Introduction
Founded in 2011, Stitch Fix (SFIX) is a personal online styling service which has 2 different offers:
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Fix: Customers get a curated box with 5 clothing items and accessories. They can try these items at home for 3 days and decide which ones to keep. There is a $20 styling fee that will be credited toward any kept items. If they keep all 5 items, they get a 25% discount on the total amount.
Freestyle: Officially started in 2021, this service lets customers buy directly from the website. The display of the items on the website is personalized to each person based on their styling profile, past purchases, and favorites. Customers have 30 days to try clothes and return items for free.
Both services use AI, customer and product data, as well as stylist knowledge to personalize the styling, making it easier and better for people to buy clothes.
Despite its special business model, SFIX has encountered significant challenges since 2022. The company is losing clients, with numbers dropping from 4.1 million in 2021 to 2.63 million in June 2023, along with a rapid decline in revenue. To turn around the company, SFIX hired a new CEO, Matt Baer. He seems to have an ideal background for SFIX, combining fashion retailing and data expertise. He previously worked as Chief Digital Officer at Macy's and was VP at Walmart's e-commerce division. However, his current turnaround efforts don't address some fundamental problems at Stitch Fix and poorly execute other crucial issues.
In this article, I'll first show the value Stitch Fix brings to their customers, how customer experience is degrading, and how current turnaround efforts are not solving many pressing problems. Finally, I'll offer some recommendations. I'm going to use many quotes from stylists and customers, taken from this subreddit. They vividly describe customer value, frustrations, and internal problems at Stitch Fix. I'll add my own thoughts next to these quotes.
What values Stitch Fix brings to customers
To understand the value SFIX brings to its customers, let's see how typical customers buy clothes without using a personal styling service. If they buy clothes online, they browse a huge catalog on an e-commerce site, filter out numerous irrelevant items before seeing some that grab their attention. They click on an item to see more details: photos, materials, customer reviews, imagining how a cloth piece might look on them. Before putting some items in the cart, they may already be exhausted after browsing and selecting items.
Shopping in a physical store might have the advantage of seeing, touching, and feeling clothes. But customers have to go to the shopping center, walking around store after store, seeking promising items among densely stacked items. If they're lucky enough to find a promising item in their size, they wait in line to try on clothes. They eventually become exhausted after several hours of walking, searching, and trying on clothes. Add to this the time-constrained parents. They have to juggle between various time-consuming parts of their life: children, work, and home.
What satisfaction Stitch Fix (SFIX) gives to customers:
Convenience in clothing selection: Customers don't have to look at too many options or deal with clothes they don't like. Many people choose SFIX because it saves time, not necessarily because it saves money.
"I've read comments like 'you can find similar things at Old Navy' etc, but I'd rather pay extra for the SF convenience than sift through crowded racks at Old Navy and maybe find something I like."
"I know I can get clothes for less if I shop myself. But it's a lot of work to figure out when ordering things online if the fabrics, sewing, sizing, etc. are of high quality and results in a lot of time spent searching, ordering, and returning. So I see the fact I spend a little more on a SF item as an exchange for that time. And when you get things you love that fit perfectly, you wind up realizing you don't need as many items."
SFIX encourages customers to try styles and pieces they wouldn't typically choose for themselves. This can lead to discovering new favorite items and enhancing their wardrobe's diversity.
"I typically don't buy skinny jeans, for example, but they just sent me a pair and I found that I actually love them! Who knew?"
Pushing comfort zones: SFIX helps clients step outside their comfort zones, sometimes leading them to love items they initially disliked.
"Anyways, my last Fix came and I was not enthusiastic about it but I tried it all on and had a Buy 5 that was unexpected. I kept 5 things that were NOT what I requested (got dresses instead of jumpsuits, got a dress shirt instead of something casual) and NOT what I thought I would wear (fitted silhouette)...they looked amazing on me."
Well-fitting clothes: SFIX provides clothes that fit people's bodies very well. Our bodies aren't perfect, and we often want clothes that make us look good and conceal parts we're less confident about. We often go to a store, try on numerous items, and find that everything we like either doesn't fit properly or doesn't flatter our figure.
“I also learned I had been buying the wrong size my entire life. I always bought an L because I am tall and need longer sleeves. When it turns out I should be wearing a M-TA. So I appreciate my stylist teaching me this.”
“the denim fit is almost always 100% so I won't even try jeans on in a store anymore”
Surprise: Customers enjoy having something delivered to them without knowing the contents, and this adds excitement to the experience.
“generally they are a miss because of my edgy style preferences (and being between straight and plus so sizing can be wonky)...but I still get them because I love the surprise”
“I love the anticipation of getting a box in the mail. It adds to the excitement that you don’t know what will be in it. It’s fairly rare that I get to open and go through a mystery box. Looking forward to the box makes the experience more fun!”
Styling Inspiration: The included styling cards in Fixes provide ideas on how to combine clothing items.
“I love the styling cards that come with each box. It gives you great ideas on how to style and accessorize an item of. clothing. These are great especially for someone like me who had no idea how to put outfits together when I first started with Stitch Fix.”
Try at home advantage: it is easier to make purchasing decisions when they can try items at home and see how they fit into their existing wardrobe
“I find that I am more apt to only buy what I really love when I get to try things on at home and have a few days to decide versus having to decide when I’m in the dressing room at a store. Plus, it’s easier to tell if a clothing item fits into your wardrobe well and matches other pieces.”
Many customers who live in relatively remote regions and/or have plus-size, petite, or unique body types are very loyal to SFIX.
“I like the element of surprise and getting to try on things I wouldn't see otherwise in stores because I live in a flyover state. I've gotten some great sweater dresses, and surprise finds from my stylist. I'm both hard to fit (FULL bust but narrow ribs and hips) and know what I like, which isn't really the demograph here.”
“I’m a borderline plus size woman. I have epilepsy and can’t drive, so I’ve loved using Stitch Fix for over two years. I was buying all 5 items in each box”
These customer testimonials demonstrate not only the time-saving aspect but also the educational value SFIX brings to its customers. Even this non-loyal customers greatly appreciate its utility:
“I appreciate having someone else curating my shopping picks for me and it sometimes means I send an entire box back and buy a similar piece from another retailer that I think is higher quality or a color I want. I probably won't keep using SF for more than another few months because I mostly needed the help identifying my own style an figuring out how to shop/wear what I get and I feel like it's helped me learn to do that.”
By teaching people about styling and providing an easy, surprising/exciting experience, SFIX makes buying clothes more engaging and rewarding. As customers learn about their own style with help from stylists, they begin to like and trust the service more. All of this brings customers back again and again.
Several key demographics and characteristics of Stitch Fix's target customers:
Time-Constrained Individuals: Many Stitch Fix users are busy professionals or parents with limited time for traditional shopping. A significant portion are women in their 30s to 50s who seek clothing that is both fashionable and appropriate for work and social settings.
“It was a god send for me when I needed to get new business casual clothes a couple years ago - I had a newborn that didn't sleep, was in college full time, and interning part time, so the thought of going clothes shopping for hours was completely overwhelming and ordering clothes from a bunch of places just to have to return them was beyond frustrating”
Those Seeking Wardrobe Overhauls: Users looking to completely refresh their wardrobes or who have undergone lifestyle changes (like weight loss) like this customer :
“I should also say that I've lost 26% of my body weight this last year. A lot of times I've had to guess what my current size is.”
Those who may feel overwhelmed by fashion choices or lack confidence in their styling abilities. SFIX is very helpful in expanding their wardrobe and encouraging them to try new styles.
SFIX appeals to individuals who have difficulty finding clothes that fit well, particularly those with non-standard body sizes or proportions.
Stitch Fix’s Fundamental Problems
Reading Reddit forums reveals some (not exhaustive) fundamental problems at Stitch Fix. The stylists have been discussing these issues for many years, but disappointment and anger due to these issues only began to dominate customer conversations on Reddit in late 2023.
Outdated Inventory
A stylist's viral post from August 2022 highlighted this issue:
“SF hasn't given most stylists new inventory to send in over 3 years….You may say "that's impossible, they have so many customers." But think about it, haven't you basically been receiving the same floral blouses, floral dresses and skinny jeans?? While they may send new units of the SAME items, they have not updated the actual designs of most of the items in years, making it impossible for most stylists to send you "unique, trendy" pieces because they basically make the same blouse, dress, and jeans in a different color or pattern and call it a day.”
In 2022, Stitch Fix prioritized the best pieces for their Freestyle service, degrading the inventory available for Fix boxes:
“If you ask most stylists, they'll tell you we've actually never seen most of the clothing on social media actually at Stitch Fix. It's because most of those clothes are available exclusively in the Freestyle shop.”
What did the management think about this problem ? We have small cues from the stylist’s post:
“They even gaslight the employees by telling us that they did a poll and you as our customers. "do not like trends"....... which is quite odd because while I was employed at the company, most of my customers specifically asked me for trendier pieces.”
Two years later, despite changes in leadership (they fired CEO Elizabeth Spaulding in January 2023 and hired Matt Baer in June 2023), customers still complain that the inventory is outdated. Recent feedback from customers in November 2023 and April 2024 shows this problem is becoming worse:
“I hopped onto SF Freestyle to get a new pair of boots. My current boots are approx. 5 years old. Well, lo and behold... what do I see on SF? Identical boots…” (11/2023)
“I’ve “only” been using SF for a little under five years, but it does seem to be the same stuff over and over and over again.”
“Six months ago or so I decided to try again and they sent me stuff that was basically the same as what I had a decade ago” (4/2024)
The following comment
“Even Freestyle items tend to be old. Not much current there either.”
is particularly important because:
“Basically, Freestyle is like an actual clothing store whereas the inventory your stylist has access to is more like a room with 9 total pieces from 5 years ago sitting on a table.”
An online styling company needs to constantly update its clothing designs to keep up with fashion trends. Since late 2023, a dominant theme on reddit.com/r/stitchfix/ has been long-term loyal customers expressing disappointment with the service and considering abandoning it. Receiving repetitive, outdated items in a Fix removes the core customer value described above: surprise and excitement, broadened wardrobe diversity, and learning new styles.
The current CEO has only been at Stitch Fix since June 2023. In a typical fashion retailer, clothes are designed at least one year before being sold to clients. Any changes the company made in late 2023 should only be reflected in late 2024. Stitch Fix fired their Chief Merchandising Officer in May 2024, so we may see changes fully led by CEO Matt Baer only in 2025. We probably can't evaluate the current CEO's efforts on this subject yet.
Limited Variety and Poor Inventory Management
Stylists have long complained about the extremely limited choices available to style clients. They reported two years ago: *
“Here’s how little they have to work with: 1 dress 10 pairs of skinny jeans in the exact same wash 4 sweaters, 3 of which are the same thing just different colors 0 skirts 0 pairs of work pants 2 pairs of athletic pants 3 tank tops 1 t shirt 2 pairs of shoes 8 necklaces 10 purses”
“I usually am limited to about 5-10 styles in different colors/ prints. Not exagerrating.” (11/2022)
“You think we have THOUSANDS of pieces to choose from, when in reality we have about 10 per category to choose for you (except this week there is literally nothing).” (1/2023)
“Inventory is nearly always rough, but I remember this time of year last year when I was still styling, I was ready to pull my hair out. There was nothing. Like… zero pants. How do you not have pants? ”
The lack of variety forced stylists to disregard clients' style requests (such as workplace clothes, dresses without floral patterns, etc.) and send repetitive items. However, these two types of complaints probably did not represent a high percentage of all customer complaints on Reddit two years ago. Over the last twelve months, I've seen an accelerating trend of customer complaints about repetitive items and threats to quit Stitch Fix. Many of these are from long-term loyal clients. There's skepticism about whether boxes are truly curated by individual stylists, with some customers suspecting everyone receives the same items. For example:
“The last fix had the same item but in a different color. I figured I’d try it. Sent it back. And then this one had the same item in the same color as the one I already bought. Plus two other items that I’ve sent back, just in different colors. I’m like ?????” (6/2024)
“My last fix had the same exact item I had already purchased. Same color and everything”
“I had posted before about wanting fitted/tailored, neutral-colored business casual clothes. I have received the same box 5 times in a row. I asked about this in here and a few stylist confirmed that that my preferences are not in the Stitch Fix inventory.” (another post 6/2024)
Even more, in June 2024 - in the middle of the summer fashion season when retailers usually have abundant summer items in inventory - SFIX sent fall items to clients:
“Lots of jeans, and LONG SLEEVES. It’s summer, I asked for more skirts, shorts, and general summer clothes but they keep sending me fall outfits. Kinda makes me wonder if my stylists have been in another country or something…”
“I work in a school so I hate when they push out the fall stuff. Can’t I enjoy my summer?! Lol”
The decreasing variety in Stitch Fix's assortment is entirely due to the current CEO's decisions and execution. He began to address the assortment issues in September 2023:
“Our merchants are.. making sure that our assortment is holistically focused on our core customer segments … the experience then is at its best when we have the assortment breadth and depth to meet the needs of the entire closet for our customers, and that continues to be a focus for us” ( 9/2023)
After this effort to "continue to improve the assortment quality" many long-term customers left Stitch Fix due to a lack of variety. They probably worsened the assortment by removing external brands: "increase the assortment composition of our successful private brands" (earnings call 12/2023).
Stitch Fix doesn't have enough summer items in June, partially because they made poor demand forecasts. Ironically, the management team is very proud of their "AI inventory buying tool" that is supposed to solve exactly this problem:
"AI buying tool, which helps to drive more informed decisions and fresher assortments" (Q1 2024 earnings call)
"we continue to scale our AI inventory buying tool … sifts through our proprietary transactional and client data to predict demand at the individual style and client level" (Q3 2024 earnings call)
Paradoxically, while SFIX has identified the right issues to address (assortment breadth and depth, demand forecasting), their efforts to solve these problems have made the situation worse.
The management is out of touch with its stylists
This problem highlights a disconnect between the company's leadership and its operations. Stylists reported being reprimanded for raising problems or asking questions about inventory:
“Anytime that you want to speak respectfully but candidly on any of the issues I've listed, you WILL get reprimanded. You can either get told something like "Let's have a meeting to discuss why your words aren't aligning with the SFIX values" (I've been forced to participate in several of those for simply asking about when we'll be getting new inventory), or you could get it flipped on you like, "well let's take a look at your numbers and see why clients aren't keeping what you send."
The stylists are judged by the number of items that customers keep after each Fix, so they always want a very wide and trendy inventory. This kind of inventory increases management complexity and the required amount of working capital. It is natural that management would be skeptical of stylists' inventory requests. However, not listening to stylists' suggestions and reprimanding them is a very dangerous approach. Stitch Fix stylists possess styling skills, knowledge about clothes, fashion trends, and client preferences. In a typical company, people who know the clients well are consulted when developing the business. Here the stylists understand multiple critical aspects of the business, yet their input is discarded altogether.
The poor treatment of stylists has led to significant mental health issues among the them:
“I literally had a mental health breakdown (anxiety and back to back panic attacks) that was largely due to the stress from this job, and once I quit I felt like the weight of the world was lifted off my shoulders.”This problem demonstrates that Stitch Fix's management really doesn't know what is actually going on in operations. They simply issue orders from the top down without checking the real conditions.
A very clear example of worsening operational performance happened in August 2024. SFIX bought a shirt from Macy's for $16.99. Then, they put a price of $59 on it and sent it to a customer. But they forgot to take off the Macy's tag and price!
They are making the service less human, less personalized, and more like a generic styling generated by AI.
SFIX customers are deeply disappointed due to the loss of human touch and educational value provided by human styling. One customer's comment sums up this sentiment:
“We WANT human stylists that we can develop a rapport with, that can get to know us and know what we like and want. We DONT WANT AI computers styling us. We want ACTUAL HUMANS that can browse ACTUAL INVENTORY of brands that we like or may have never heard of, put together looks that maybe we wouldn’t choose on our own but work so well on us, and leave us ACTUAL NOTES explaining their reasons.”
SFIX's clothing recommendation systems are a significant competitive advantage, it allows stylists to build a Fix in an average of ten minutes. The company needs to strike a balance between AI efficiency and human touch. Customers' complaints about AI styling come from various issues, including receiving repetitive items, outdated clothing, off-season items (e.g., fall clothes in summer). SFIX's aggressive push towards AI efficiency regardless of its impact on customer experience has worsened these problems. For instance, the company now uses AI to generate generic styling notes, replacing the human messages that clients previously appreciated:
“The note … was very generic, talked about it being the holiday season and how SF has just what I need whether I needed clothes to cross of my to do list or loungewear. It had zero advice or mention of specific items I chose, even though I requested that (as I always do).”
“I’ve done over 60 Fixes with the same stylist. Her notes are always chatty and personal. She’s a main reason why I haven’t canceled the service. She gets my style and even had the company send me flowers when I was in the hospital a couple of months ago! This is the first time I’ve ever received a generic form-letter message and I’m really irritated.” (8/2024)
At the same time, SFIX's CEO continues to emphasize the central place of human stylists in the turnaround plan, saying that “stylists continue to play a critical part in our value proposition”, “working to make our stylists more central part of that experience, offering new touch points for clients to interact with stylists”. This is another indication that their implementation does not align with their strategy, suggesting that top management is not sufficiently close to current operations.
Before closing this section, it is reasonable if you think that this section contains many emotional comments from the stylists and that I am on their side. However, I can only get information on the internal problems of the company by sourcing employees' complaints, and they are mainly stylists. As they suffered a lot during multiple rounds of layoffs, and during the depressing situation of the company, they became very angry in their comments. I carefully cross-checked their problem descriptions with customer feedback to see whether the problems are real and significant. A comment from an employee in customer experience, who doesn't have a "conflict of interest" in expanding the assortment, generally confirmed some of the above issues.
Evaluation of Current Turnaround Efforts
The current turnaround efforts have three pillars presented during earnings calls in December 2023:
“First, we are strengthening our foundation in embedding retail best practices throughout the organization. Second, we are building a healthier client base by more precisely targeting high lifetime value clients that we expect will help us expand our client base over time. And third, we are developing a long-term strategy to better serve the clients we have today and those we intend to attract in the future.”
The first pillar "embedding retail best practices" has various aspects “from merchandising and pricing science to transportation and warehouse operations… have a dedicated team in place to drive efficiency”, “improve the assortment quality”, “enhance our assortment”, “establish best-in-class buying, assortment planning, and inventory allocation strategies”, “AI inventory buying tool”.
I discussed the poor execution of this pillar extensively in the previous section on fundamental problems. In summary, they mentioned the assortment improvement programs multiple times, yet their assortment deteriorated. First, the clothing pieces were outdated with designs unchanged for many years. However, we can't judge the performance of the current CEO yet because it takes time to refresh the design. Second, the management of assortment variety and inventory levels has worsened, so many long-term loyal customers have become frustrated with receiving repetitive items, fall clothes in the middle of summer, etc....
Regarding the second pillar, "building a healthier client base" they "continue to be maniacally focused on a healthier client franchise" in the 6/2024 earnings call. Refocusing on core customers makes sense because SFIX tried too hard to lure customers to the Freestyle service two years ago. These newly acquired customers are not ideal because their purchase frequency and average order amounts are both lower than those of normal clients. However, their focus is probably not on the historical long-term loyal customers. They are trying to acquire new clients with characteristics of loyal customers. The CEO said in 6/2024: "I think that we're encouraged by the positive signs in terms of the new client RPAC and LTV for the clients that we are bringing in, the clients that we are acquiring". This is a strange statement. It's basic marketing knowledge that customers who loyally stay with you for many years are easier to serve, please, and sell to. New customers to the platform are much trickier to sell to, satisfy, and assess for loyalty. So, the turnaround efforts should focus on customers who have bought a lot in the past, to make them happier.
However, SFIX is losing many long-term, loyal customers, as shown in the previous section on fundamental problems. They are leaving the service because they are not listened to, they are no longer positively surprised by the Fixes due to repetitiveness, they are not pushed outside of their comfort zone to try new things, and they lose personal touch with stylists by receiving generic AI notes.
Many long term customers are willing to increase their spending if SFIX offers a broader assortment. Many don't order frequently to avoid exhausting their options quickly: “Some of my favorite pieces have come from stitch fix but if you get boxes to quickly the items are repetitive”. Now many customers cry over the service's deterioration and have reduced their purchases. The ongoing loss of loyal customers due to inventory and assortment issues remains a main source of SFIX's rapid revenue decline.
Another testimonial about the oversight in caring for loyal customers:
“Usually when I end a subscription be it Netflix or Hello Fresh - I'll get a discount or at the very least an email imploring me to come back. With Stitch Fix, I got nada.”
The third theme,“developing a long-term strategy” focuses on reimagining the client experience. This includes “create a more fun and visual experience that better engages clients beginning at their sign-up” and “offer new touch points for clients to interact and develop more personalized connections with stylists”. CEO Matt Baer emphasized this theme because he observed in client focus groups that “Other clients have been very vocal … that they want to have a deeper and more meaningful interaction with their stylists and then to be looking for help getting dressed or finishing out their closet in a much more dynamic and engaged way.”
I'm going to build my arguments by following the timeline of events. When CEO Matt Baer began at SFIX in June 2023, the percentage of long-term customers unsatisfied with the problem of outdated and limited inventory was probably still small (based on my impression from Reddit). Many bought clothes on Freestyle, which still had a fresh inventory. SFIX had not reduced the variety of their Fix assortment. So the CEO likely did not see many (if any) customers complaining about outdated and limited inventory during client focus groups. Until 2022, SFIX had seen revenue growth for many years without updating Fix inventory. Thus, by looking at the statistics, they might have thought that a typical customer doesn't mind repetitive clothes. Then Freestyle and Fix assortments became old and limited, probably because of the reduction in styles during "improve the assortment quality" activities. Loyal customers became angry and abandoned the services, which became visible on Reddit since late 2023. The problem showed clearly in internal statistics and online comments, and SFIX fired the Chief Merchandising Officer.
Three key issues emerge from this situation:
As the inventory problem becomes so severe that it threatens the most important customer values, they still splinter their efforts on values ranked lower in client priority: "fun and visual experience" and "touch points for clients to interact with stylists". Resources (competent employees, management attention, money) are always scarce, and it is better to focus on the most important issues very well than to do many things poorly. I doubt that they will acknowledge their mistake and abandon their current projects. They are even making the customer experience worse by replacing stylist notes with generic AI notes.
By following a data-driven approach, SFIX ignored stylists' complaints for many years. However, as Peter Drucker said, "The new developments that really matter are always by definition outside any possible reporting system. By the time they show up in the figures, it is very late—and may well be too late." SFIX forgot that controls need to be both qualitative and quantitative.
By emphasizing new onboarding experiences, SFIX targets new clients while neglecting their loyal customer base which they're currently losing.
They are also planning to increase the number of items in a Fix ("how we serve clients through the number of items in their fix" - earnings call 6/2024) (from 5 to 8 as discussed on Reddit). This helps lower the shipping cost because customers will keep more items in each Fix. However, it also requires a 60% increase in inventory level because in each Fix there will be 3 more items in shipment, at customers' homes waiting to be returned instead of at the warehouse. The track record of inventory management at SFIX is very poor, and the inventory problem will likely worsen after launching this feature.
My prediction is that SFIXIX will struggle with refreshing their assortment. They haven't designed new clothes for a long time, so their process isn't mature. They don't focus on their assortment but instead splinter their efforts, and their current track record on improvement in assortment planning is miserable.
My Recommendations
For investors, even though I'm arguing that SFIX's future is grim, I'm not proposing to short SFIX stock. It is a company with a unique business model, a balance sheet with no debt, and a depressed valuation. Turning around this company is a doable task, but not an easy one.
I have several recommendations for the company management.
The most important and urgent task is to improve their inventory. First, they need to work hard to become competent in designing new clothes. They have been lazy in designing new clothes for many years, so like a person not practicing sports for a long time, they need time to build their "muscles" in this domain. They should also integrate stylists into the design process, as their stylists possess important knowledge about the customers and fashion trends.
Second, they should have a wide enough assortment to cover their core customers: professional women with families, mothers who have just given birth, and people with non-standard body types (plus size, petite, etc.). They should rotate their inventory often enough, like other retailers, so loyal clients can request Fixes more frequently without receiving repetitive items. However, the assortment variety and inventory levels should not be excessively high. This will create high costs and complexity in designing and managing a large set of items, excessive working capital, and reduce flexibility to adjust the assortment mix in response to changing customer behavior.
Third, the AI recommendation system was trained only on a set of designs that have not changed for many years. This means that when they introduce new clothing that looks too different from what they already have into the recommendation system, it will struggle to predict what each client will likely "like" or buy. They should build their AI system to work well with a reasonable rhythm of introducing very different clothing items. A trendy, fresh assortment is a requirement in this business.
They should improve their inventory management: determining how many pieces of an item to stock and when to replenish a given item. Their demand forecast tools and processes have very poor performance. They probably do not take into account the complexity of inventory fluctuation and its impact on sales. Inventory changes rapidly with purchases and returns, and when they buy a few hot items that stylists are also quickly grabbing to add to Fixes, it makes these items unavailable for many days before clients return them.
Stitch Fix should try to have better relationships with long-time, loyal customers through activities that engage them and increase their satisfaction. These activities will change as the company moves from the current outdated, limited assortment to a better one. They should also encourage loyal customers to keep their profiles up-to-date and signal important life events (childbirth, job changes, etc.), as these events affect the purchasing behavior.
SFIX should align the reporting system with the changing strategy. For example, using more AI for styling long term customers while assigning difficult new ones to stylists can lead to a decline in stylists' performance metrics. Stylists may feel threatened by AI and become less cooperative. New metrics would better align stylists' incentives. And it will give the management a better reporting system to understand how business is doing.
Any changes should be implemented with special care not to degrade the customer experience. Allow the stylists to write their notes with their own ideas. Make the AI-generated notes more personalized; however, ensure that people don't confuse AI notes with stylist notes, which could lead to customers developing negative feelings toward the stylists.
A vital issue is improving execution, which is currently very poor. The management believes they are enhancing the assortment and buying decisions, yet the inventory gets worse. One important reason is that they don't listen to feedback from operational staff. Every time a stylist suggests anything, she gets reprimanded or threatened with improvement programs. As a result, bad news never travels up. Small, passing operational problems grow into pressing issues. If they fail to improve in this aspect, we will see the business continue to go downhill, and management will face countless unexpected operational problems in the future.
The above are the most important issues to work on. Here are the less prioritized recommendations:
Customers complain that each time they see interesting items in the ads, they go to the website and cannot find these items. SFIX uses their ads primarily to attract customers and not to sell specific items. They need to use the ads to do both in the future. The same goes for styling cards.
They could use their knowledge about different climates and customer data to test new designs' performance. For example, seeing how summer items do with customers in always-hot states like Florida in the spring, then deciding on quantities for the entire US based on each item's performance.
In writing this article, I've tried to strike a balanced perspective among the SFIX management team, their customers, and stylists. I consider SFIX management to be decent people. While being forced to reduce headcount costs, they decided in January 2024 to remove full-time styling positions, giving these stylists the option to convert to part-time positions. Many stylists need their jobs for financial reasons and flexibility. So the management's decision is a thoughtful one. Unfortunately, this decision is very unpopular and has given stylists a lot of grievances.
Stitch Fix brings a lot of unique value to customers, and I love their business model. It was a large portion of my portfolio, but I have now sold all my SFIX shares. I wish the management and employees success in turning the business around, and I hope I could eventually ride along with the tide by buying shares again.
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