We all know how E-commerce giants like Amazon, Flipkart, and Alibaba leverages data and show us the products we are most likely to buy. Personalization in product offerings certainly boosts an organization’s revenue, and Data Management is the key.
But do you know a company, Stitch Fix, whose founder started the enterprise not with a website but with Google sheets and Survey Monkey? Stitch Fix indeed was responsible for bringing the Data Science revolution by benefitting brands, brand stylists, and venture capitalists. It was recently named “World’s Most Innovative Retailer in 2019” by Fast Company.
The company has about an active user base of 3 million customers and has leveraged its data-driven capabilities to become a digital winner in the apparel space. I have tried to unveil Stich Fix’s secret sauce, which transitioned the company from selling clothes to friends and family to launching its IPO in November 2017.
Early Beginnings:
Katrina Lake founded stitch fix in 2011 after she got frustrated with how slow fashion and retail space were moving ahead. Despite the innovations of the web and smartphones, people were doing most of their shopping offline.
After working on few cases in the fashion and retail space in Parthenon consulting firm, she joined Leader Ventures, a VC firm, as an associate. She hoped to work for one of the many startups and build her network. But she discovered many of the entrepreneurs were just as inexperienced as her. Being risk-averse, Lake went on to do her MBA at the Harvard Business School instead of starting a business. So finally, in her second year at Harvard, she took a leap of faith and launched Rack Habit, which further was renamed Stitch Fix.
With $6,000 in credit card balance and clothes she bought from Boston’s boutique shops, Katrina started Stitch fix. In the first six months of launching Stitch fix, she didn’t have a website. Instead, Katrina used a unique combination of Google Sheets and SurveyMonkey (Survey form) to ask customers about their clothing taste while simultaneously keeping track of purchase data.
Katrina initially started by selling the service to friends and family in Boston. The business grew from 20 friends to over 200 customers through word of mouth in just a few weeks.
In April of 2011, Lake finalized funding round with angel investor Steve Anderson (also Instagram’s first investor), who helped raise $750,000 for her company. A month after graduating from Harvard, she moved to San Francisco (still the company’s HQ today).
What is Stitch Fix? and How it Works?
Stitch Fix is an online personal styling service in the United States and the United Kingdom. It uses recommendation algorithms and data science to personalize clothing items based on size, budget, and style. Stitch Fix generated more than $1 billion in sales during 2018 and reported 3.4 million customers in June 2020.
Each time a fix is purchased, a styling fee of $20 is attached to the box, which can be credited towards merchandise purchased. But the customers who wish to keep all the five items get a whopping 25% discount on the order.
Alternatively, clients can purchase an annual ‘Style Pass,’ which works as a subscription for a year for $49, which is also credited towards items purchased. More importantly, another valuable option of ‘Extras’ allows clients to select items such as socks, bras, underwear, and other items added to 5 items their stylist selects for Fix.
After understanding Stitch fix working from the customer’s point of view, let’s try to understand how Stich Fix makes this service possible through an example illustrated in the chart:
Innovation of Stitch Fix:
A unique mix of Data Science and Human Judgement:
While data is unarguably the crux of the Stitch Fix business model, so are humans. While algorithms provide the initial filters, ultimately, those human stylists have the power to override the product assortment the algorithm has delivered. They are then key to understanding the nuances of customer requests and ensuring their experiences are personalized.
If the client has a particular request, for example, “I need an outfit for a destination wedding in Hawaii in December.” The stylists of Stitch Fix would undoubtedly know what options would work for that particular event. Also, suppose customers share more intimate details of their life like pregnancy, weight loss, and new job opportunities. In that case, only the human stylists know how vital these life moments are, more so than the sophisticated algorithm.
Our human stylists make our algorithms better, and our machine learning helps our stylists perform better. By combining the art and science of styling, Stitch fix can create a far better customer experience than anyone else in retail.
Chief Technical Officer at Stitch Fix, Cathy Polinsky
The value differentiation works in favor of Stitch Fix as below:
Stitch Fix knows customers’ wants and tastes well, and using data science and a stylist to recommend clothes makes an ideal blend for personalization. This significantly reduces customer returns, improving the economics of the business.
Stitch Fix reduces unwanted inventory since it can stock only that what it believes its customers want. Since it sends out fixes at regular intervals, it has much more visibility into its future inventory needs and can plan accordingly.
The data loop allows Stitch fix to learn from customer’s interactions and improve its product.
Convenience and Discovery
The value differentiation of Stitch Fix lies in its unique convenience and ease of use. The reason is, while some people might enjoy online shopping – some may find it stressful because of the time and concentration it demands. The ‘Paradox of Choice amplifies this‘, (Having too much choice can make decision-making harder instead of easier).
What is the Paradox of Choice and how does the retailer Trader Joe’s uses it to excel?
Essentially, Stitch Fix takes away the complex decision-making process for the customer but still provides them with a selection of clothing and accessories they would have chosen themselves.
This convenience also extends to Payments and Returns, as customers can try on the items at home before being charged for whatever they decide to keep.
Another gold spot Stitch Fix has hit reinventing customer experience with the secret element of discovery. The customers are unaware of what they are going to receive. This high level of surprise and delight in discovering new bands and styles keeps customers hooked to Stitch Fix.
This discovery element is also a significant advantage for the brands that partner with Stitch Fix. The surprise discovery factor makes customer awareness and brand recall go high, potentially converting into direct sales to individual brands in the long run.
Business Model of Stitch Fix:
Private Labelling
Apart from selling clothes of other brands, Stitch Fix also produces its clothing under the private label brand by its Hybrid Designs. The company’s data scientists brainstormed this idea when they worked on finding product gaps in the marketplace. For instance, to say, some middle-aged female customers were looking for capped-sleeve blouses, but that clothing inventory was simply not available with other brands.
Shop Your Looks
Shop Your Looks is Stitch Fix’s attempt at building a marketplace where customers can purchase clothing directly from the company’s website.
Shop Your Looks allows its customers to buy personalized outfits based on previously kept items, removing waiting for the next Fix.
Stitch Fix Funding, Valuation & Revenue
According to Crunchbase (a leading platform for finding business information), Stitch Fix has raised a total of $79.4 million in five rounds of funding during its evolution as a startup. Notable investors into the company include the likes of Baseline Ventures, Benchmark, Lightspeed Venture Partners, and many more.
The company then raised another $120 million during its historic IPO in November 2017. Katrina Lake became the youngest ever female founder to lead a company to IPO – a feat that was surpassed in January 2021 by Whitney Wolfe-Herd, CEO of dating app, Bumble.
The simple four-word, DATA, has become crucial in this decade because of widespread internet use, especially in Covid. What Stitch fix does is genuinely exemplary, covering all facets of Consumer-based business- giving User Personalization the highest significance in its business model.
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