Stitch Fix is hoping to turn the corner after a restructuring that included shuttering the UK business (company photo)
Stitch Fix, the algorithm-driven, stylist-focused purveyor of subscription apparel, saw revenue drop 21%, a 13% decline in active clients and a 9% dip in revenue per client in 2023, but new CEO Matt Baer, a former Macy’s executive, sees a pivot leading to growth after a painful restructuring and consolidation.
“When the opportunity to join Stitch Fix presented itself, it appealed to me because I saw a powerful idea that hadn’t yet realized its full potential, and I believed that my background, experience and drive could get that done,” said Baer, who had served as chief customer and digital officer at the storied retailer, on the earnings call.
Stitch Fix CFO David Aufderhaar told analysts that management decided to “focus on the core Stitch Fix experience.” He said this meant a changeover of inventory, product and marketing strategies.
“To allow time for those strategies to take hold, we focused on near-term profitability and cash flow,” said Aufderhaar. “This meant restructuring our organization, consolidating our warehouse footprint and making the decision to exit the UK market. Decisions like this are never easy, but we believe these actions were the right ones.”
During the course of 2023, the CFO said, Stitch Fix improved its inventory position, achieved more than $150 million in annualized cost savings, generated $39 million in free cash flow and returned to adjusted EBITDA positive territory, up $17 million.
In July, the San Francisco-based company announced it was closing a fulfillment center in Lower Nazareth Township, PA, in the Lehigh Valley, laying off 393 employees in the process and shrinking from a network of five domestic facilities down to three. It also closed a fulfillment center in Dallas.
“We believe the consolidation will have immediate cost savings and having inventory in fewer warehouses will make it easier for stylists to build more relevant assortments for clients,” the CFO said. “And we will realize inventory efficiencies as we scale.”
Baer said the strong bonds Stitch Fix forges between its stylists and its clients, epitomized by two glowing feedback letters he shared, is what will drive the business forward and turn the numbers around.
that, to me, is something that really creates a tremendous opportunity for us as we continue to drive growth in our business into the future. It is quite rare to have an e-commerce business or any retail business where you’re able to get such high levels of engagement from your clients.
In 2020, Stitch Fix laid off 18% of its workforce, mostly remote workers based in California, while at the same time saying it would hire 2,000 stylists in lower cost-of-living locations like Austin, Cleveland, Dallas and Minneapolis. The company was taken public in 2017 by founder and then-CEO Katrina Lake, who came back in an interim role in January after a nearly 18-month absence, until Baer’s hiring.