StitchFix (SFIX) - A Perspective (Non Financial)

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Hi Guys! Long-time Lurker, First-Time Poster here. I very much value all the insights and perspectives,
and thought I’d take a crack at offering something of value to the board. I’m learning a lot by hanging
out, but am not up to snuff with fundamental analysis of the companies. However, this board did put
StitchFix (SFIX) more on my radar, so I thought it might be helpful to offer up my perspectives as a consumer.

A brief bit of history: I recently landed a new job as a residential construction coordinator after years
of being in corporate followed by more years of working for myself from home (dress code was pretty laid
back in the latter setting…) SFIX had previously cropped up on my periphery, but I was dismissive of it
(from a personal utility standpoint). I am a white straight male, 40s-50s, living in SoCal, no kids except
the 4-legged kind, in a committed relationship. I would not consider myself their “sweet spot” target
demographic, but I do not enjoy shopping, nor do I enjoy the travel involved in L.A. to go shopping.

That said, I knew I needed new duds for the new position.

After a couple of paychecks and a couple of months lurking at this board, SFIX re-claimed my attention. I decided
to treat myself a bit and surprise my gal by signing up and having a curated package of clothes show up
for me at the doorstep.

Initial Setup & “Interview”
[I didn’t take good notes during this process, so I’m running off of memory - YMMV]

The sign-up and intake of new clients is fairly quick and painless. You create a login on their website
the same as you’ve done a hundred times for other sites. They then put you through a profile questionnaire
to determine basic sizing parameters and tastes, including showing you a series of photographs that you
can check (essentially) “Yes, I’d wear this” or “No get it off my screen”.

You can schedule how often you want your “Fix” - once a month, once every two, or other options, including
“custom”.

As you might expect, the more feedback you give your “stylist”, the better the options will be tailored
to your tastes (we assume). You can also let your stylist know how willing you are to push the envelope
with what is presented… basically, “Leave me where I am in shirt and tie” to “Turn this thing to 11 and
make me a metal god.” The opportunities to give feedback are manifold and the site/company seem to welcome it.

First Package Receipt
I got my first package about a week ago. Packaging was solid, clean, and professional. On the inner flap were
clearly printed simple instructions: 1) Decide, 2) Rate, 3) Return. Try on your new choices and decide
which you like; Go online and rate the selected items in the box; and, Return what you don’t want (paying
for only the items you decide to keep).
They sent me a nice short-sleeve button down in orange (Fit well, but not my color: Return)
A very soft and comfy polo in lime green with horizontal pin-stripes (definitely not my color: Return)
A washed canvas sneaker in charcoal (Nice! but grrrrr… a little too narrow for my foot: Return)
A wine-colored performance tee with v-neck. (Wow. That’s soft. I’ma spend all weekend in that. Keeper)
Faded blue linen walking shorts (Man these are comfy, especially in 100-degree heat. Don’t even think about
returning them)

Also in the box was a bag with pre-paid postage/labeling to facilitate returns.

Ratings & Return
Shortly after receiving your Fix, you’ll get an email prompting you for ratings. You click the link, it
brings up a web browser with your account and information, the items that were sent to you, and you can
rate each one for fit, color, style, etc., as well as leave comments about that individual item. I’m assuming
the more input you give the better tailored the items will be in the future for your wishes and tastes.
Overall, ratings were very easy (though I would have preferred a 5-point scale instead of 3-point), and
returning items is as easy as popping them in the pre-labeled bag and handing them off to your local mail
carrier or dropping them in a USPS box or drop location.

Note that you do have the option to Exchange an item that was sent to you. I’m assuming this would be for
a mis-sized item (as in the case of the sneakers I got). I did not exercise that option at this point but
may in the future.

Comparison to Amazon and Other Thoughts
At the same time I was dabbling with SFIX, I tried ordering some clothing on Amazon. Some things were
spot on (walking shorts); others took some returns (business casual slacks) to get to the right fit.
Amazon does make it easy to return clothing (just print out a return label, repackage using the re-usable
original packaging, and drop at a UPS store), but the items are items you found because you searched
for them. With SFIX, there’s a perception (whether true or not) that someone is looking for new things
for you to try, tailored to your wishes.

I also had my GF pick up some short sleeve business shirts at Costco during this period. Thank goodness
all those fit because I definitely do not want to go to Costco to make returns!

One important note: you have three days to decide and return any unwanted items. I don’t think SFIX makes
this prominent enough for new users. I certainly overlooked it during the sign-up process and overlooked
it again after I opened the package (got busy, life, yadda yadda yadda), but Buyer Beware. They seemed
fairly lenient with my transgression; dunno if that will continue, but I don’t intend to test it.

You are charged a $20 (?) fee for “styling” that is credited to your order if you keep any items. (Please
see the website for more details on this.)

Other
I am very conscious of the current debates going on with what is valuable to this board and what is not.
I have posted this in an effort to make a contribution to the board as I am able. If anyone feels this is
not contributory, please post and/or PM me with a bit of explanation. I am deeply grateful for this board
and this is what I can offer at the moment. If there is positive response, I will attempt to report back
after my next Fix arrives to give insight on how the feedback/algorithms play out. Consider me your SFIX
guinea pig.

Also, I asked my GF for any thoughts/evaluations she had as we went through this process from a consumer
standpoint, a marketing standpoint, and an investment standpoint. If she has anything further to add, I
will post it.

All the best,
.mx.

Disclosures:
I do not currently have a position with SFIX. They are on my radar and I may take a position in the future pending further analysis.

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I too just signed up and tried this out, and only because of MF’s stock recommendation did I learn of SFIX.

I was pleasantly surprised with the selections and fit, and it was customized for an upcoming vacation. I was ready to return two items, socks (too expensive) and jeans(fit really well, but expensive).

There is a catch you didn’t mention. There is a significant discount if you keep all five items.

My total price for the clothing was $270, yet there was a $70 discount if you keep all five items, plus another $20 credit for the stylist fee. So my total was $190. Thus, I kept all five items.

I enjoyed the whole procedure and look forward to the next quarterly shipment.

Cheers,
GS

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I would add that a top notch data scientist i know works for them… it is a serious company and the fact that they can land people like her says a lot about what they are doing.

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Anyone can become an SFIX stylist and it’s a temp job for many. The stylist qualification is less than a daycare attendant, and so there’s no real fashion sense going on… that’s marketing spin, nothing else. Some of what you receive are overstocks found on the closeout racks of better department stores… but without the price discount (that goes to SFIX). SFIX is motivated to choose overstocks, just as your wait staff is pimping out their daily appetizer specials. Margin is king.

And if by chance (and it IS chance) that you are pleased with the selections, your next order will likely be handled by a different stylist (yes, you can request a stylist, but job turnover makes that an iffy prop) with different values and interpretations of your feedback.

SFIX is novelty. It’s a conversation piece that gives you self-importance in social settings. Yet it’s also attractive in that many hate to shop for clothes. Doffing that off to a “personal stylist” can be appealing, but it carries a huge risk of disappointment when the goods arrive… and it ain’t cheap, compared to a Target wardrobe.

So… ride the IPO run while it lasts, but there’s no moat here that others can’t outflank (Hint: Bezos).

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So… ride the IPO run while it lasts, but there’s no moat here that others can’t outflank (Hint: Bezos).

I heard a news story on the radio that Amazon will cancel a Prime member’s subscription if the customer is returning too many items. A lady was interviewed who was buying a lot of clothes and returning them, not thinking she was abusing the return-policy… just shopping, as she normally would. Her Prime account was cancelled without warning.

SFIX seems to be filling a niche in clothes that a “buy anything” store like Amazon can’t without creating a apparel-specific system that takes into account the experience of trying things on and sending them back. I’m not sure how a system like that would work for AMZN or how it would fit in with a Prime membership. But they could solve it if they wanted to. I’m just not certain they would want to. I’m not certain they want to do what Etsy or Wayfair does either. Time will tell.

HamsterNinja
long AMZN,
SFIX (no position, and no plans to join - I speed-shop for clothes at Walmart)

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I heard a news story on the radio that Amazon will cancel a Prime member’s subscription if the customer is returning too many items

There are accounts of people who “abused” Amazon’s purchase return policy and lost their customer access. AFAIK, those stories all involved purchased goods.

Amazon Prime Wardrobe (APW) is a completely different affair. Like SFIX, apparel selections are limited to the APW catalog. Unlike SFIX, APW customers have a 7-day try-on period when they can decide to purchase or return items. APW has no preshipment charge (unlike SFIX), and the shopper selects the colors and styles themselves.

🆁🅶🅱

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RGB,
thanks for the correction.
I didn’t know any of that.

HN

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I wonder what are the legal issues with respect to returning clothes?
Can they then be resold as new?
Do they have to clean them (at what cost?)
Does SFIX (and others) say you are receiving new clothes.

What kind of margins must they have (per sold item) to end up with their net margins.

Do brick & mortar stores have an advantage in that they return clothes to the racj when someone tries something on and it doesn’t fit?

Mike

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I used Amazon Prime Wardrobe last weekend.
I was looking for a few things and saw this designation on many items.
You can click a box to seen only Wardrobe items, fill your “box” with it, and it comes the next few days like Prime. Inside is a pre-made return sticker. You just click in your account which items you keep and they charge you for them. Can return with UPS dropoff.

It was very easy. The only part different about Stitchfix is someone picks it for you. I don’t really need that many clothes.

I would think Stitchfix is doing something many places could do if they wanted and will be low margin. Not for me.

Gator

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Don’t believe this is a stock for this board. No disrespect, it just doesn’t fit in to what we look for.

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Thanks for sharing your user experience. I can’t even believe that a company with this kind of biz model is even getting the attention it had been, especially from TMF. It kind of reminds me of all the worthless companies that were popping up in the dot com bubble, and most of them vanished after the bubble burst. This one is definitely not for me.

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Sorry but I’m curious as to why this company doesn’t fit this board.

Rev and customer growth growth is 29%

Founder run and she owns over 15% of the company

Strong Balance sheet with zero debt

Cash flow positive and Profitable in less than 9 months after IPO

Mostly subscription revenue

Asset light business model

It’s thriving as a few other competitors are having a rough time: Macy’s, Kohl’s, Penny’s, Saks, and evening Nordstrom are shutting doors.

Unless the 29% rev growth just isn’t high enough, I don’t follow why this wouldn’t be a stock for this board.

Just trying to understand the rationale.

JMac

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My wife has been using StitchFix for about nine months:
First shipment - Duplicates of everything she already owned - 100% returned
Second shipment - 60% returned
Third shipment - 80% returned - she said items were priced high, she could buy them locally for much cheaper. $80 pair of shoes, that she could buy for $35 locally.

Her shipments are now on hold until she decided to reenable it. Her comments:

  • Short 3-day return window.
  • Everything priced at list (she likes to bargain shop)
  • Can’t choose type of items (shoes, belt, pants, etc)

IMO, the typical customer would be someone would likes surprises and hates (or doesn’t have the time) shopping. I just don’t see this scaling to 10% of the USA population. Maybe 1%?

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IMO, the typical customer would be someone would likes surprises and hates (or doesn’t have the time) shopping. I just don’t see this scaling to 10% of the USA population. Maybe 1%?

This may very well be one of the key investing theses to consider when you look at SFIX. This is a company that started out in 2011 for women only (and targeting younger women in sizes below a 12). Since then it has expanded to include: all women, men, accessories (shoes, bracelets, necklaces, socks & undergarments) and most recently; kids.

Will they be able to scale this business to sell to 10% of the US population? I don’t know. But considering that they’re growing their client base 30% annually, and they’re at nearly 3M clients (2.7M reported in June), they’re on track to reach (and blow past) 1% of the US population within 3 months. We’ll know the actual results when they report out on that quarter (expect the earnings release in late Nov or early Dec).

Don’t forget the secular shift of department stores and strip mall operators closing their doors. All of the dollars that people spent this year at JC Penny, Macy’s, Anne Taylor, are likely going to be replicated when those same people need new clothes. But there will be fewer JC Penny’s, Macy’s, Anne Taylor stores next year at this time than today. And fewer still in 2020 than in 2019. SFIX stands to be one of many companies who have adopted an internet retail model to gain from all of these clothing dollars that used to be spent at stores that are no longer around.

So I would say that the opportunity for them is more along the lines of: well beyond 1%, but could it be 2%, 4%, 10%? I’m not sure, but I don’t think there is any question that well over 1% of the US population will become their customer: nearly that many already are today.

JMac

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This may very well be one of the key investing theses to consider when you look at SFIX. This is a company that started out in 2011 for women only (and targeting younger women in sizes below a 12). Since then it has expanded to include: all women, men, accessories (shoes, bracelets, necklaces, socks & undergarments) and most recently; kids.

Will they be able to scale this business to sell to 10% of the US population? I don’t know. But considering that they’re growing their client base 30% annually, and they’re at nearly 3M clients (2.7M reported in June), they’re on track to reach (and blow past) 1% of the US population within 3 months. We’ll know the actual results when they report out on that quarter (expect the earnings release in late Nov or early Dec).

Don’t forget the secular shift of department stores and strip mall operators closing their doors. All of the dollars that people spent this year at JC Penny, Macy’s, Anne Taylor, are likely going to be replicated when those same people need new clothes. But there will be fewer JC Penny’s, Macy’s, Anne Taylor stores next year at this time than today. And fewer still in 2020 than in 2019. SFIX stands to be one of many companies who have adopted an internet retail model to gain from all of these clothing dollars that used to be spent at stores that are no longer around.

So I would say that the opportunity for them is more along the lines of: well beyond 1%, but could it be 2%, 4%, 10%? I’m not sure, but I don’t think there is any question that well over 1% of the US population will become their customer: nearly that many already are today.

JMac

I do think this seems to be a perfect idea for this board (a small cap growth stock with excellent growth). I also like its concept.

But I don’t have confidence in their moat. They don’t seem to be doing anything somebody else can do. And it seems that there are some drawbacks which may threaten their customer retention. I still like their story and if managed well, there’s a lot of potential. I had a small position and sold for a short term gain. I think we should keep this on the radar though. If customer retention is good for the next 12 months or more then it might be worth another investment.

dave

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I did the same thing, dawg – sold for a small gain over a short period for the same reasons. I love the idea (I hate physical shopping), but I think it needs some more run-time. As we’ve seen with the food-delivery businesses (Blue Apron, Home Chef, HelloFresh, etc.) it isn’t all roses out there in that kind of business and can fall out of favor. I’m watching SFIX from the sidelines for now and will see how they do. They could get bought out, which is another possibility, especially as they expand into “larger people” sizes – someone like a Lane Bryant or FullBeauty Brands (owns Woman Within, for example) could snatch them up to add the fashion-designing piece to their own existing delivery model.

(Note: I have been a Home Chef customer for about 18 months and we love the convenience! Blue Apron meals are too fru-fru for my grilled-cheese-loving kids and more expensive anyway; HelloFresh seemed lesser quality/lower quantity on the proteins for my liking. Kroger recently bought HomeChef, by the way … so another live example of above.)

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