Katrina Lake

Stitch Fix is having its moment in the spotlight — and the world is noticing.

The Silicon Valley darling, founded by chief executive officer Katrina Lake in 2011, is in an enviably strong position and can still choose its path forward. Despite multiple recent reports that Stitch Fix has confidentially filed for an initial public offering, which has been pegged at $3 billion to $4 billion, the company is also rumored to be open to an acquisition. This “dual-track” approach is not uncommon for companies looking to do a deal, since it keeps their options open and the potential of an IPO can provide leverage in negotiations for higher price from a strategic acquirer.

While rumors have percolated up in Silicon Valley, New York and Europe that the company had met with Jack Ma’s Alibaba, one knowledgable source threw cold water on the idea that the two are in takeover negotiations. The Chinese giant has a large investment team and is constantly perusing the market, only rarely making deals — but often sparking waves of rumors.

When asked about the buzz around Alibaba being a potential acquirer, one prominent retail banker said, “Every day I hear a rumor about Stitch Fix being bought by company X, which has the money to buy them.”

Representatives for Stitch Fix could not be reached for comment and Alibaba declined to comment.

That Alibaba was even seen as a possible suitor for Stitch Fix shows the broad appeal of the company and highlights the new realities of dealmaking, where giant companies — from Alibaba and JD.com to Amazon and Wal-Mart Stores Inc. — are seen buying skills and capacity to both grab share and keep their competitors from gaining it first.

Alibaba was key in taking Chinese department store operator Intime private this year, JD.com is investing $397 million in Farfetch, Amazon is buying Whole Foods for $13.7 billion and is said to be close to an arrangement of some kind with beauty site Violet Grey and Wal-Mart is on a Jet.com-fueled acquisition spree, including a $310 million deal for bottoms-brand Bonobos.

In this view, Stitch Fix might be both a play for technology and an avenue to new brands for these mega-consumer companies. In short, Stitch Fix’s mix of artificial and human intelligence has a knack for knowing what consumers want to buy — and others want in on the secret.

Lake has built a profitable subscription box business with $730 million in sales, expanding from women’s to men’s to plus sizes, ramping up the businesses with increasing speed.

Users fill out a questionnaire with their style and other preferences when they sign up for the service. Stitch Fix algorithms use that data to make product selections from the 450 brands the company carries and a human stylist makes the final choices, shipping out five pieces for the customer to try on at home and return if necessary.

“Stitch Fix is one of the only companies that can challenge Amazon in apparel,” said William Susman, managing director of Threadstone.

Indeed, Amazon has already proven to be keen on the Stitch Fix model and is launching its own box service, Prime Wardrobe. Amazon’s recommendation algorithm is renowned in retailing for being able to come a shopper’s past purchases to be able to serve up products they might also like — from books to food to sporting goods. But the company has only just started to develop a method of using technology and human stylists to recommend fashions.

The Echo Look, the stand-alone voice-operated camera Amazon introduced in April features Style Check, a program that recommends outfits based on current trends and what “looks best,” according to a spokeswoman. Users upload two photos of themselves in different outfits to Style Check and the program will pick one or the other “in about a minute” using machine learning and “fashion specialists.”

But Stitch Fix has been at it longer. One tech source pointed to the company’s “Netflix-type recommendation technology for their stylists — that’s their special sauce.” If that technology were to translate into other categories, Stitch Fix could be attractive to any of the tech giants looking to get shoppers what they want.

If Stitch Fix is bought, that would be a change from at least what was expected for the company just a few months ago.

The firm has been working with J.P. Morgan and Goldman Sachs on its IPO, but an immediate consummation of an offering could be challenging because Julie Bornstein, chief operating officer, said this month she would leave the company in September after two-and-a-half years (although she first joined the firm as a board member in 2012).

In revealing her departure, Lake thanked Bornstein for her contributions and Bornstein described it as a “privilege to help build and scale this exciting business.” However, the move raised more than a few eyebrows.

Bornstein was said to be a very hands-on presence at Stitch Fix and financial sources said her sudden departure would make a stock offering harder now.

It is also uncommon for a key executive at one of the industry’s hottest companies to get off the plane just before it takes off, raising speculation that there was some sort of falling out. Bornstein is a highly respected executive with experience at Sephora Inc. and Urban Outfitters Inc. on her résumé and is believed to want to be a ceo herself some day, making a move away from Stitch Fix logical given that Lake is still on board.

Regardless of the c-suite machinations, Stitch Fix’s trajectory is seen as sending it higher and talk about the company is percolating up in all aspects of the business: financial types are angling for an in, brands are buzzing.

So the Stitch Fix story continues, and heats up, gaining as many traditional retailers around it struggle.

“It’s a really interesting time in world history,” Lake told WWD in May. “The rate that people are willing to try new things and try new technology is just mind-blowing. It is an opportunity to reshape any number of businesses to better fit the way the consumer is living today.”

For More From WWD:

Amazon Inks Violet Grey Deal: Sources

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