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Monday, August 15, 2022

Onboarding, Conversion Crush Stitch Fix

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It’s a $20 billion, 100-point, bust-boom-bust round trip for the ages.

After touching a lockdown low 24 months ago, the artificial intelligence (AI)-powered personal styling site Stitch Fix has gone from trough (~$11) to record high (~$110) and now back again (last trading around $9) as neither investors nor customers seem able to make up their minds about the merits of this 10-year-old apparel business.

Going into Tuesday’s (March 8) fiscal second-quarter earnings report, the San Francisco-based company had already seen its stock drop nearly 90% over the past 10 months, but within minutes of that release, Stitch Fix shares would shed nearly 20% more on word that its “onboarding and conversion rate” were challenging, and its revenue this quarter would be down 7% to 10%.

“Conversion of new visitors at both [stylist-assisted] Fix and [curated, self-purchasing] Freestyle is not where we want it to be,” CEO Elizabeth Spaulding told analysts and investors on the company’s webcast. In addition, the executive who assumed the CEO role from company founder Katrina Lake seven months ago said changes in Apple’s iOS 14 marketing channels had also hindered Stitch Fix’s ability to target new clients — which as of Jan. 29 stood at 4 million active users, a 4% increase from the same period last year.

As a result, Spaulding said, the company experienced lower new client additions than expected which in turn saw it rein-in marketing spend by nearly 20% in the quarter, and then finally resulted in the new slashed Q3 outlook and retracted full year guidance.

For a company and a platform that just 10 months ago was being lauded as the perfect solution for the lockdown, work-from-home wardrobe refresh cycle, Stitch Fix has suddenly found itself unraveling at the seams.

Silver Linings

Beneath the dust cloud of its tumbling stock price, which has slimmed the company’s market value from over $20 billion to just $1 billion, the retailer’s executive team repeatedly moved to highlight the positives, such as its record revenue per client which was up 18% from last year to $549.

While total revenue grew 3%, sales at its new Freestyle self-purchasing segment rose 29%.

“On the marketing front, we will be expanding into things like Freestyle, participating in things like SEO, participating in a lot of other marketing channels like affiliate marketing, and influencer marketing,” Spaulding said, noting that the company was pivoting to a much wider portfolio of new marketing channels after having become reliant on existing ones that had gotten more expensive.

Although the company has been around since 2011, the leadership team’s long-term vision for the brand remains intact, and its role as a provider of an enhanced, hybrid shopping experience that marries technology and personal service still seen as valid and viable.

“As we continue to scale, we believe that this can be a very profitable business over time, we are just still in the business model evolution as well as the scaling phase,” Spaulding said, before reiterating her intention to reboot onboarding and simplify the steps involved in converting browsers into buyers and then into recurring customers.

That change, of course, will not happen overnight and the company made clear that the near term will be challenging. In acknowledging the softness in the number of active clients it has brought in over the past six months, as well as the uncertainty surrounding its efforts to improve conversion, Stitch Fix lowered the full-year revenue outlook it gave three months ago.

For the next quarter and a half and the fiscal year that ends July 30, the company said it now expects revenue to be “flat to slightly down” versus 2021.



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