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Stitch Fix CEO on Gangbusters Earnings, Freestyle and the Future

·7-min read

The Elizabeth Spaulding era at Stitch Fix might always be remembered by a few critical milestones: Under the helm of Katrina Lake’s successor, the fashion e-commerce business reported record-shattering earnings, released its fashion intelligence to the masses and is now setting itself up for a new growth phase in the company’s trajectory.

In a conversation with WWD, Spaulding took stock of how far the company has come: “We think [our latest earnings] demonstrate the strength and fundamentals in our business, including the continued adoption and migration into the Stitch Fix ecosystem,” she said, “especially things like that revenue per active client stat crossing $500, really just shows the strength of the innovation of Freestyle now being another channel our clients can shop, as well as Fix Preview.”

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Freestyle and Fix Preview work opposite ends of the company’s business. The former, a curated shopping feature formerly known as Direct Buy, allowed subscribers to directly purchase any item offered by the company. Now expanded broadly to any customer, Freestyle acts as a personalized shop with a custom feed of items, based on quiz responses and shopping history.

Fix Preview allows subscribers to vet items that the service picked for them, ahead of receiving their physical shipments.

The two services form a springboard for the company’s already impressive growth — with more than 4 million active clients breaking $2 billion in annual sales and netting $571.2 million in quarterly revenue— launching it even further into the stratosphere.

It’s essentially a play for personalized shopping and styling at scale. The expansion of Freestyle, in particular, is a lynchpin to those plans, with Spaulding considering it a “gateway to bring many, many more consumers into Stitch Fix.”

Whether consumers, en masse, want their fashion selected for them or would rather search for it — and possibly discover new things along the way — remains an open question. The company’s data suggests that people prefer a curated experience rather than face a “Paradox of Choice,” with too many options making it harder to find the right things.

That may be true among its existing customers, which already see value in having pre-selected styling. The company is only beginning to see the broader public weighing in as well.

There is, of course, a risk if people don’t see items they’re interested in and can’t search for them. Spaulding swatted away those concerns. “Like the entry point of branded shops, the entry point of a category you’re looking for, those really allow consumers to sign and start with a use case that we know is going to have a pretty high hit rate of a starting point, but then you can see it in the context of an outfit. You can see it with other items that you’ve already purchased from us. You could, over time, imagine immediately engaging with a stylist based on what you’re looking for.

“And so I think we will have many relief valves to make sure the client is finding what they need, but also really removing all of the clutter that, we believe, makes e-commerce a pretty flawed experience, in terms of quality, discovery and removing that Paradox of Choice,” she said.

Next year the company plans to update and expand Freestyle, testing and incorporating distinctive client-facing features, such as enhanced outfit capabilities, curated search and stylist-led “nudges” to support its algorithmically generated recommendations. Think stylists supporting clients to take what is in their Freestyle basket to create a Fix. It also plans to offer one-on-one sessions with live stylists.

It’s all part of the human-plus-machine styling services that powers the company’s business and tech model.

The services will also feed the company’s data platform, where it can collect insights on what’s trending. Requests for a wardrobe “refresh,” for instance, are up 44 percent from last year. And there’s growing demand for “going out” and “dressier” items, according to the company, which is up 51 percent year-over-year. Such insights have allowed Stitch Fix to hit the right assortment throughout the pandemic, and analysis from both Fixes and Freestyle will continue to inform the entire business.

But the human side of the equation became complicated this year. Reports swirled late this summer about Stitch Fix stylists leaving in reaction to new rules instituted by the company, including more stringent working hours for remote stylists, among other things.

Spaulding acknowledged the situation, casting its company policy as a work in progress.

“Styling has been such an important part of our heritage. It has built this advantage of creative human judgment in the loop of AI and data science, which we believe absolutely is going to be a huge part of our next 10 years, the same way it was part of our last 10 years,” she said. “And so we did make a few adjustments recently, in part to better match … like the highest-quality customer experience was when our community is being scheduled when stylists are working. And ensuring we have the right inventory, the right technology, we have the right schedule, based on when we think some of these feature experiences will be enjoyed by clients.

“We were prepared that it wasn’t going to work for our entire styling community, so we offered an accommodation, and we were very prepared for some of our folks opting out,” she explained, referring to the buy-out or exit payments offered by the company, reportedly of some $1,000. “I do think in that process, we learned some things that we need to do better on where there were probably elements of flexibility from an employment standpoint, that actually mattered more than we appreciated. So we’re working hard right now to figure out how do we over time add some of that flexibility back in.”

These human stylists could be critical to Freestyle, and indeed Stitch Fix’s, prospects, so there’s plenty of motivation to work out the particulars.

The balance between humans and machines is an area of increasing importance, as retailers and brands dive deep into technologies like artificial intelligence, machine learning, computer vision, natural language processing and more. Despite all the gains of the past few years, it is still uncharted territory, as companies try to figure out the right balance.

Spaulding seems deeply optimistic that Stitch Fix has the right blend, and so far, the numbers are on her side.

“I think what may be a little bit unique about the juncture we’re at is that we’re not launching something from scratch. I mean, it is, we think, a zero-to-one experience for ‘brand new to Stitch Fix’ consumers. But we have, 30 percent of our women’s user base engaged in this experience, which is a huge number of clients,” she continued.

“And they have engaged more and more deeply with it, the more we’ve added to the experience — you know, the launch of product categories back in March, now opening up branded shops, the ability to more easily see outfits and context of an item that you’re dwelling on. And so we already have, I think, just really excellent proof points of this adding value to a large consumer base.”

There’s a lot riding on its success. The “Fix” side of the business is healthy, Spaulding noted, but the service is clearly key to the company’s future growth — a plan that includes things like building more brand awareness through advertising, influencer marketing, a growing assortment of merchandise and consignment. Such efforts would be hard to accelerate with a walled garden approach to e-commerce.

Walls are one thing Spaulding is intent on breaking down, at least within the company.

She benefited enormously from Katrina Lake’s “multi-months” approach to transitioning her in, giving her time to understand all the nuances of the business and engage with the different teams, technical or not.

It helped her avoid any tough surprises, though, she said, “I think maybe one surprise [was] of how early in my tenure, all of those topics came to the forefront,” she said. “And you know that bigger worldview, there are just a lot of different sides of the coin to be focused on, to create a great business and a great employee experience, as well as a great customer experience.”

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