Over the course of 2023, Stitch Fix has been making a series of deep adjustments to climb out of the earnings hole that has ensnared the company for more than a year. On Tuesday, it made clear that it’s not done yet.
Chief executive officer Matt Baer laid out the vision on an earnings call with analysts, and the missive notably included a deeper focus on private brands, in a strategy aimed at minimizing costs and boosting profitability.
“In merchandising, we began to establish best-in-class buying, assortment planning and inventory allocation strategies, and we increased our focus on private brands” the CEO said. “We expect it to improve operational efficiencies, grow margin and ensure we have the right product in the right location at the right time to best serve our clients.”
Private brands play a major role in optimizing client outcomes and profitability, he continued. “Over the last few years, we have increased our private brands from approximately one-third to nearly 50 percent of total sales. Because these brands perform well, generating higher keep rates in margins, we plan to emphasize them in our assortments moving forward.”
Stitch Fix cut the number of brands it carries over the last two quarters, and Baer intends to continuously “assess brands and optimize product categories to deliver newness and trend while also driving growth.”
That’s a tricky line to walk, but the motivation seems evident. After a series of down quarters, Stitch Fix has been showing signs of life in the last couple of earnings periods, thanks in part to cost-cutting measures and other efficiencies. The latest, for the first fiscal quarter of 2024, brought revenue of $364.8 million that beat the estimates, and adjusted losses were smaller than expected. But it still hasn’t convinced Wall Street yet, as shares dropped as much as 8.8 percent at one point before partially rebounding on Wednesday.
The apparent challenge is that Stitch Fix is attempting to steady and fortify itself, as it simultaneously rides a sea of changes. This includes executive hiring, with the installment of Baer himself as CEO this summer and the latest addition of ex-Amazon Fashion executive Tony Bacos as chief product and technology officer. The company also exited the U.K. market and initiated warehouse consolidation plans, nixing its Dallas, Tex. and Bethlehem, Penna. facilities. The Dallas closure alone reduced its workforce by 558 employees.
Typically, such measures might suggest volatility or chaos in a business. Stitch Fix sees them as stabilizing maneuvers. They’re part of a plan to prioritize retail best practices and smarter management across the organization, from merchandising and pricing science to transportation and warehouse operations, in a bid to ensure rigor and accountability. That extends to marketing, where every dollar will be scrutinized.
This is how Stitch Fix aims to strengthen the company’s retail foundation, and it’s just the first of three tentpoles in a strategy geared for long-term success. The second is to foster a healthier client base, and to do that, it vowed to more precisely target high lifetime-value clients. The third is to better serve existing customers. For the latter, technology appears key.
Think of it as a return or a rededication of sorts to the original Stitch Fix vision, the one that excited the market with personalized online styling subscriptions powered by high technology. After placing a major bet on its direct-buy FreeStyle offering, the company has more recently talked about returning to its core business.
Now, as Baer noted, “new technology is making it possible for us to take personalization to a new level.” Stitch Fix has always been heavily driven by tech, particularly artificial intelligence, but its role at the company may be even more crucial than ever.
Stitch Fix deployed an AI buying tool for the supply chain, which enables data-driven decisions and fresher assortments, and in its initial phase, it has already impressed executives by improving keep rates. Now the company plans to use it for more than half of all units ordered by the end of fiscal year 2024.
Another tool for stylists uses generative AI to help them personalize notes to clients based on their purchase history.
“This lets us deliver a more robust experience to clients at a lower cost to serve and lets stylists redirect their time to conduct deeper analysis of client profiles, curate the best possible Fixes and spend more time building relationships with clients,” said Baer.
Apparently it takes a lot of change to bring a retail business back to its roots.