Stitch Fix might have lost its luster on Wall Street for the moment, but the company doesn’t seem shaken. In fact, the online styling service says everything is going according to plan.
“We’re executing the vision exactly the way that we said we were and planned on,” said Mike Smith, Stitch Fix’s chief operating officer, in an interview with WWD.
Smith has stepped up at the company while chief executive officer Katrina Lake is on maternity leave and took point on the firm’s fiscal first-quarter conference call with analysts.
The company posted a 24 percent jump in sales, to $366 million, and adjusted earnings before interest, taxes, depreciation and amortization rose 21 percent to $14.3 million. But investors fixated on one metric: the number of active clients. The 2.9 million figure came up just shy of the 2.95 million expected, a mark the company’s now missed for two quarters in a row.
Disappointment drove shares down in after-hours trading following the quarterly update Monday and the selling continued Tuesday, when the stock closed down 20.9 percent to $20.54 for a market capitalization of $2 billion.
But Smith has his eye on the company’s prospects over the longer term.
“As we look out 10 years from now, if you look at the way people shop in brick-and-mortar retail today and shop online, we just believe and have shown in the first seven or eight years of this company that the future of shopping is around personalization,” Smith said. “And being able to better understand your customer and trust the customer, so they can give you information so you can deliver on what their specific needs are. That’s the future of retail.
“The short-term changes in the market don’t change our focus on our long-term vision,” he added.
The company has been expanding its business, going from women’s wear to men’s and children, pushing into plus sizes and growing its footprint in the U.K. And that’s just for starters. On the earnings call, executives pledged deeper investments in engineering and artificial intelligence.
Stitch Fix, which already views technology cred as its life blood, seems to be doubling down in the area. That should surprise no one. To craft “the perfect fix” — or curated fashion shipments sent to customers — the service relies on data. A lot of it. And from increasingly varied sources. Those information pipelines range from initial subscriber responses and fix feedback to insights from fun features like Style Shuffle, a quiz and style-rating game it launched this summer.
“We have a culture here of testing and learning, and a lot of experimentation,” Smith said. “When you have that kind of culture, and you can have one person develop something that has 75 percent of our active clients using [it] and get to a billion ratings, it really helps us understand the client’s style better.”
And not just for the individual playing the game, but for everyone whose style and preferences match up with that person, whether they play or not, he said.
On one end, the company has been pushing for more preference and sizing data, plus more muscle behind crunching it. On the other, it’s working to expand the playing field where human stylists and machines can make use of the information to curate fixes that, it hopes, get better and better.
That’s where Stitch Fix’s efforts to expand the breadth of its product categories intersect with its collection of brands, which now includes Michael Kors, Bonobos, Converse and Madewell.
The company believes that its multipronged approach — fueled by data, powered by experts in AI and fashion, and heavily peppered with good old-fashioned retail savvy — is its secret sauce. And that matters for a sector undergoing tremendous change right now.
Smith calls it the future of retail. And it’s not just to benefit shoppers, but also the company’s partners. “This aggregated data really helps the [partner] brand serve clients better,” said Smith. “We get feedback on checkout — How does this product fit the client? Do they like the price point or not? That really allows the brand to work more effectively with clients on our channel, but also on other channels where they sell.”
As for what the future holds, the company won’t tip its hand. But when asked if it will expand into a greater number brands, more exclusive brands, more in-house brands — or even more product lines, such as pets — Smith said: “A lot of what you said is exactly the future of what we will do. I talk about it as brand evolution. Getting a brand to give us 10 units of something and trust that this idea was going to scale…it was an interesting conversation and a few brands signed up for that. [Now] the conversation isn’t about 10 units, but thousands of units. It’s around unique product, things that you can’t find anywhere else.”
As for the pets question, Smith demurred, but said, “We have a very broad vision for what we think we can do with this platform.”