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
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.” 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
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.
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. 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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 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].