It’s High Revenue Engagement and So Much More — Katrina Lake, CEO Stitch Fix
The Industrialist’s Dilemma — January 21, 2021
In our latest session we got to examine a high-flying company disrupting the retail fashion space. Stitch Fix has been on a roll in the last few quarters, with strong growth and an evolving business model that is positioning the company to continue to attack the $400 billion fashion retail market. Katrina Lake, the company’s founding CEO, walked us through how the company has evolved since its beginning and how she thinks about the huge opportunities in front of her.
Reorienting Your Perspective
At its most basic, clothes shopping in a retail store consists of several discreet steps: Looking at clothes, trying them on, deciding to make the purchase (or not), and paying for the products. As Lake pointed out to the class, in some ways what Stitch Fix did was combine those components in a new way that is substantively more convenient for shoppers. Customers are given choices of products to evaluate based on their stated preferences, the clothes can be appraised in the comfort of one’s own home, the pieces can more easily be graded as a part of various ensembles and in the broader context of one’s own wardrobe, and purchases can be made online via credit card. What Stitch Fix has done is lever digital technology and eCommerce to provide a better experience for customers to do what they were already doing. As Lake pointed out, in the future it could be that people will look back on the idea of customers walking into a store and flipping through racks of clothes as a complete anachronism that makes no sense for shoppers.
Also worth highlighting is how Lake pointed out the operational inefficiencies of current retail physical setups, including the needs for establishing a real estate presence and the huge amounts of energy required to heat and ventilate a large retail footprint with high ceilings and extensive lighting. Stitch Fix has a much higher speed of inventory turnover than their competition given their intimate customer relationships, and thus operates much more operationally effectively than their physical-only or physical-forward competitors.
Some might look at Stitch Fix and say that the company is “only a digital fashion retailer,” but that would not do justice to what the company is achieving. By gathering very granular data on individual items regarding the specifics of fit, the perceived value by customers, and how well an item aligns with a customer’s fashion sense, Stitch Fix is compiling a set of unparalleled data across products, manufacturers and consumers. This information enables a variety of new opportunities that others in the space are unable to approach in the same way (see below).
The Engagement Is the Enabler
Silicon Valley loves to obsess about new technologies and business models. The rise of the SaaS industry, especially in enterprise software , has led to an infatuation with subscription businesses as the future of how to price products.
But too often this business model can be seen as the end point and not the enabler of new opportunities. In the case of Stitch Fix, describing the company’s business model as a subscription is not only inaccurate (consumers can cancel at any time), but it obscures that the real value of Stitch Fix’s model is that a customer’s engagement allows the company to focus on the ongoing service to deliver a great experience — easy purchasing, easy check-out, and even an easy way to have a fashion-forward mindset that one might not otherwise embody. If customers don’t purchase any of the items in their Fix, it only costs $20 to have had a stylist choose a set of potential clothing options that people might not have otherwise considered. And if a customer buys any of the clothing, the $20 service fee is waived as part of the purchase.
Said differently, the service is the key enabler to the disruption, but is not the disruption itself.
The Future’s So Bright I’ve Got to Wear Shades
Lake highlighted the many options in front of the company — with trailing 12-month revenues of $1.8 billion, the company is barely scratching the surface of its market. In 2020 Stitch Fix expanded the ability for customers to buy directly specific articles of clothing and not to have to wait for a Fix to arrive in the mail. With the large collection of data that Stitch Fix gathers on fashion trends, consumer preferences and the specifics of why customers do and don’t buy articles of clothing, one can easily imagine the company developing its own line of fashion brands in the future, which, in theory, would both meet customer desires and offer increased margin opportunities for Stitch Fix.
Perhaps the magic of Lake’s solution is that what started as a service that digitally and conveniently mirrored the well-known components of in-person fashion shopping is now enabling a substantively larger opportunity to disrupt how fashion is evaluated, purchased and developed. The combination of digital knowledge and physical operational excellence has created a unique opportunity that could catapult Stitch Fix into even higher levels of achievement and success — in ways that incumbents can only dream of emulating.
