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.

 

Word Count: 796

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[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]

 

Previous:

The Devil Wears Digital: Condé Nast Reinvents Itself

Next:

Idolizing nerds: Putting the “e” in sports

7 thoughts on “Stitch Fix – Transforming Retail Through Personalization

  1. Great piece – I agree with your idea to push further into the Private Label space. This is something that many traditional retailers are doing in order to grow margins. I also think that having more private label clothing would help them further differentiate from the retailers that they are competing against.

  2. Interesting post! I was just talking to my friend about Stitch Fix, and the lazy part of me loves the idea of having personalized clothing recommendations sent directly to me. Their advanced data collection and algorithms play a major role in their success. Because Stitch Fix hopes to expand into the menswear and plus size categories, do you think they will face challenges in giving tailored recommendations because they lack data on these segments?

  3. So…I just made an account on Stitch Fix. I’d love to take a peek under their algorithmic hood; that’s the only long-term advantage on which I think they can really compete. (That, and the fact that they employ part-time stylists who, as you mentioned, work for Stitch Fix much like an Uber driver works for Uber.) The internet is overflowing with companies that do what Stitch Fix does (Trunk Club, for example, and other monthly fashion subscription firms) — but no-one is blending the strengths of the sharing economy + deep analytics the same way Stitch Fix seems to be.

    I’ll report back after my first shipment!

  4. Very interesting post! I love this idea – the convenience factor and ability to have personalized styling has the potential of changing retail and the way consumers shop. I wonder what the impact will be on brick and mortar retail as companies like Stitch Fix and other e-Commerce / direct-to-consumer retail companies expand (such as Everlane, Dia & Co, etc.). Is this the beginning of the end of retail stores and malls?

  5. Interesting! I had heard rumblings about Stitch Fix while I lived in NYC, and your post really helped highlight what makes the startup unique. Personally I think the market for a subscription fashion-focused BirchBox may be limited, and I see more profit potential in Stitch Fix’s unique data analytics and curation technology. I like your idea of focusing on key retailers, and I would suggest that as part of their expansion strategy, Stitch Fix could license their analytics technology to Bloomingdale’s and Macy’s. These companies are already leveraging digital innovation by integrating virtual dressing rooms throughout retail stores so that customers can “try on” different clothing. Retailers could leverage Stitch Fix in this part of the customer decision journey by recommending similar style clothing that customers can purchase from the store. Based on its predictive analytics, Stitch Fix would enable retailers to more effectively sell relevant products to their customers during the consideration stage, and potentially allow them to rely less on expensive on-the-floor salespeople.

  6. Awesome post! I’ve personally been very interested in these sort of personalized subscription services but have yet to pull the trigger. For me the worry has been (1) are the items really worth the monthly cost and (2) will I get sick of the service but forget to cancel. Also, I’m super curious if any of these business models have been profitable yet

  7. While personalization is definitely a huge benefit, the risks of StitchFix getting it wrong are huge. I personally had an experience with the company where I very explicitly asked for a certain style of clothing. I gave them access to my Pinterest, diligently filled out their questionaire, etc., but the clothes I got were not in line with anything I said. As a result, I never used them again. The potential gains from personalization done right are huge, but the risks are there as well.

    At the same time, I love your suggestion of partnering with key retailers. This type of data analytics in retail should set the standard. There is no reason Nordstrom, Bloomingdale’s, etc. should not be using my personal profile to show me items when I open their app and website to shop. They’re really missing out on this opportunity and should learn from StichFix’s success.

Leave a comment