Stitch Fix – Transforming Retail Through Personalization

Can data analytics and human curation transform the way we shop?

As retail has become reinvented by eCommerce, we’ve seen the fashion retail sector change with it. This allowed for the convenience of purchasing products from our own homes and a broader selection of products. While change has been deep and widespread, San Francisco-based startup Stitch Fix would say we’re just at the beginning.

Only a few years old, Stitch Fix saw the opportunity to leverage technology to transform the shopping experience by teaming extensive data analytics with human curation. The company has raised almost $50 million from big name VCs including Benchmark and Lightspeed Venture Partners and is valued at around $300 million[1][2]

Their key value proposition? Personalization. A user signs up for Stitch Fix and pays $20 upfront to receive a ‘Fix’ in the mail – a box with 5 pieces of clothing selected specifically for the him or her. The user can try the clothes at home and keep what they like, returning any undesired items in the box. The company then charges the user for the items they kept, crediting the $20 upfront fee towards the purchase. If done correctly, the goal is to simplify the lives of users. There is no need to go into a store or browse online for hours – they simply schedule a shipment, make their selection and forget about it until their next shipment.

The key to capturing value in Stitch Fix’s business model is retention. As Eric Colson, the company’s Chief Algorithms Officer, puts it: “The clothes are not exclusive. We don’t price them better than anyone else. We don’t do fast shipping. We’ve just got to be more relevant.”[3] The thesis is that if they truly match the clothes to users correctly, they will keep coming back and ordering more, which is strengthened further by the availability of shipment subcriptions. And it seems to be working. The company projected over $200 million in revenue last year, and 39% of users make at least half of their yearly clothing purchases through the service[4]

Given recommendation quality is pivotal for StitchFix – what do they do to get it right? The answer lies in hand-selection powered by sophisticated data analytics.

Stitch Fix employs stylists who hand-pick clothing for customers. Much like with Uber, these stylists work on their own schedules https://www.stitchfix.com/careers/styling. Because recommendations are driven by data and communication occurs on the site, there isn’t a need for stylists to interact directly with users and thus can work from home at flexible hours. The company recruits stylists detail oriented, client focused, and passionate about apparel[5].

Stylists are supported by an advanced data collection and analytics system which truly sets the company apart in its space. Upon signing up for Stitch Fix, the user gets dozens of questions in a dynamic and interactive format that collects up to 150 attributes (http://www.kpcb.com/internet-trends). It starts off with basics such as height, weight, shirt size, and body type. It then moves into more granular preferences including style types and colors through a visual interface.

But the data collection doesn’t stop there. It factors in occupation, commute type, zip code – it even request social media handles such as Instragram, Twitter, and Pinterest. In fact, around 46% of active users have connected their Pinterest accounts[6]. What makes it even more powerful is that the user profile is updated and improved on continously, with the user providing specific feedback with each return that the company learns from. This both boosts customer satisfaction and improves the company’s margin through a reduced return rate.

As the company grows, one thing it could consider adding to its strategy is partnerships with key retailers. For instance, they could partner with a firm like Nordstrom or Neiman Marcus to produce special curated boxes. These would originate from the partner’s website, offering the option to skip the browsing process and receive a box. This could provide value to the partner in the form of additional sales from accurate recommendations, as well as result in a new revenue source and visibility boost for StitchFix. The company currently has small private label line, and they could also consider shifting much more focus to it. Considering the wealth of data they have in clothing preferences for different user types, they could build out a line of products that could really resonate with customers. Additionally, they could considering selling anonymized data on clothing preferences to top brands that could leverage this knowledge to make better products.

If successful, Stitch Fix’s model has the potential to be transformational to the fashion retail industry and beyond. Shopping could become a much more passive, push-style process, where users simply select from a highly customized set of goods and browsing becomes a thing of the past.

 

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[1] Crunchbase. 2016. StitchFix. [ONLINE] Available at: https://www.crunchbase.com/organization/stitch-fix#/entity. [Accessed 18 November 2016].

[2] Glossy. 2016. [ONLINE] Available at: http://www.glossy.co/personalization/with-a-300-million-valuation-stitch-fix-expands-to-menswear. [Accessed 18 November 2016]

[3] 2016. Stitch Fix: The $250 Million Startup Playing Fashionista Moneyball. [ONLINE] Available at: http://www.forbes.com/sites/ryanmac/2016/06/01/fashionista-moneyball-stitch-fix-katrina-lake/#59eb4a6c2e2e. [Accessed 18 November 2016].

[4] Forbes. 2016. Stitch Fix: The $250 Million Startup Playing Fashionista Moneyball. [

[5] Be a Stitch Fix Stylist | Personal Styling for Women & Men. 2016. Be a Stitch Fix Stylist | Personal Styling for Women & Men. [ONLINE] Available at: https://www.stitchfix.com/careers/styling. [Accessed 18 November 2016].

[6] Kleiner Perkins Caufield Byers www.kpcb.com. 2016. 2016 Internet Trends — Kleiner Perkins Caufield Byers. [ONLINE] Available at: http://www.kpcb.com/internet-trends. [Accessed 18 November 2016]

 

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7 thoughts on “Stitch Fix – Transforming Retail Through Personalization

  1. I just read the 3D printed food post and was thinking this might relate to 3D printed fashion clothes or something. The recommendation algorithm truly is critical for this to work or else you pay shipping both ways for nothing and if you do that too many times, then you go out of business. Thanks.

  2. I think there is an interesting dynamic where the company does make money off its customers’ laziness. I have several friends – who are extremely busy and make a lot of money – who will keep their stitch fix box of clothes even if they don’t like what is in it, because it is such a hassle to return. One has liked most things, and is a happy customer. Others haven’t and have eventually cancelled. The problem with this dynamic is it can be hard to adjust future selections if the company can’t tell the customer is unhappy with the past selections.

  3. I think Stitch Fix is an extremely interesting model, but I wonder if it targets a very specific customer. I am not convinced that the majority of shoppers desire a passive experience – many traditional shoppers love “the thrill of the hunt.” I think Stitch Fix will need to evolve its offering in the future to incorporate this type of shopper – potentially offering up daily or weekly top selections from which the user can pick. I also found it quite interesting that Stitch Fix uses real stylists to pick the clothing for users. I wonder how thoroughly and consistently the stylists use all of the data they are provided with. I also wonder if given their advanced data collection methodologies they may transition to having an algorithm make these decisions, which would likely lower costs significantly. I agree their data is one of their biggest assets!

  4. Thanks for sharing! Stitch Fix seems to be like a Birch Box for clothing — and seems like a great fit for those who are very busy and / or do not like the physical shopping experience and would rather have someone do it for them. I am curious know whether the $20 cost is lost on the user if they decide not to purchase anything from their Fix; if so, then I think it would be difficult for users to use the service frequently as they could use other services or order things online themselves where the cost of shipping and returns is free. I really liked how the stylists have access to a wealth of data about a client; I was wondering whether clients would have access to communicate with these stylists to because sometimes all the data they give may not accurately indicate what type of preferences they have for fashion. I know that the target consumer for Stitch Fix is someone who doesn’t necessarily want to go in physical stores; but could it be the case that at some point they open pop up stores or temporary ones where your fixes are delivered to the store and you can try them on their with stylists? This way, when someone goes to the pop up, they will have an assortment of clothing readily picked out for them (more than 5 pieces) and a stylist there with them to help with any questions. This could capture more customers in the retail space!

  5. Thanks for the great article, A123! I understand that Stitch Fix recently moved into a 90,000-square-foot warehouse to accommodate inventory and shipping. Do you have any insights into how their personalization model might influence their approach to supply chain and inventory management?

  6. Thanks for a great article. My manager used Stitch Fix for her entire wardrobe – as a busy VP and a young mother, she had no time to shop for stylish new clothing, so this business model was a perfect fit for her lifestyle. I didn’t realize that the company included zip code, occupation, commute type, etc. in their data collection. Knowing that now, I can of course understand why these logistical factors are incredibly important in determining the practical feasibility of the clothing each stylist selects. I’m wonder if Stitch Fix will ever consider expansion into an a-la-carte menu, where a customer can request a specific item (i.e. a new business suit or a full length formal gown), and a stylist can send a selection of items matching this request vs. the standard box of mixed items. Additionally, tying in our sustainability challenge, I’m wondering if Stitch Fix will roll out any programs where customers can return a batch of used seasonal items, to be donated by the company or recycled, and receive a discount on subsequent shipments.

  7. This is a really interesting article! All of these fashion startups really seem to be getting some momentum behind them. While it sounds like StitchFix is doing a great job, are you worried about the competition? Given how personal clothes are and how much brand name matters, I wonder if a company like Trunk Club (owned by Nordstrom) is in a better position. You can have the stylist do everything for you or you can chat with the stylist over the phone, through email, or through the Trunk Club app [1]. This optionality to have it be a hands off or interactive experience seems crucial to me and StitchFix’s lack of interaction concerns me.

    [1]http://aproblemlikemaria.com/2016/02/chose-trunk-club-vs-stitch-fix/

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