, because of its success, the company is taking the bold next step forward and pushing its own IPO.
The details of the IPO remain somewhat up-in-the-air, as StichFix has not yet released how much it is hoping to make, though the buzz from unnamed sources noted a valuation and target range between $3 and $4 billion.
In addition, StitchFix is going beyond using algorithms to determine which items a user is 80 percent likely to buy. The math is also helping to design the clothes themselves, and, as it turns out, the digital designer does a fairly solid job. StitchFix reported its algorithmically designed pieces are among its best sellers.
Human stylists are also involved in the decision making, as there is something personal enough about design that a biological touch is desirable — even if it’s just guiding an increasingly digital design process. But, will investors bite on the potential to buy in?
That is the $3 billion to $4 billion question into which StitchFix IPO is about to stick a thermometer. Are investors interested in online retail, particularly for eTailers that find themselves in direct competition with Amazon, online retail’s resident serial killer?
With the announcement of Prime Wardrobe in June — a service allowing customers to order items such as shoes, clothes or accessories at no upfront charge, and only paying for what they decide to keep — Amazon is nudging into StitchFix’s area of influence, albeit without the focus on customer curation to the individual shopper. Food delivery subscription service Blue Apron has found the threat of competing with Amazon deleterious to its stock prices, and investors may feel similar concerns about StitchFix.
This may become particularly true as growth at the online fashion site is slowing, though still ongoing.
But StitchFix brings a value that is unique: the shopping it does for its customers, in a world in which shoppers are always looking to make the buying process that much easier.
“To be relevant today, retailers must find a way to connect with consumers on a personal level and fit conveniently into their lifestyles,” the firm noted in its IPO filing.