Published on November 15, 2021
"We've seen that direct buying clients are generating more cumulative contribution profit in their first 3 and 6 months than clients 1 year ago who were largely Fix clients only. This incrementality gives us more optimism to believe that as our direct buy offering expands, client lifetime values will continue to grow" - Elizabeth Spaulding, CEO of Stitch FixIn Q3 2021, Stitch Fix (SFIX) announced that all US shoppers can now make direct online purchases of apparel, shoes, and accessories from a personalised set of recommended items. Freestyle, SFIX’s Direct Buying offering, is a significant evolution of the company’s original ‘Fix’ subscription service which could completely change the company's growth trajectory. We interviewed a Former SFIX executive who was heavily involved in rolling out direct buying to understand the Freestyle user experience and why it can’t be replicated by competitors.A Fix is not your typical apparel shopping experience: customers complete a survey on their body shape and style preferences which is fed through SFIX’s proprietary algorithms to automatically select 5 clothing items for delivery. The company employs ~5,000 part-time stylists to curate clothing products and outfits that, when combined with data science, offers shoppers a personalised experience.If customers keep all the items in a Fix, they receive a 25% discount on the basket value otherwise they pay full price and the standard upfront $20 styling fee. SFIX also offers a $49 Style Pass subscription for unlimited Fixes per year. The company believes it’s proprietary data set and algorithms enables them to truly personalise apparel shopping at scale.After skimming the S1, it’s very easy for investors to conclude either churn is too high or SFIX has no advantage because ‘every retailer has data science teams’ or ‘Amazon can easily crush them’.Historical data shows that ~20% of Fix customers remain after 12 months. This is partly because shoppers are inpatient and the first few Fixes have low keep rates because the algorithm is learning. Churn is also high because it's inherent to apparel as a product category: "People got to a phase, especially with Covid, where they no longer needed more clothes. There have been many articles written about this for all companies. It is called closet fatigue. It wasn't that they didn't like the service, but the thing that resonated the most for me is that every client goes through phases. They might not need something new right now, and might pause their Fixes. I am not sure if that was the top reason but it makes the most sense to me. It wasn't them saying I don't want more from Stitch Fix, but I don't want anything." - Former Strategy Director at Stitch Fix Apparel is not great for a subscription service. There is high natural churn because the product isn’t perishable and wardrobes have limited space. It’s no surprise that the 80% one-year churn figure scares most investors away.