Retailer must raise awareness of new Freestyle option

The Stitch Fix logo on a smartphone arranged in Hastings-on-Hudson, New York, U.S., on Saturday, June 5, 2021. Stitch Fix Inc. is scheduled to release earning on June 7.

Tiffany Hagler-Geard | Bloomberg | Getty Images

Now that Stitch Fix has debuted a new way for shoppers to buy clothes, the online styling service must use the coming year to market it to the masses.

“It it will take time for consumers to know that it’s out there,” said Chief Executive Elizabeth Spaulding in an interview Wednesday with CNBC’s Sara Eisen.

Stitch Fix has been known for its subscription offering, which sends customers hand-picked bundles of apparel and accessories. The selections are guided by the company’s AI. Now, Stitch Fix is extending a direct-buy option, known as “Freestyle.”

“We are going to be launching many new features, more brands and personalized stores,” Spaulding said. “We want to give ourselves time to really make this big transition into becoming the destination for personalized shopping and styling.”

Stitch Fix’s stock closed Wednesday up more than 15%, at $41.01, having fallen almost 30% year to date.

Investors rallied behind Stitch Fix’s upbeat fiscal fourth-quarter results, released after market close Tuesday. But many are also looking toward the business’ future potential, as Spaulding leads Stitch Fix in a new direction with a potentially larger market opportunity.

Spaulding said she expects the changes will help the company grow its addressable market. Previously, customers had to be a Stitch Fix subscriber to purchase individual pieces of clothing or shoes from its website. Now, direct-buy is available to the public.

But Spaulding also said Stitch Fix will have to invest heavily in advertising “Freestyle” to a broader audience that might have resisted signing up in the past.

The hope is that direct-buy sales will boost its profitability in the long run. The company said “Freestyle” is already boosting the amount of money Stitch Fix’s active clients spend on average. In the latest quarter, that metric topped $500 for the first time.

Stitch Fix now counts nearly 4.2 million active clients, which are people who either ordered a “Fix” subscription or bought an item directly from its website in the preceding 52 weeks from the final day of the quarter.

A ‘meaningful test’ ahead

Still, most analysts remain cautious. Spaulding is less than 100 days into her role as CEO. And after taking over for founder Katrina Lake on Aug. 1, she is already steering the company away from a subscription-based model.

Against relatively low expectations, Stitch Fix delivered a better-than-expected fiscal fourth quarter, Wells Fargo analyst Ike Boruchow said in a research note. But the company doesn’t appear to be “firing on all cylinders,” he said.

For one, the online styling service’s outlook is weak. Stitch Fix is anticipating revenue growth in fiscal 2022, its current fiscal year, of at least 15% from the prior year. Boruchow notes that comes in below the company’s…

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Retailer must raise awareness of new Freestyle option

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