Stitch Fix: Big Data Comes to Fashion Retail
San Francisco–based e-commerce retailer Stitch Fix uses big data, or a computer algorithm, to pick the perfect top or pair of jeans for its thousands of clients. Teams of human stylists also work for the 4-year-old company. They aim to give packages assembled for its customers a personal touch before they are delivered, said Lisa Bougie, chief merchandising officer for the retailer. One of the retailer’s slogans is that no two of its boxes will be alike.
“We make our clients feel on trend without them having to give much thought to it,” Bougie said of the algorithm-arranged packages that are assembled for its customers. “The convenience, the ease combined with personalization, round out an experience that cannot be found anywhere else.”
The company has recently wrapped up a round of hiring top fashion executives and opened a 316,000-square-foot warehouse in Dallas in June.
Despite its growth, Stitch Fix remains a stealth story. They do no advertising, said Lisa Ozur of the Niche showroom in downtown Los Angeles, which works with Stitch Fix.
“A lot of people do not know who they are. But they have quietly turned into an important player in the marketplace.”
Stitch Fix has made a big splash in the tech world due to its mix of fashion and big data. Its algorithm was built by a team helmed by Eric Colson, who served as vice president of data science and engineering for Netflix from 2009 to 2012.
The algorithm’s data is fueled by information collected by style questionnaires filled out by Stitch Fix customers. About 2,000 people work for the company. Teams of human stylists work with consumers to hone the personal touch of the packages. Also, the longer a consumer spends with the service, the better the algorithm and the better stylists get to know the specific preferences of the consumer.
Stitch Fix shoppers are delivered five items, which are intended to be personalized to the clients’ needs, budget and lifestyle. Clients have three days to try on and return items they don’t want to keep. A $20 styling fee is charged for each delivery. If a client chooses to buy all five items in the delivery, which the company calls a “fix,” a 25 percent discount is applied.
Stitch Fix might grow to be even more important if its business model increases in popularity.
Retailers, including Stitch Fix and Trunk Club, owned by Nordstrom Inc., use algorithms and human stylists to sell clothes, and they have been popping up on the e-commerce landscape, said Rob Wright, a cofounder of Bungalow, an e-tailer company with offices in Las Vegas and Los Angeles that also mixes stylists and e-commerce. But the model has roots in classic retail practices, where a stylist choses clothing for a client.
“Neiman Marcus and Bergdorf have been doing this for super-VIP clients,” he said. “The big thing changing now is that it is becoming democratized,” Wright said.
What makes this model potentially highly lucrative is that these retailers put their clients on a buying schedule, Wright said. Every month to 90 days, packages are sent to them. Clients purchase what they like and send back items they are not interested in. These e-retailers are not put in the position where they must wait for shoppers to drop by their stores and shop.
But the model has risks. The retailer delivers inventory to shoppers before the clothing is purchased. The shoppers are billed for items that they don’t return. “We have to take big steps to mitigate fraud risks,” he said. Some e-commerce retailers make careful examinations of who they will send goods to before anything is delivered, Wright said.
Judah Phillips, a Boston-area big-data expert and author of the upcoming book “E-commerce Analytics,” predicts this model, which a Stitch Fix representative called online personal styling and some have called a subscription model, to remain part of the retail landscape. “Companies that can succeed are the ones that know how to use their data along with excellence in customer service to drive competitive advantage,” he said.
However, these new business models have not entirely changed the retail landscape. Lyn Chin, a buyer for Global Purchasing Companies, headquartered in New York, said there continues to be a lot of room for traditional bricks-and-mortar retail.
“I have to go to a store to try something on before buying,” Chin said. “I’m on a mission to try something new as opposed to subscription [models] where they say, ‘Here’s a bunch of stuff you didn’t know you wanted.’ [Often] you still won’t want them.”
Stitch Fix started in 2011 when founder Katrina Lake, a Harvard MBA, saw an opportunity to mix fashion retail with big-data e-commerce. It made news in March when it hired Julie Bornstein as its chief operating officer. Bornstein’s previous gig was chief marketing officer and chief digital officer in the San Francisco office of Sephora LVMH. News of the hire made a big splash in the tech press.
In 2013, $12 million in Series B financing was led by Benchmark. a venture capital firm headquartered in Menlo Park, Calif. Since 2011, the company has raised $16.75 million in funding. Bougie declined to state if Stitch Fix was profitable, but it runs three distribution centers. A 316,000-square-foot center opened June in Dallas. The other distribution centers are in San Francisco and the Indianapolis area.
The average age for the Stitch Fix customer is 36, Bougie said, but the age spans from high schoolers to senior citizens. The average price point for clothes is $58. Stitch Fix works with more than 200 brands such as Tart, Kut From the Kloth, Daniel Rainn and Collective Concepts. It also offers six private-label brands including 41Hawthorn, Pixley and Market & Spruce.
“We believe that having a healthy mix of product and private labels is essential,” Bougie said. Stitch Fix plans on developing two more private-label brands in 2016.