Stitch Fix Hopes to Raise as Much as $100 Million with IPO

Last week Stitch Fix, a try-it-before-you-buy-it women’s apparel subscription box service, filed for an initial public offering of up to $100 million. If approved

Subscription News: Stitch Fix Hopes to Raise as Much as $100 Million with IPO

Source: Stitch Fix

Last week Stitch Fix, a try-it-before-you-buy-it women’s apparel subscription box service, filed for an initial public offering of up to $100 million. If approved by the Securities and Exchange Commission, Stitch Fix would be listed on the NASDAQ Global Select Market under the symbol SFIX.

Stitch Fix was founded in 2011 by CEO Katrina Lake to revolutionize how women shop for clothes and accessories. Using a combination of data and human judgment, stylists hand-select apparel, shoes and accessories for Stitch Fix customers based on their personal profiles.

Subscription News: Stitch Fix Hopes to Raise as Much as $100 Million with IPO

Source: Stitch Fix Form S-1

‘The combination of data science and human judgment drives a better client experience and a more powerful business model than either element could deliver independently. Our advanced data science capabilities harness the power of our data for our stylists by generating predictive recommendations to streamline our stylists’ individualized curation process,’ said Stitch Fix in their SEC Form S-1. ‘Stylists add a critical layer of contextual, human decision making that augments and improves our algorithms’ selections and ultimately produces a better, more personalized Fix for each client.’

Since the company’s first shipment, Stitch Fix has grown to nearly 2.2 million active customers, as of July 29, and their customers keep coming back for more. In 2016, Stitch Fix’s retention rate was 83 percent, and in 2017, it is 86 percent. Stitch Fix credits its success to finding products for their clients at multiple price points and across 700 brands, along with private labels and exclusive brands. In September 2016, Stitch Fix added a men’s line and, in February 2017, Stitch Fix added Stitch Fix Plus for plus size women’s clothing.

‘We are successful when we are able to help clients find what they love again and again, creating long-term, trusted relationships,’ said Stitch Fix in their S-1. ‘Our clients love our service for many reasons. We help clients find apparel, shoes and accessories that they love in a way that is convenient and fun. We save our clients time by doing the shopping, delivering Fixes right to their homes, allowing them to try on merchandise in the comfort of their homes and in the context of their own closets and making the return process simple.’

Subscription News: Stitch Fix Hopes to Raise as Much as $100 Million with IPO

Source: Stitch Fix

Stitch Fix, which has a handful of competitors like UrbaneBox and Trunk Club (Nordstrom), works differently than a traditional subscription box. When a customer signs up, they complete a style profile which shares size, style, shape, budget and lifestyle information with Stitch Fix. Then a personal stylist chooses five items that fit the customer profile at a date and frequency selected by the customer.

Customers are charged a $20 styling fee per box that can be used as a credit toward purchases of any items in that box. Customers can buy what they want and return the rest. Shipping and returns are free. There are no additional fees. Products average about $55 per item, but when a customer buys all five items in their box, they get a 25 percent discount on the entire purchase.

From a financial standpoint, Stitch Fix appears to be doing quite well. Here are highlights disclosed in the company’s S-1:

  • Stitch Fix has raised $42.5 million in equity capital since 2011.
  • Key investors include Katrina Lake, Baseline Ventures, Benchmark Capital and Lightspeed Venture Partners.
  • Positive cash flow from operations annually since 2014, while continuing to invest in the company
  • 2015 revenue: $342.8 million
  • 2016 revenue: $730.3 million
  • 2017 revenue: $977.1 million
  • In 2016, Stitch Fix had net income of $33.2 million, and in 2017, a net loss of $0.6 million.
  • 5,800 employees, including 3,400 stylists, 1,500 fulfillment center employees, 200 client experience reps, 95 engineers and 75 data scientists

Moving forward, Stitch Fix’s strategy includes:

  • Expanding on relationships with current customers
  • Developing innovative ways for customers to reach them, including social media, mobile apps and other channels
  • Broadening merchandise selection through brand partners and exclusive brands
  • Investing in data science and technology to further personalize their offerings
  • Acquiring new customers
  • Expanding into new categories (e.g., petites, maternity, men’s and plus size clothing) and product types (e.g., shoes and accessories)

Lake wrote a letter as part of the S-1 form where she gives a broad overview of the company’s role in ecommerce and creating a better way for customers to shop.

‘While we’re proud of all that we’ve achieved, we share the feeling that we’re just beginning. We believe in a wide lens of possibility, and we’re just getting started,’ Lake said. ‘We are very excited for the many chapters to come for Stitch Fix and looking forward to welcoming more partners on this journey.’

Insider Take:

As a startup, Stitch Fix has had a fast trajectory to success because of its innovative thinking, careful executive and thoughtful growth. The IPO is a natural progression for a company of this size. With more capital and more investors, Stitch Fix can expand its marketing opportunities and product and service offerings to continue its steady growth. It will always have competitors, including Amazon who is working on a similar service, but Stitch Fitch has a proven formula for success and more than 2 million loyal customers. An IPO will just maximize its opportunities for success.

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