VALUE PROPOSITION

Stitch Fix is going public, anticipating a future too busy for shopping

Obsession
Fashion
Obsession
Fashion

Stitch Fix has a simple value proposition. “We save our clients time by doing the shopping,” it said in its IPO filing yesterday (Oct. 19).

It does it by regularly sending boxes of clothing to women and men based on a style survey they fill out. They’re able to try the clothes at home, and pay for only those they keep. The rest they simply mail back. The company isn’t the first to try this model in fashion, but it’s become the most successful, thanks to its algorithmic, data-driven approach to picking just the right clothes for its customers. (Well, some of the time anyway.)

The system is working well enough that Stitch Fix did $977.1 million in clothing sales and fees last year, and had about 2.2 million active clients through July of this year, according to its IPO paperwork. It didn’t say how much it hopes to raise, but rumor holds that the company expects to be valued between $3 billion and $4 billion.

Americans don’t actually seem more pressed for time than in the past, but the company’s appeal lies in eliminating most of the decision-making involved in buying clothes. “It’s not hard to imagine who might benefit from these boxes,” the New York Times wrote (paywall) just a few days ago in a story about Stitch Fix and similar services. “They’re an affordable solution for busy parents, busy workers, people who don’t like trying on clothes in stores, or anyone who wants to upgrade their wardrobe but doesn’t have an eye for style or the budget to hire a professional stylist.”

Stitch Fix is unique in the way it uses algorithms to decide what to send you, and the more customers it has, the better those algorithms should get. As it explained in its filing:

The vast majority of our client data is provided directly and explicitly by our clients, rather than inferred, scraped or obtained from other sources. We also gather extensive merchandise data, such as inseam, pocket shape, silhouette and fit. This large and growing data set provides the foundation for proprietary algorithms that we use throughout our business, including those that predict purchase behavior, forecast demand, optimize inventory and enable us to design new apparel. We believe our data science capabilities give us a significant competitive advantage, and as our data set grows, our algorithms become more powerful.

Human stylists are also involved in the decision making, but to illustrate the power of its algorithms, the company offered the example of a particular knit top with an embroidered neck line. The top, it says, “is purchased 52% of the time it is included in a Fix”—that’s the company’s term for the box of items it sends out. “However, for a particular client for whom it is well suited, our algorithms may predict she is 80% likely to purchase the item if it were included in her Fix.”

The company is even using algorithms to design its own clothes, and says those products are some of its best sellers.

One concern to potential investors is that its growth, while still strong, is slowing. Though that’s probably to be expected as the company gets bigger.

It can now also count Amazon among its competition. Over the summer, the e-commerce steamroller introduced Prime Wardrobe, which lets shoppers order clothes for free and pay only for what they keep. If the fate of food-box service Blue Apron is any lesson, that’s not great news for Stitch Fix.

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