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Stitch Fix Introduces Over 100 Contemporary Brands

Theory, Steven Alan, Rebecca Minkoff and more are joining the personal style service, which reportedly filed for IPO last month. Founder Katrina Lake tells BoF what the expansion means for Stitch Fix’s growth strategy.
Source: Stitch Fix
By
  • Chantal Fernandez

SAN FRANCISCO, United States — The contemporary market is one of the most challenged sectors in the industry today, undermined by fast fashion, customers demanding discounts and ailing department stores. But for Stitch Fix, the fast-growing wholesale personal styling service that reportedly filed for an initial public offering at the end of July and is reportedly nearly $1 billion in annual sales, the market is an opportunity to bring household name brands home to their customers.

On Tuesday, Stitch Fix will begin offering over 100 new contemporary brands including Theory, Steven Alan, Todd Snyder, Kate Spade, Rebecca Minkoff, Alice & Olivia, John Varvatos, Faherty and JBrand, with pieces ranging in price from $100 to $600. "You can think of this as another extension of the success of the business, based in data and opportunity that we saw," Katrina Lake, founder and chief executive, tells BoF.

Stitch Fix was founded in 2011 and uses data culled from customers on budget, age, style and past purchase decisions, along with algorithms and the judgment of human stylists, to choose five items that are sent in each “fix”, or box. The company employs over 3,330 stylists and nearly 80 data scientists. Customers pay a $20 styling fee upfront that is deducted from the total purchase of whatever items are kept.

Stitch Fix’s new premium brands come as a response to requests from existing clients for more well-known brand names and for higher quality constructions and fabrics, such as leather and cashmere. It will also allow the company to attract new users that may have found the offering too basic in the past.

“The business started pretty deeply centred in a casual product offering and over time we have expanded that to better address, for example, career wear or even special occasion,” says Lisa Bougie, general manager of women's. The average price point for a Stitch Fix item in July 2016 was $55. Lake declined to update that figure, but says the company has broadened its range on both ends of the price spectrum, and carries over 600 brands including the new contemporary additions.

Less than 30 percent of those brands, according to Recode, are private labels, which have become an important part of Stitch Fix’s strategy to offer pieces that beat out competitors such as Amazon and fast fashion retailers, and opportunistically fill in gaps in its assortment based on its vast amount of data.

Stitch Fix will only offer third-party brands at the contemporary price point, however, but more than half of the assortment will be exclusives styles or colourways. Paige Denim, for example, has designed a petite line for Stitch Fix, and the retailer already knows which customers might be interested in the line based on size and price preferences.

Such targeted collections are one of the many benefits Stitch Fix can offer contemporary brands, including awareness, discovery and “matching” for customers who may not be familiar with a certain label, but have expressed interest in similar products. Stitch Fix can also only offer contemporary brands in certain categories — such as outerwear, men’s shirts or cashmere — that customers are willing to pay more to buy. Stitch Fix stylists, 1,000 of which have been specially trained for the new brands, don’t typically have opportunities to touch and feel items before selecting them for clients, but the company is creating more opportunities to do so.

A lot of the growth channels that brands have access to in the past have been about deep discounting… We are a full-price growth channel.

“A lot of [brands’] retail partners are not able to share with them: who is your client, what is she loving and why, what’s not fitting him and why,” she says. “A lot of the growth channels that brands have access to in the past have been about deep discounting… and have not been in channels that maintain the integrity of the brand,” she continues. “We are a full-price growth channel.” (Stitch Fix adjusts the prices on items that are discounted elsewhere in the market, and customers get 25 percent off a box if they keep every item.)

“The data that they have probably outperforms every other wholesaler,” says Rebecca Minkoff, who is offering most of her namesake brand’s categories through Stitch Fix, with an average price product of $195. “For us, right now, the key is opening new distribution channels that are right for our company. Any exposure to new customers is something we are definitely pursuing in a lot of areas.”

"The data point thing was not what wooed me," says Andrew Rosen, founder and chief executive of Theory. "It's pretty amazing that you don't ever go to a website to see what they offer. Nothing ever appears, it's totally a service model and I think it's really interesting. I'll know more in six months than I know now, but I was impressed with them as an organisation and their philosophies and ideals, and the way they tend to put the customer first."

The individual relationships between Stitch Fix and its consumers is the company’s hallmark, but it makes establishing a public visual brand identity more difficult. How can the company advertise its new offerings to consumers who have preconceived notions of Stitch Fix’s brands without alienating those who do not want more expensive brands? “The brand stands for personalisation,” says Lake. “The challenge is when we think about what we post on Instagram or how do we dress our models that are on TV commercials that lot’s of people see.” An integrated marketing campaign featuring influencer events and client re-engagement is planned.

The expansion into contemporary brands comes at a time of significant change for Stitch Fix, which last disclosed annual sales of $730 million in the fiscal year ending July 2016, its third consecutive year of profitability. (Lake declined to reveal financials or comment on the reported IPO.) The company also launched menswear and plus-size in the last year. And six months ago, according to Bougie, Stitch Fix restructured the buying organisation on the women’s side. Previously dedicated to specific product types, buyers are now focused on different intersections of age and budget. “We are buying in such a way that really is focused on the combination of those two things to really make sure that we are able to meet the needs of both end use and aesthetic,” says Bougie.

In addition, several executives have recently left the company: In June and July, chief operating officer Julie Bornstein, vice president of brand and creative Cristina Angeli and vice president of marketing Lindsay Ferstandig all departed. (Lake declined to comment on these exits.) A new chief financial officer, Paul Yee, previously of home and personal care product company People Against Dirty, arrived in June.

Such departures are not uncommon for a company preparing to go public, which will be a milestone for both the company and the industry at large. Reuters has estimated the company will be valued between $3 and $4 billion. (Stitch Fix has raised $42 million in venture capital, most recently adding a $25 million round in 2014. Investors include Lightspeed Venture Partners and Benchmark.)

The filing will likely reveal just how loyal customers are to Stitch Fix, which requires no subscription commitments. In June 2016, the company said 70 percent of clients returned for a second “fix” within 90 days. Lake declined to say if that metric has since changed. “The long term relationships that we have with our clients are super important,” she says. “And our number one focus.”

Editor's Note: An earlier version of this article misidentified People Against Dirty as People Against Money. It also misstated the number of stylists trained in the new contemporary brands: 1,000 stylists, not 100, were trained.

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