The Stitch Fix Turnaround Plan

PLUS: Cozy Culture, and Retail Trade’s Fake News
January 14, 2022

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The Stitch Fix Turnaround Plan

The past twelve months have not been kind to Stitch Fix, the AI-backed apparel brand. The stock has fallen from its all-time-high at $96.92/share on January 22 of 2021, to now trading at an all-time-low of $16.01.

How they got here is a longform exploration of post-covid dynamics, overinflated tech valuations, and the deflation of the “solve everything with AI” era coming to an end. It’s also a story worth diving into for another time. What Stitch Fix needs right now is a turnaround (cue Bonnie Tyler’s “We Need a Hero”).

To an investor, their turnaround plan seems to be non-existent. Aside from steady attrition from executive leadership and the board, Stitch Fix doesn’t seem to be making big moves to stop the proverbial bleeding. In the past 12 months they have Hired Venus Williams as a celebrity spokesperson, launched on-demand eCommerce, and announced the departure of founder, Katrina Lake, in August.

And, that’s about it.

They’ve also given moderate guidance on Q2 2022, forecasting anemic growth in the 0-3% range. Yikes. From their recent earnings call, CFO Dan Jedda noted “ We grew active clients to nearly 4.2 million, an increase of 417,000 clients or 11% year-over-year. However, sequential net client additions of 15,000 were below our expectations.” Basically, they spent a lot on retention and it didn’t pan out. 

As a longtime Stitch Fix customer (5 years, or 60+ Fixes), here’s what they’ll need to do to turn the brand around and retain their customers.

  • Rebalance the dependency on private label. The brand went from 15-20% of Fixes including private label to 80% of Fixes (based on n=1 sample size). The product quality is good, but the brand’s own paid advertising displays known labels and brands. This is misleading. They should rebalance to being primarily emergent high-end DTC, aspirational luxury, or true luxury. 
  • Expand category. Why apply the recommendation algorithm only to apparel? Why not delve into home decor and bedding, or even CPG, where flavor, taste, and functional benefits are unique to the purchaser? 
  • Rethink old decisions. The decision to invest in on-demand eCommerce should have signalled the death knell to the retail investor. It’s a desperation play, trying to eke AOV from a customer who wants to be surprised and delighted, but instead is costing the company hundreds in returned merchandise.
  • Pivot to eCom SaaS. If Bolt can raise $1B with just a few thousand eCommerce brands in its portfolio, maybe $SFIX can pivot to eCom SaaS to prop up its stock? 
  • Launch enthusiast lines. Pivoting to enthusiasts or athletic line will drive adoption of high-AOV customers. Runners could discover Janji and Tracksmith. Cyclists could discover Le Passione and Rapha. Climbers could discover Vuori. They’re all willing to spend $$$, too.

Future Commerce family - what do you think that $SFIX should do? Is it too late? What does the turnaround look like in a world where other apparel stocks are booming, sans-AI? I’d love to know what you think.

— Phillip

Fake (retail) news. Retail sales are up 16.9% YoY. But the retail press really likes bad news, so they’re reporting a “1.9% slump” from Nov to Dec, ignoring the fact that it was the most successful Q4 ever for retail.

Editor’s note: the reasoning behind the report is simple—if it bleeds, it leads. The notion that retail is “down” is the headline that will cause clicks. Let us call a foul on the trade press for narrative violation; the November number was another YoY winner, spurred on by what? Oh yeah. The trade press stoking fear over supply chain concerns.

Real-tail News. To that point, Adobe Analytics reported that eCommerce spending over the holiday season hit $204.5 billion. Cyber week sales were down, but overall we actually bought more.

Furry Faux-pas / Cozy Culture Gone Wild. Fuzzy wuzzy was a… stylish toilet? In the latest of luxury home commode fashions, HappyDreamLife has brought this gem to market. You can buy this lovely ultra plush toilet seat cover, complete with phone holster and grabby handle thingy for less than $60 on sale! Description declares: “it’s healthy for you” and that it “does not irritate the skin.” What it doesn’t mention is that you should probably plan to wash it (and then burn it) about every hour on the hour.

Clear the air. And if you’re looking for the perfect pairing, Campbells just released candles that smell like their most cherished soups. While enjoying your ultra comfy moment on the fuzzy throne, you can fill the air with the ultra comforting scent of Tomato Soup & Grilled Cheese. Follow us for more home tips!

Editor’s note: As we (sadly) predicted, this toilet seat sits at the intersection of maximalism and cozy culture. From last week’s Future Commerce podcast (~46:00): 

The biggest fashion trend of 2022. I think this comfy, cozy thing is kind of it's here. We're going to see comfy, cozy aesthetics in cars. We're going to see comfy, cozy aesthetics in interior design. And yeah, I think fashion has a really, you know, it's going to lean into more oversize, more plush, more fur or faux fur, if you will. But everything is warm, comfy and cozy in 2022. That's what I think. This is a weird one for you.

N-F-Teeshirt. Gap has hopped on the NFT train and launched their first non-fungibles: hoodies. They have also partnered with artist Brandon Sines to create a collection of Frank Ape NFTs. Meanwhile Stitch Fix is putting forth its lowest creative effort toward expansion by continuing to use influencer and celebrity voices such as Venus Williams to convince people to buy. 

Fund(ead).Liquid Death has secured a murderous $75 million in Series C Funding. The company’s killer revenue last year was nearly $45 million. (For comparison, in 2019, it was $3 million). The brand’s growth strategy includes investing in media and entertainment. It’s a familiar playbook for a beverage brand that is successfully executed only once in a generation. Red Bull, Monster, and now Liquid Death.

So Google is a monopoly?. Back in December 2020, a lawsuit was filed against Google by multiple states arguing that Google runs an ad industry monopoly. The unredacted complaint has recently become available, alleging that Google is misleading publishers and advertisers concerning ad action pricing, deflating prices for some and increasing them for others, and using the extra money to manipulate further auctions. Google plans to file a motion for dismissal next week.

The Covid Rift. For years, we had been making strides as a global economy to shrink the gap in economic development between rich and poor countries. New data is showing that the pandemic has halted that progress and widened the gap, indicating that economic recovery in poorer countries will be significantly slower than in richer countries. The International Monetary Fund is calling this increasing gap “the great divergence.”

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