Since going public in late 2017, Stitch Fix Inc. has had something of a tough run — with some uneven results and plenty of doubters on Wall Street.
But after soaring past fiscal third-quarter expectations this week, president and chief operating officer Mike Smith was ready to take a victory lap.
“The future of retail really is personalization,” Smith told WWD. “We’re showing that as we posted very good results in the backdrop of a retail market that’s very, very challenging right now.”
Stitch Fix’s revenues for the quarter rose 29 percent to $408.9 million. Net income tallied $7 million, or 7 cents a share — more than twice what analysts had penciled in. And over the past year, the styling service’s active client base, or subscribers who received at least one shipment in the preceding year, jumped 17 percent to 3.1 million.
Not a bad way to head into summer.
WWD caught up with Smith to learn more about what drove its latest success, how the company is facing rather Amazonian competition and how it plans to deal with the threat of a trade war with China, where it does a significant amount of sourcing.
WWD: What do you think are the most meaningful takeaways from the quarterly results?
Mike Smith: Revenue and revenue per client are the two big ones, but we always balance growth and profitability. So we won’t just grow the business to hit top-line numbers and not have a great client experience.
But in this quarter, the revenue number and the increase in revenue per client tell us that we’re doing a much better job of serving our existing clients.
WWD: Stitch Fix employs people from Netflix, Pandora, pros who specialize in algorithms, as well as human stylists. As others like Amazon pay more attention to that intersection of people and machines, how do you continue differentiating?
M.S.: This is the only thing that we do, in terms of having data that matters and doing personalization.
There are other big retailers that do lots of other things, whether it’s advertising or grocery or they try to be fast on speed of delivery. What we deliver is personalization at scale and we build trust with clients. And we do it better than, we think, anybody else.
WWD: Amazon has a lot of intelligence-driven fashion initiatives. If you’re both aiming to solve the same problems, how do you make sure that you’re ahead?
M.S.: Mostly it starts with client satisfaction — this idea of successful first fixes, which is someone keeping an item and then saying that they anticipate their next fix. As long as we continue to drive that kind of satisfaction, it will show up in revenue per client. It will show up in satisfaction. It’ll show up in loyalty.
That gives us a lot of confidence that what we’re doing is delivering a different retail experience, and one that’s, frankly, better than what’s out there.
WWD: The headlines are very positive now, but anecdotally, some previous subscribers have told us that they left Stitch Fix, because the fixes weren’t quite right. How do you respond?
M.S.: One of the things in the last two years — I’ll use women’s as an example — we didn’t have enough product on the higher price-point side or the lower price-point side, and we learned that through feedback from our clients. [Now we] have a very broad range of styles and price points that we didn’t have in the first couple of years of launching the business.
I’d encourage your friends to come back and give us a try.
WWD: We’re seeing more and more gamifying of fashion intelligence. And you’ve rolled out some creative tech initiatives, like the Style Shuffle game. What’s next?
M.S.: With Style Shuffle, it was a billion ratings at 70 or 75 percent of the active client base having played. Now it’s over 80 percent of the active client base with over 2 billion ratings. So that helps us understand style much better.
What it also does is help us understand what product we should buy, what products people like, what they don’t. That helps us design or buy better products, or manage inventory in a better way.
That’s just one capability, and that has way more applications in our business than just understanding [an individual’s] style. We have capabilities that are on our product roadmap that also have broad applicability to all parts of our business.
WWD: What are those capabilities?
M.S.: The two areas that we have the most excitement around is just better buying — so, algorithmic tools to better buy product — and around more personalized marketing.
We can target marketing with specific product, because we have all of this data about what inventory works with what client. And the better we understand future clients of Stitch Fix, the better we can target our marketing in a personalized and algorithmic way.
WWD: On the quarterly conference call with analysts, founder and chief executive officer Katrina Lake said the company finds rentals interesting. Can you elaborate?
M.S.: If it’s a sizable market and that’s where the client is moving, and it’s a market that we can do well, then we would consider it.
We have all the infrastructure in order to do it today. We have the inventory. We own the inventory unlike marketplace or consignment models. We have all of the warehouses. We have styling. It would be fairly easy for us to turn that on.
WWD: So, are you seeing demand for rentals yet?
M.S.: We haven’t…But if we do see it, we’ll be able to respond to it nicely.
WWD: Stitch Fix does a good amount of sourcing in China, but U.S. trade relations now are creating a lot of uncertainty. What’s your take on this?
M.S.: We’re well-positioned, as it relates to our relationships with our brands, where we own our own supply chain and our inclusive brands. And so we work hard at having a diversified country-of-origin perspective.
I think the relationship, the data and the growth that we give our brands, relative to other retailers, puts us in a good position to negotiate with brand partners.
If they have cost increases, how will we make that work? As Paul [Yee, chief financial officer] said, we have data science that allows us to look at areas where we can surgically use price to pass on some of those costs, and still have it not affect the business. And we can do that in a way that’s more targeted to specific clients than other retailers.