Much of last year, the company scrambled to arrest declines in its sales, customer base and profits; unwind major initiatives undertaken by a previous chief executive; pull back on some of its ambitions; tighten its belt; and seek out new leadership. C-suite doors revolved every few weeks, as founder Katrina Lake temporarily replaced Elizabeth Spaulding as chief executive a few days into 2023, and David Aufderhaar replaced Dan Jedda as chief financial officer a couple of months later. Matt Baer arrived from Macy’s in June to take over as CEO.
Many changes have been painful. The company laid off 20% of its workforce in early 2023, closed its four-year-old U.K. operation and closed two distribution centers. More recently, the company eliminated full-time work for stylists and laid off some leads.
Now, the company has “set up a Transformation Office focused on identifying foundational and long-term growth opportunities. Fundamental to this is ensuring we have the right team in place to take our business forward,” a spokesperson said by email.
That includes former Amazon Fashion executive Tony Bacos, who joined in November as chief product and technology officer. The question remains whether Stitch Fix can be transformed.
“To be sure, this is a company in transition with a new management slate that is less than a year in,” William Blair analysts Dylan Carden and Alexander Vasti said in a client note earlier this month, based on a meeting with Aufderhaar. “While this creates some uncertainty, alongside limited visibility from the company as to when it expects revenue to stabilize, Stitch Fix has a story to tell that we believe is not widely appreciated.”
In some ways, Stitch Fix is going backward, undoing what William Blair called “the failed pivot directed by prior leadership.” Even before Spaulding left, the company realized that its much-touted and highly marketed move toward more conventional e-commerce in 2021 had confused customers and failed to drive sales. The introduction of its Freestyle website, which was opened to all consumers and not just its box customers, “pitted it against a broader apparel industry set, where it had less advantage and required heightened spending on less efficient marketing,” the analysts said. The Freestyle option is once again only open to those who have signed up for Stitch Fix and received at least one box.
"Stitch Fix has a story to tell that we believe is not widely appreciated."
Dylan Carden and Alexander Vasti
Analysts at William Blair
The company realizes that it also at times neglected its apparel merchandising and over-emphasized its tech, according to William Blair’s note.
Correcting that could set Stitch Fix up for success, because its algorithm is an advantage over more traditional apparel retailers, according to Liza Amlani, principal and co-founder of Retail Strategy Group. Moreover, many of the legacy retailers chasing the same audience not only don’t have such sophisticated tech, but also have failed to offer enticing assortments.
“If you see what the ultra-fast fashion brands are doing, like Shein and Temu, and Amazon Fashion, and anyone who's creating content on TikTok Shop — that is where you're going to find more of the interesting, fun fashion pieces,” she said. “People are moving away from Loft, Banana Republic and all of these brands because they've become boring.”
That includes Stitch Fix, too, which must correct its own inventory issues, something that Bacos in particular may be very good at, according to Amlani. Executives in recent months said the company would expand its private labels, and William Blair analysts said the goal is to have private labels top 50% of its offer.
“If they're looking to build out more relevant product mixes across their private label program, it would make sense to bring in a chief merchandising officer that would have not only insight into merchandising strategies and how to build out a product mix, but how to use that technology in the insights, and close the feedback loop,” Amlani said. “To actually sort product that people want, that they know they’re looking for because they have a ton of data.”
Stitch Fix shouldn’t lose sight of its ultimate differentiation, though, which is the humans who work as stylists, curating the boxes sent to subscribers, who receive as often or as seldom as they wish, paying a $20 “styling fee” each time, Amlani said.
“The whole point of Stitch Fix is to help customers figure out what to wear because they can't do it themselves. The stylists should be used for clienteling — to get to know the customer, to drive customer loyalty, to improve the customer journey and the customer experience by providing that one-on-one help.”
Principal and co-founder, Retail Strategy Group
“The whole point of Stitch Fix is to help customers figure out what to wear because they can't do it themselves,” she said. “The stylists should be used for clienteling — to get to know the customer, to drive customer loyalty, to improve the customer journey and the customer experience by providing that one-on-one help. And of course for styling questions, absolutely.”
Stitch Fix has “some positive attributes in the model that are overlooked or misunderstood,” according to William Blair. When it reduced its marketing by 40%, for example, it lost just 13% of its active customers. Its average customer buys four times per year, per William Blair’s note. And even its returns are more valuable than most because the data gleaned from them is richer, according to both William Blair analysts and Amlani.
“For now, we believe we are still a couple quarters out from stability in the model,” William Blair said. “We are more encouraged that the company is returning to its origins, recognizing and reinforcing very real advantages in the model, and adapting for a new marketing climate as opposed to a more dramatic shift in the business, which occurred under prior management.”