Stitch Fix: A Useful Case Study For Retail’s Digital Transformation
There are a lot of box subscription services these days. From clothing to packaged meats, candles to make-up—there is a “box” for almost everything. But there’s one company, to me, that started the whole movement: Stitch Fix. And they’ve done it so well that many think their model might be about to uproot retail’s digital transformation.
First, let’s roll back a minute. Stitch Fix was founded in 2011 as an online “personal styling” service that selects and mails clothes, shoes, and accessories to its clients based on an extensive style survey (i.e. data). The better the “stylist” selects the clothing, the more money Stitch Fix makes. And that’s where the company’s obsession with data comes into play. And how this is driving retail’s digital transformation.
Still, there is an incredibly small amount of wiggle room to break into retail. Amazon has a corner on 49 percent of consumer goods bought online every day, and brick and mortar retailers continue to close because shoppers continue to shop online. So, who would have thought that sending a box of clothing to someone’s home would be a hot niche that’s turning an industry on its head? Turns out shoppers aren’t as allergic to shopping in person as we thought. They just like the convenience of staying home to do it.
The remarkable thing about Stitch Fix, though, isn’t its business model, which blends digital with a healthy bit of reality. It’s the company’s use of algorithms across essentially every single facet of the company. When it comes to data, Stitch Fix is doing it well, and there are a lot of things all companies—not just retail—can learn from it. The following are just a few of my favorite takeaways.
- They’re hungry for data. All companies want data. But are they burning for it? At Stitch Fix they are. As part of their Style Shuffle—a “swipe right” type of “Tinder for clothing”—they’ve found a way to reach beyond the feedback they’d get from customers through buying alone. By letting customers swipe through different styles in their entire collection, they amass mounds of data that helps them better understand the customer, as well as age and demographic trends shaping the fashion industry. It’s the type of big-picture thinking companies need when getting the “more” from their data outlets.
- They personalize at scale. We know personalization is the hallmark of customer experience in digital transformation. Stitch Fix is doing it incredibly well. Using their Style Shuffle, they’ve acquired more than a billion data points—information their customers—2.9 million of them—willingly offer, which dramatically increases their chances for profitability. (Stitch Fix makes money on clothing sold more so than subscription fees. The more clothing from one box that fits or flatters, they more well off they will be.) Indeed, while some companies may struggle with “creepy personalization” issues, Stitch Fix’s customers are happy to offer the feedback about fit and style because they know it will make their future shopping experiences even better.
- They Share Data. I recently shared a piece that talked about the importance of creating a digital ecosystem to support your innovation. Stitch Fix has done so by partnering with tons of top designers—more than 1,000 brands—who love working with Stitch Fix because of the valuable feedback they’ll receive from its customers.
- They put data into action. Using the data they collect, Stitch Fix is able to see not just products people buy, but products they want to buy. Creating their own Stitch Fix label, they’re able to design those goods most likely to be successful based on predictive buying analytics. It’s these types of decisions that allowed Stitch Fix to generate $1.2 billion in sales in FY 2018, with $45 million in earnings. Not too shabby for a company launched in founder Katrina Lake’s apartment when she was still a student at Harvard Business School.
- They use data for other departments. Even though Stitch Fix is famous for using algorithms to match personal fashion, that’s not the only way it uses its numbers. The company uses data for just about everything, down to finding the most efficient way for employees to work their way through fashion warehouses while putting together a personal “fix.” This is not a company that leaves anything up to fate. It’s meticulous in making data-led decision-making part of its everyday culture.
Using data isn’t a game changer. Tons of companies are using data to identify shopping patterns and make it easier for sales and marketing to target the right people. But Stitch Fix is letting data lead the company—and that makes the difference.
Stitch Fix is setting the gold standard in retail’s digital transformation. Scratch that—they’re setting the gold standard in all digital transformation, showing that even industries typically outside the “tech” spectrum can and should be using data to improve customer experience and sales both. They are a shining example just like the Harley Davidson dealership that started to use predictive analytics to better identify potential customers and improve sales. These are the companies that are getting “it” and finding success in digital transformation.
And honestly—other companies are listening. Big names like Amazon (Prime Wardrobe) and Nordstrom (Trunk Club) have both taken lessons from Stitch Fix’s book. They’re realizing that disruption in retail’s digital transformation can come from almost anywhere—even a simple cardboard box.
The original version of this article was first published on Forbes.
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