The market for apparel, accessories, and footwear is significant. As of the end of 2018, it measured $431 billion globally – and it is growing. Current estimates put the worldwide clothing industry at $527 billion.
Right now, online sales occupy just under 22 percent of that market but by 2023, online penetration should come closer to 34 percent.
For companies serving that industry, the potential for success is high – as long as they can get the right marketing mix and offerings.
Let’s look at Stitch Fix [NASDAQ: SFIX].
What Does Stitch Fix Do?
Stitch Fix calls itself a “client-first, client-centric new way of retail.” It accomplishes this mission by interacting directly with its customers and offering a truly personalized buying experience. It serves women as well as men and children. It is also capable of supporting unique sizings, such as Petite or Maternity.
The company, which has been around since 2011, tries to help those buyers find new styles that fit and flatter them by pairing them with a consultant who gets to know their preferences and personal fashion.
These collections, called “Fixes,” are sent to clients periodically. Stitch Fix accesses a styling fee, but that sum is deducted from the purchase price or essentially comped when the customer purchases items in their Fix. The company also offers “Extras,” which includes basics as well as intimates.
Further, Stitch Fix sells items from a variety of brands, including both emerging and established imprints as well as its own. The company also has arrangements in place for these brands to produce certain items exclusively for Stitch Fix customers.
Is Stitch Fix a Buy?
What makes Stitch Fix [NASDAQ: SFIX] unique is not just its approach and over 3,900 stylists. While those things do contribute to the company’s success – they have more than 3 million active clients – Stitch Fix also has an important data component. Its team of more than 100 data scientists contributes to its success.
The retail industry can be very competitive. Styles change all the time and competition can be fierce, especially in terms of which company is the first to offer a style, which one does it best, and which one offers the best price. To compete effectively, Stitch Fix is embracing personalization as the wave of the future.
Their approach takes the idea that people today care more about finding pieces of clothing and accessories that fit them uniquely and suit their personal styles or brands than shopping specific brands. Those that do want a certain label, care more about quality than logo.
Further, there is an assumption that most people want clothes with unique designs or patterns – they don’t want top risk looking like everyone else. Using an online shopping service gives them access to brands they may not have locally.
It is a win-win and Stitch Fix is uniquely positioned to take advantage of this new approach to fashion retail and build loyalty through insightful recommendations and access to certain brands.
What are the Risks of Buying Stitch Fix?
That said, there are some risk factors here. Stitch Fix [NASDAQ: SFIX] is still a young company and it is growing so fast. It needs to be able to manage its inventory and customer information efficiently while being able to respond to trends.
The company also has to choose the right people and scale its operations without eroding quality of service or else the very things that helped the company to grow could end up lacking.
Personalization is another issue.
While Stitch Fix uses actual people as stylists and adds in the benefit of data science, there is always the risk that the system will fail. It could start suggesting items that are off the mark for current styles or that simply do not meet customer preferences as they evolve. Alternatively, a new style could come up that is not part of the brand network Stitch Fix uses.
Then, there is the issue of growth.
To keep expanding as it has in previous years, Stitch Fix will need to attract new users. This may involve offering discounts, engaging in novel marketing ideas, or developing new features that simply can’t be missed.
The problem is that these ventures are risks and if they don’t work or Stitch Fix is unable to retain those new customers, the company will essentially need to eat those costs.
Right now, Stitch Fix [NASDAQ: SFIX] has been focusing on introducing its services to foreign markets – the company announced that it would branch out to the UK in October 2018 – but this comes with its own challenges.
British consumers may prefer different fashions than those stateside and the sizing of British clothing is different. The new market may also prefer different brands which do not have an existing relationship with Stitch Fix. All in all, if Stitch Fix in the UK needs to operate completely differently, there are few synergies between the two entities.
On top of everything else, Stitch Fix relies heavily on consumer abilities to spend money. It opened its doors in a time when the economy was recovering and economic performance has been strong since its inception – but the tides can’t rise forever.
The big question is whether Stitch Fix customers will be loyal – and would-be customers curious enough – to get a “Fix” even if the economy is struggling.
Stitch Fix Stock Forecast Summary
Stitch Fix [NASDAQ: SFIX] has an interesting approach to retail. Its personalization services could catch on become the new standard of shopping. However, things could also go in the opposite direction. If the economy is weak, the company expands in the wrong direction, or it misses the mark one too many times with its customer base, Stitch Fix could be in trouble.
This is potentially a high-risk, high reward situation, so be careful and be sure to do your due diligence before investing.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.