Stitch Fix’s ‘direct buy’ purchases, which allow shoppers to buy apparel outside of its subscriptions service, leads to incremental revenue at a similar profit margin, the retailer reports. The coronavirus will impact its business, but it's too early to know how much.

Subscription apparel retailer Stitch Fix Inc. reported its sales increased to $451.8 million in its second quarter of fiscal 2020 ended Feb. 1, up 22.0% from $370.3 million in the year-ago period.

The retailer also reported that its active customers, or shoppers who have purchased in the past year, increased to 3.5 million consumers, which is a 17% year-over-year increase. What’s more, revenue per customer increased 8.2% year over year to $501, up from $463.

Part of Stitch Fix’s growth comes from its “direct buy” options, which allow shoppers to buy single clothing items outside of the subscription box. The two options are:

  • Shop New Colors, which allows shoppers to buy previously purchased products in new colors, prints or sizes
  • Shop Your Looks, which makes algorithmically generated recommendations intended to complement pieces a shopper has already purchased from Stitch Fix

Stitch Fix recommends products to purchase using shoppers’ previous purchases and a style quiz, called Style Shuffle, that shows pictures to shoppers and asks for feedback. At the end of its fiscal second quarter, the subscription apparel retailer had collected more than 4 billion Style Shuffle ratings, with more than 80% of its active customers providing detailed feedback, CEO Katrina Lake said

“This rich data informs our styling recommendations and we plan to continue leveraging it across our direct buy platform and fixed offering to deliver enhanced client outcomes and experiences,” Lake said.

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In Q2, Stitch Fix enhanced its algorithm to diversify the looks it presented to shoppers who use the direct buy option, which increased conversion and items sold, Lake said.

In a beta test, shoppers who had access to Shop Your Looks spent more money with Stitch Fix overall and did not reduce the number of subscriptions they ordered, Lake said about the beta test conducted October 2019-January 2020.

Even though Stitch Fix is shipping items individually through direct buy versus in one box for its subscription program, the profit margins for each service are comparable, Lake said. This is because of low return rates for direct buy and recommendations are fully algorithmically driven.

The retailer already rolled out Shop Your Looks to all U.S. men’s and women’s customers in its fiscal Q3, and it plans to roll it out more broadly throughout the year.

In women’s apparel, Stitch Fix plans to increase sales in plus-sizes. This category generated less than 10% of its U.S. women’s revenue last year, but it is an area Stitch Fix knows it can grow sales. It plans to drive more sales in plus-size apparel by expanding its assortment and price points and by incorporating feedback from plus-size customers. It also plans to create more relevant marketing campaigns for this group.

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Stitch Fix now ships its men’s apparel from four U.S.-based distribution centers, up from two, which decreases its shipping costs by being closer to shoppers.

Its net income, however, decreased 5% year over year to $11.4 million for the quarter from $12.0 million in the year-ago period.

Stitch Fix lowered if fiscal 2020 outlook and expects net revenue to hit $1.80-$1.84 billion, down from its previous estimate of $1.90-$1.93 billion. Several factors contributed to its lower expectations, including a slower-than-expected ramp up for its U.K. business and a lower average order value, because Stitch Fix started offering more lower-priced items.

The coronavirus impact on Stitch Fix

Stitch Fix knows that the coronavirus will impact its business, and it is working with its vendors, Lake said.

“When we did a lot of the work around tariffs, we really got a handle around our kind of understanding of our dependence on China,” Lake said, referring to the U.S.-China trade war in 2019. Stitch Fix knows that its supply chain, fabrics and other product components will be impacted, Lake said.

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In terms of sales for its products, the coronavirus has not impacted its sales to-date, but it could in the future, Lake said.

“We recognize this is a dynamic situation and, while it’s too early for us to quantify total potential supply chain or client demand impact at this point, it’s reasonable to expect we’ll see some impact,” Lake said. “We are evaluating trends as the situation continues to develop, which contributes to our conservatism as we approach second-half guidance.”

Stitch Fix is No. 64 in the 2019 Digital Commerce 360 Top 1000.

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