Stitch Fix is the ultimate trendsetter. Its tailored assortments help shape the personal style of its customers, and its ability to integrate the power of data science at a foundational level is helping the subscription service get a leg up on the competition.
Subscription service is big business. Market leaders such as Stitch Fix, Rent the Runway and Dollar Shave Club are seeing profits and memberships continue to rise. In fact, 15% of online shoppers have signed up for a subscription service and are receiving products on a recurring basis, according to McKinsey and Company’s “Thinking Inside the Subscription Box: New Research on E-Commerce Consumers.” In addition, the e-commerce subscription market has doubled each of the past five years.
With such a significant portion of consumers utilizing subscription services, the race is on between an increasingly growing number of retailers to capture and retain market share. However, churn rates are high and retailers hoping to sustain the model long-term must continue to evolve their service and provide customers with personalized, differentiated service.
Data science is not just an add-on/nice to have for subscription service providers; it is an integral part of operational model. Stitch Fix, an apparel subscription service for men, women and children, has built itself up from a startup to a billion-dollar company in just seven years. In fact, in Q3 2018, the retailer increased its revenue to $317 billion, a 29% year-over-year increase.
This astronomical growth is thanks to the retailer’s ability to effectively personalize the experience for its shoppers and introduce new service offerings based on customer and market demand. To pinpoint new market opportunities Stitch Fix relies heavily on its segment-leading data science competences, a core capability the upstart retailer continues to invest in heavily.
To build powerful data science capabilities, retailers need top-tier analytic talent, and are in a tooth-and-nail fight with the competition for leading analytic minds. To help attract data scientists to the Stitch Fix fold, the retailer recently allocated $5 million in stock-based compensation to attract and maintain the best and brightest talent.
The apparel retailer clearly values its analytic aptitude, and for good reason. Thanks to its ability to glean meaningful insight from its customer base and the market at large, Stitch Fix has been able to further personalize the shopping experience and enter into new and lucrative markets. Below is a quick look at some of the retailer’s latest personalization capabilities and strategic adjustments to its offerings.
Personalizing the Experience
Last year, Stitch Fix began piloting an interactive mobile game called Style Shuffle. The gamified mobile application displays merchandise to the customer, who simply rates the looks as 'thumbs up' or 'thumbs down.' The simple solution allows the Stitch Fix analytic team to quickly build deep user profiles based on preferences that go far beyond a simple self-administered survey and purchase history.
“The game allows clients to share feedback with us, which strengthens our understanding of client taste and style preferences at both the individual and aggregate level,” COO Mike Smith said on a recent earnings call with analysts. “Style shuffle enables us to collect large volumes of item-specific client feedback in between fix shipments, which complements the rich data we already collect through the initial style profile and at fix checkout.”
The vital data collected via the mobile game is infused with already available customer data to better inform stylists’ decision making. This blending of art and science allows Stitch Fix to provide customers with more relevant selections, which leads to ongoing loyalty, increased sales, and more accurate inventory management.
Another key area where the retailer is leveraging customer data is in its e-mail based communication. The brand is using its unique knowledge of its shoppers to build personalized e-mail campaigns designed to further connect with consumers.
“The next step in our marketing is really around how can we bring algorithmic and personalization capabilities into our e-mail in a one-to-one way, the same way we do with our fixes,” said founder and CEO Katrina Lake. “And so today while we can look at client lifecycle, we can see kind of where clients are in their lifecycle and their sentiment, what we're not doing is necessarily looking on a one-to-one basis and so that's certainly an opportunity that we still see as an opportunity for us in the future.”
Evolving the Service
Based on its high-level analysis of the marketplace, Stitch Fix launched a men’s service a year and a half ago to complement its successful and growing women’s apparel service. In addition, a little over a year ago, the brand added Stitch Fix Plus to its repertoire, opening the door to the highly lucrative plus size women’s market.
“Each of those really kind of doubled the audience of available customers and warm bodies out there that could benefit from Stitch Fix,” said Lake. “More than half of women in the U.S. are a size 14 or higher. So these are both totally new audiences for us that were not addressable in our market before and added significant amount of total addressable market opportunity for us. Both of those have been very successful.”
Advancing on the momentum it built in the men's and plus markets, the brand announced it will begin a children’s service. “Stitch Fix Kids [is] launching just in time for back to school,” said Lake. “This category leverages our capabilities, as well as our existing client base. It is a natural extension for us given that we already served so many parents and this will offer them an effortless way to shop for the whole family.”