Stitch Fix, an e-commerce retailer started in 2011 by HBS grad Katrina Lake, was recently named “World’s Most Innovative Retailer in 2019” by Fast Company. The company, now valued at over $2 billion and with an active user base of 3 million customers, has leveraged their data-driven capabilities to become a digital winner in the apparel space.
A Lagging Retail Industry
What makes Stitch Fix a sure digital winner in this space? It’s important to consider where the apparel industry was before Stitch Fix joined the scene. By 2011 more than a quarter of clothes were sold online, with department stores increasingly on the decline. Customers were valuing convenience and ease over the time-consuming experience of shopping in-stores. But even within e-commerce, customers still had to go through the process of navigating multiple websites, perusing excessive quantities of inventory, trying on clothes at home and returning any purchases that didn’t fit. While improvements had been made over department store shopping, e.g. customers could now try on clothes from the comfort of their homes, the discovery process and time-consuming returns process left a lot to be desired. When we look at the rise of tech companies aimed at increasing consumer convenience (Uber, AirBnB, InstaCart, BlueApron, TurboTax, etc.) we can see how the retail industry was lagging in these types of innovations.
Stitch Fix Process (1)
Stitch Fix addresses several of the problems they saw in online shopping. First, they solve the “discovery problem” – that is, customers often found themselves overwhelmed with optionality, confronting endless pages of inventory online. The “analysis paralysis” phenomenon is addressed with personalized offerings, based not just on the customer’s data, but on all Stitch Fix users’ data through an app feature described as “Tinder for clothes” allowing anyone to rate Stitch Fix’s offerings. With this feedback, Stitch Fix has gathered more than a billion ratings that work to train the company’s algorithm to understand a client’s style.
How do you mail customers clothes they’ll love, and that fit perfectly, without the client ever getting measured or viewing the inventory?
Stitch Fix has found a way to offer personal styling at scale through data innovation. “Algorithms drive Stitch Fix’s every move,” says Fast Company’s Laura Smiley. Algorithms do everything from detailed monitoring of inventory and repurchasing needs, to calculating the most efficient path for a warehouse worker to take, to matching precise measurements of clothing options with and extensive amount of client preferences. The data collected also fuels friendly relationships with their suppliers. Stitch Fix partners with over 1,000 brands, both indie and established, and is able to provide them unprecedented amounts of data on their products. Not only is Stitch Fix offering a relevant channel for brands to sell to clients (as opposed to traditional department stores or unsavory contracts with Amazon), but they are getting specific feedback on how they can improve their offerings that they otherwise wouldn’t have access to.
Embracing Data Science
What allowed Stitch Fix to reach its level of success has been its willingness to think of itself as a tech company. This is why it hired over 100 data scientists, why it focuses so much energy on gathering as much data as possible, why it thinks of itself as an “AI machine combined with human curation” and why it continues to push features that further “gamify” the app and increase stickiness among customers. Customers love the convenience and brands love the demand certainty and customer feedback that come from this data science approach.
Since Stitch Fix has come to market, we’ve seen a growing number of imitators. Many revolve around the subscription model (DAILYLOOK, Dia & Co, Just Fab, Rent the Runway Unlimited, Box of Style, Fabletics, Trunk Club, etc.) and more and more retailers are embracing technology innovations themselves (Nike, adidas, Everlane, Nordstrom, Bonobos, etc.). Retailers are recognizing the need to own their customer’s data and sales channel themselves – selling through previous e-commerce options like Amazon and Walmart have become less appealing, especially as retailers worry about brand dilution and design IP.
While brand dilution is obviously not a concern for Stitch Fix’s partner retailers today, what Stitch Fix chooses to do with its mountains of customer data may become cause for concern. Stitch Fix recently began its own in-house design and production capabilities. This makes sense as Stitch Fix becomes more attuned to what their customers want, and an in-house brand allows them to iterate and refine inventory more quickly. While the company states it has no plans to become fully vertically integrated, it’s worth considering how the retailers they partner will view and respond to this move.