Why ‘box fatigue’ could hit the apparel industry, Stitch Fix

The menswear selection, packaged by Trunk Club, was closed earlier this year after Nordstrom purchased the personal styling service in 2014.

Source: Trunk Club

After earning his master’s degree a decade ago, David Hill wanted to enhance his personal style and signed up for the Trunk Club, which promised to send him boxes of clothing tailored to his taste. you often.

Hill will visit the company’s Chicago showroom to meet a stylist and choose outfits he can wear to the office or to special occasions. The stylist helped him design a custom suit and sent handwritten notes to check how he liked his outfit, turning Hill into a loyal customer.

afterward Covid-19 pandemic to hit.

“At first, they tried to tell me to buy tracksuits and running gear,” he said.

But Hill, 41, no longer needs new clothes because he works from home and barely goes out, and he canceled his subscription.

Not long ago, major retailers scrambled to join the subscription craze that enveloped the apparel industry. But then, the pandemic changed everyday habits and made shopping behaviors a lot more unpredictable. Now, some analysts and investors are questioning the appeal of these types of businesses and their ability to retain customers, who often sign up for a major shift but ultimately lost interest together.

After acquiring Trunk Club in 2014, Nordstrom announced in May that it was downsizing its business and focusing on in-home personal styling services. Rockets of Awesome, the company that manages children’s clothing boxes, starts funding will run out at the beginning of this year as it hunts for buyers. Stitch Fixone of the most popular services in the space, gained traction in the years leading up to the pandemic but is now losing money and subscribers.

The subscription business model is attractive to apparel companies because it provides a predictable revenue stream based on regular membership fees. But companies are realizing that squeezing profits out of the playbook is harder than they thought.

Fading concerns

Stitch Fix’s struggle to make a profit during the Covid-19 pandemic highlights how difficult a subscription-based business can be, especially when consumer tastes are a moving target.

The company charges a $20 styling fee when a client starts the styling process with boxes of clothes called “Repairs” that they might like. This amount can then be applied to items that the customer decides to keep in the box, which can be shipped every few weeks, monthly, every other month, or every three months.

Edward Yruma, managing director and senior research analyst for retail at Piper Sandler, says people often sign up for a subscription service when they’re excited about a big change, such as starting a new one. new job, lose a lot of weight or become pregnant. But he says the excitement often fades, making it hard for companies to retain customers.

New customers make up the bulk of sales at Stitch Fix, but their spending typically declines over time, according to analytics firm M Science. About 40% of Stitch Fix’s revenue has been generated by new customers since the first fiscal quarter of 2020, the company said.

“Definitely sounds tired,” said Yruma.

Over time, he notes that companies are also realizing the downsides of the subscription business model, “People give back too much stuff with these boxes and you can’t make enough profit from it.” .”

David Bellinger, managing director at MKM Partners, said he thinks Stitch Fix’s active client count may have hit its highest level in the August-October quarter, when the company reported a record 4, 18 million active customers.

“This raises questions about the potential for long-term membership,” Bellinger said, noting that inflation and other macroeconomic challenges could bring in more cancellations.

In the company’s most recent quarter ended April 30, Stitch Fix said it lost 200,000 active customers, bringing the company’s total to 3.9 million. Its net loss rose to $78 million, from a loss of $18.8 million a year ago. The company announced it will lay off 15% of its salaried workers, or about 330 people.

To attract new customers, Stitch Fix expanded the implementation of the “Freestyle” option last fall allows shoppers to purchase single items from their website without signing up for a plan or paying a styling fee. But the company is still trying to make sure people know the option exists.

“We’re in the midst of a transition, and we know that not every day or every moment is easy,” said Stitch Fix CEO Elizabeth Spaulding, who take the reins from founder Katrina Lake in August 2021wrote in a memo to employees in June.

A spokeswoman said Stitch Fix avoids describing itself as a registrar because it allows customers to choose the rhythm at which they receive their clothing boxes.

In November 2017 When it went public, Stitch Fix had a market value of over $1.6 billion. Its market capitalization is currently less than $800 million.

The company’s push to profit comes as consumers say they’re trying to cut spending on subscriptions in general, According to Kearney’s surveya consulting firm.

Earlier this year, the company found that 40% of consumers think they have too many subscriptions. People said they spent the most on streaming plans, followed by music and video subscriptions, games, food and beverage memberships. Shopping subscriptions, including fashion, are behind those categories.

A changing consumer

Sonia Lapinsky, a retail executive at AlixPartners, said the subscription business model needs to undergo a major reset after the pandemic. Companies also need to keep pace with evolving shopping behaviors, she said.

“Not only are they different from before the pandemic, but they are constantly changing,” she said of consumers.

Tara Novelich, a teacher living in Orange County, California, is one of Stitch Fix’s once loyal customers who have abandoned the service. Novelich signed up for the service in 2012 when she felt pressed for time and said she’d bought at least one item from her monthly “Fix” box for about 18 months.

But then she said the quality of the clothes and service started to “go downhill” and shipments were too frequent.

“I’m not excited anymore,” said Novelich, now 46.

Recently, she has enjoyed subscribing to FabFitFun, which offers customers a selection of seasonal beauty items, jewelry and accessories. Novelich receives shipments four times a year.

In other cases, the subscriptions can seem like too many.

A 35-year-old advertising executive, who asked not to use his name to protect his work, became a stylist and part-time client for Stitch Fix in 2016. But in the midst of a pandemic. translation, she stopped working at Stitch Fix to focus on her work. full-time job and started shopping from Trunk Club, which she says offers better quality. In the end, that became too expensive.

“I could never afford that much of it because it would be $600 to $1,000 per month,” she said.

Now, she mostly works from home and buys most of her clothes from Amazon, offering a “try now, buy later” option. She also recently shopped from the “Freestyle” section of Stitch Fix.

Hill, a marketing executive who now lives in New Jersey, didn’t go back to shopping through a subscription and instead picked up her own clothes at a nearby Nordstrom. He recalls the days when he visited one of the actual Trunk Club locations, and the time when he and his wife were greeted with champagne.

“Clearly, that model is not sustainable,” Hill said.

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