Founded in 2011, San Francisco–based startup Stitch Fix was one of the first companies that added a personal styling service to everyday shopping. The service relies on an intelligent computer logarithm and a touch of personal advice from professional stylists.

A SEAMLESS AND PERSONAL EXPERIENCE

After a customer fills out a 10-minute survey about her sizes, style preferences and common social occasions, Stitch Fix sends the customer a well-packaged box of five items that may include tops, dresses, jewelry and accessories. Stitch Fix charges a $25 styling fee that can be credited toward any purchase in a particular “Fix” (the company’s name for its delivery box). If a customer decides to purchase all five items, she gets a 25% discount on the whole purchase. Like most emerging e-commerce sites, Stitch Fix offers shoppers a credit for referring a friend who signs up for the service ($25 in Stitch Fix’s case). Stitch Fix succeeds in providing a personal touch with every order. In the detailed survey customers fill out, the e-tailer asks not only objective questions about age, profession and physique, but also questions about customers’ style preferences, mix of social occasions, budget and willingness to show  skin. Some questions in the survey include: “Are you more of a jeans/pants and top gal or a dresses gal?” “How often do you dress in the following occasions?” “What do you like to flaunt? What would you rather keep covered?” In addition to soliciting information via a standardized survey, Stitch Fix gives customers the option to send a personal note to a stylist about their order. In many cases, they tell stylists about an upcoming wedding or a beach trip or other event that has prompted them to find a special new outfit. The founder of Stitch Fix, Katrina Lake, says that “most of the interaction that the customer has with your brand happens when the product arrives at her house,” and that the packaging adds another layer of surprise to the experience. The delicate Stitch Fix logoed box contains a personal message for the customer regarding the enclosed items. The idea is to provide a self-gifting and surprise element to the whole experience. Learning about customers does not stop at the survey. When a customer either returns or keeps any items after a delivery, Stitch Fix tracks the information in order to learn more about that customer.

BROAD CUSTOMER BASE

Stitch Fix’s customer base is broad, and the value proposition for customers varies. For example, for a busy young professional who barely has time to shop, the subscription can provide an easy way to stay fashionable with minimum effort. A soon-to-be mom might receive handpicked outfits for each trimester of her pregnancy, an excellent way for her to keep up with fashion trends during pregnancy. And a fashionista might be surprised by new styles that she never would have picked out for herself, but can enjoy thanks to the styling expertise of Stitch Fix staff members.

UNIQUE BUSINESS MODEL

Like most fashion retailers, Stitch Fix buys wholesale and needs a reasonable profit margin to cover shipping and styling costs. Accurate customer data has enabled the company to achieve a 70% purchase rate on all orders: over 70% of people buy at least one item from their Fix delivery each time. The company is also able to sell most of its inventory at full price, generating enough profit to cover its team of 2,000 stylists. The detailed data Stitch Fix gathers provides predictive intelligence about how well and why purchased items worked, which means the company is able to pick a better assortment in the next season and reduce return rates. The business is also profitable thanks to its six private label brands, which account for 30% of its total merchandise mix. These private label brands usually carry a higher profit margin than third-party brands.

NOT MORE EXPENSIVE THAN REGULAR RETAIL PRICES

A common challenge for personal styling websites is that hidden fees for styling services are included in the inflated prices. But Stitch Fix credits customers with the difference if they find the same clothing for cheaper at a physical store or outlet. The average price of items has also dropped, from $65 at launch to $55.

THREE FUNDING ROUNDS FUELED COMPANY GROWTH

Lake had a clear vision of Stitch Fix’s growth path starting from its series A funding. The first round of $4.75 million helped the company grow its inventory, logistics and product offerings. By the time it got its second round of funding, it had already grown five times in terms of both revenue and client base, according to Lake. Re/code says the company is projecting more than $200 million in annual revenue in 2015.

Source: CB Insights

A Dream Team of Seasoned Retail Executives

Stitch Fix’s series B funding focused on bringing seasoned retail talent on board, and the team now includes Lisa Bougie, former General Manager of direct to consumer at Nike; former Walmart.com Director Meredith Dunn; and former COO of Walmart.com Mike Smith. The recent, high-profile hiring of Julie Bornstein as Stitch Fix’s COO (she was most recently the Chief Marketing Officer & Digital Officer at Sephora) drew significant press attention to the company. Bornstein has been on Stitch Fix’s board for two years and is overseeing business strategy and customer experience at the company.

No Close Competition for Stitch Fix

Stitch Fix was the first company to combine personal styling and subscription services, and it’s more advanced in funding rounds than most of its peers, including Le Tote, DailyLook and Wantable. Wantable is still at its series A of $1.5 million and its average item value is $70 versus Stitch Fix’s $55. According to some customer feedback FBIC obtained, DailyLook has not been able to capture subscribers’ personal style as well as Stitch Fix has. Le Tote, a company that has a slightly different rental model, can be a good complement rather than a competitor to Stitch Fix’s business. Many customers subscribe to both services: Le Tote sends unlimited boxes of outfits for customers to wear and send back for $50 a month, whereas Stitch Fix provides a choice of five items for purchase.

Source: CB Insights

Stitch Fix Competitors