Stitch Fix’s hardships continue as the company faces high costs and a decline in demand for its styling service.
In the past year, the company has struggled to grow its customer base while dealing with a tight labor market and supply chain issues. For its fiscal third-quarter earnings, Stitch Fix reported $492.9 million in revenue and $78 million in losses. Meanwhile, its active client number dropped to just over 3.9 million– a decrease of 200,000 or 5% year-over-year.
Meanwhile, downsizing is also on the way. Ahead of its earnings call on Thursday, Stitch Fix laid off 15% of its corporate salaried staff, CNBC reported. The figure accounts for about 330 people, who were notified via an internal memo from CEO Elizabeth Spaulding. “We’ve taken a renewed look at our business and what is required to build our future,” Spaulding wrote in the letter to the staff. “While this was an incredibly difficult decision, it was one needed to make to position ourselves for profitable growth.
Jane Hali, CEO of retail research firm Jane Hali and Associates, said “Stitch Fix is facing many headwinds.”
Back in March, the company lowered its annual guidance due to the softening in the number of active clients during the first half of fiscal year 2022. “And so far, the customer base deteriorated by 4% year-over-year in 2022,” Hali noted. There is also uncertainty in the timing of improvements in the company’s conversion, Hali explained.
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“Stitch Fix’s growth is dependent on its client base growth and the client base growth has been deteriorating,” Hali added. “We believe that active clients are set to drop more as pandemic-era buyers fade.”
As for the overall category, there is also a sense that interest in subscription styling is waning. Last week, Nordstrom announced the shuttering of its own subscription styling service, Trunk Club; the retailer acquired the startup in 2014 for $350 million. The shutdown signals the declining demand for subscription boxes, which became popular during the early 2010s.
“I believe the subscription model is faltering because we learned during Covid – that we can do more with less,” Hali said. “There is no reason for a refresh [wardrobes] every month.”
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Moreover, Stitch Fix’s pivot to a more traditional e-commerce retailer via Freestyle, its one-off shopping service – is still a small part of the business. The new direction reportedly ended up hurting Stitch Fix’s core styling business, as the approach didn’t resonate with as many first-time visitors to Stitch Fix’s site as the company hoped.
Hali said that the company is growing its Freestyle business, but that is coming at the expense of Fixes – as a result eliminating the company’s once niche, differentiating element.
Matt Jacobs, an analyst at consumer research firm M Science, which tracks Stitch Fix’s user base, said the company’s struggles have been a long time coming. “The big theme in our research over the past few quarters is the weakening number of customers,” Jacobs said – also pointing to the weak guidance from Stitch Fix management over the last two quarters.
Over the years, Stitch Fix’s service relied on new customers to be its highest spenders, Jacobs explained. “Spending generally falls off over time, and newer cohorts make up the predominant share of spending within a given quarter,” he said.
Jacobs noted that customers who joined Stitch Fix’s styling service in the past year “have been responsible for nearly 45% of revenue,” a rate that dates back to the beginning of fiscal year 2020. It also highlights Stitch Fix’s retention woes, as well as its difficulty in consistently onboarding new users. “We believe that Stitch Fix will continue to struggle if customers don’t pick up in future quarters,” Jacobs said.
Over the past few months, the company has tried to expand its reach by working with celebrity influencers, such as Venus Williams.
Still, Stitch Fix’s woes are likely to continue – unless it can scale its Freestyle shopping feature. But even that’s not a guarantee, according to Hali. In the years since Stitch Fix’s founding, the e-commerce experience has become more personalized – reducing the need for an online stylist.
Many retailers have now figured out what a specific customer likes and needs based on customer profiling and their browsing journey, Hali said. “Why would I pay for a service to do it?”