Stitch fix - E-business PDF

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Summary: The paradigm shift in business practices and innovative technology pose a big challenge for businesses in today’s world. Dynamic technical innovations, Scarcity of resources, Increasing human resource costs, and tough competition are major challenges for firm’s endeavors to fulfill customer demands effectively and efficiently. In order to keep their performance indicators positive all business use different strategies to mitigate the risks and to assure sustainable growth in their respective domains. Business practitioners use theoretical knowledge in business practices to ascertain its usefulness. Research scholars have provided us with different theories of strategic and competition which are generalizable for all business existing in world. These theories have proved their significance in practical business practices in different times and situations. The evidence of practical implications of these theories have passed the test of time in the form of high quality products and increased customer satisfaction as we can easily witness in today’s modern world. Current study presents the strategic analysis of Stitch Fix. The business has been providing personal styling services in USA since 2011. The business went public in 2017 having value of 1.6 billion (Hirsch, and Lauren 2017). According to official web of Stitch Fix the vision of business is to create a personalized shopping experience for customers. The e-retail model of business uses modern technology and expert stylists’ opinions to make the personal styling for customers easy and effortless. Introduction part of study presents current business situation including business offerings and strategic analysis. A comparative analysis of nature of brick-and-mortar and online competitors of Stitch fix is presented on the basis of SWOT analysis (Newton and Newton, 2013) where internal and external factors affecting business are analyzed by considering the target marketing, product customization of Stitch fix and differentiation by using expert opinions, pricing comparison of personal styling business, marketing, supply chain, value chain, and customer segmentation. Secondary data collection of financial reports of Stitch Fix was conducted; these reports are available on official websites of the firm. Purpose of study is educational and complete

understanding of key indicators of performance and future growth options for personal styling business. Other part of study is analysis of key financial indicators to ascertain sustainability. In order to draw a conclusion about Stitch fix’s actual and potential competitive advantage an assessment of company’s financial returns is also included to support the argument. Return on investments (ROI) and other financial indicators of previous three years are considered to determine sustainability. Investment decision of hard earned money is based on current returns on investments and future growth options of the company. A few recommendations are provided for improvement of e-commerce presence and improved distributions are provided based on analysis.

Introduction:

Stitch Fix, Inc. defines itself a business which delivers one-to-one personalization to their customers through the combination of data science and human judgment of styling experts. Personal stylist teams at Stitch Fix Inc. select personal style products for men and women from a broad range of merchandise. Based on best judgment and current fashion, stylists pair their judgment with data analysis of customer’s tastes, needs and budget. A personalized shipment of unique shipment of FIX (shoes and accessories box) is made. After receiving the shipment clients can try clothes at home. Stitch Fix makes the purchasing process effortless as the customer can purchase the items they want to keep and they return the other items by sending back the exchange/return items in a prepaid USPS envelope provided with shipment. Shipping returns and exchanges are free. The business is incorporated in Delaware and has its operations in the United States and the United Kingdom (Annual report, 2018). Mission: Stich Fix’s mission is to be the most convenient personal styling option for buyers by providing personalized apparel and jewelry that matches their budget and lifestyle. The vision of business is to transform the way people find what they love to buy. Stitch fix’s vision is client-centric modern way of retail. Business serves clients by helping them to discover and define their styles in an innovative and convenient way (Official web). Bricks and mortar retail stores competition with on-line retailing: According to Wall Street Journal report about 50 percent of consumers bought more online than in physical stores in USA. Amazon being the leader in e-commerce sector has accounted for 60 percent of total online sales growth in 2015. Ecommerce brands are growing popular than traditional retailers by integrating digital applications for physical presence. Internet sellers have adapted mobile shopping services which offer seamless channel for shopping experience. Successful ecommerce fashion brands have long offered virtual fitting rooms and 3D imaging (Kaplan.M, 2018). The online e-commerce stores are now more skillful at offering an excited shopping experience than conventional brick-and-mortar retailers (Pozzi.A, 2013).

Integrating mobile apps has enabled the brands to personalize an in-store visit. Now consumers are able to walk into a clothing store virtually, share measurements, and then save the information in mobile app. The store then sends a personalized fashion recommendation to the consumer. This works regardless of whether the store holds inventory or acts only as a showroom (Mehra, A. et al 2013). Market Summary: The basic target of Stich Fix include college graduate, career women in their 20’s to 40’s located all over America. The target also includes women who are not necessarily career focused but are willing to dress fashionably. The social media presence of business indirectly targets the ladies who are not fashion savvy but like to dress trendy. Internets as a platform of business activities, and home delivery services have enabled the business to serve domestic customers of all race and ethnicity throughout the country (About us, official web). Stich Fix has different tiers of brand and design combination so customers are in control of their own expenditure. This allows flexibility to reach customers of various income brackets. The median income of targeted customers is over $40,000 per annum (Annual report, 2018). Following table presents pricing comparison between Stitch Fix and its major competitors. Competition analysis Stitch Fix Daily look Trunk club Le tote

Subscription NO YES NO YES

Styling Fee Cost $20 $40 $25 $69 - $79 monthly

Price Range $20 - $600 $75 - $200 $100 - $300 $14 - $100

subscription fee Want able Source: Official web

NO

$20

$30-$100

All competitors of Stitch Fix have their unique operations model. The Trunk Club offers a variety of brands for both men and women and offers a 10-day return policy in case the customer decides against purchasing all goods in the trunk. Daily look on the other hand is a subscription box service from Australia that ships internationally to Canada and UK. Its strength is a wide

range of products which includes fashion and accessory items, fitness products, and health and wellness. The TOTE is also unique as it ships from China to countries throughout the world. Its discounted items include only women’s clothing. Some other competitors include Gwynnie Bee which targets plus-sized women. It caters plus size needs and also offers an option to rent clothes. Divine Caroline is another online store that offers women’s clothing and fashion accessories including wedding rings. Refinery29 is also unique e-commerce store which targets women covering a variety of products such as shopping and beauty to wellness and celebrities, and giving tips and tricks for beautiful life. Matching an affordable price with wanted quality is a tricky balance. Basically because of perception, most people believe that if a product is expensive it is a quality product while a cheaper one relates to low quality. Stitch Fix aims to prove this wrong belief by streamlining its operations model so that it is able to offer affordable prices for quality brands. Recently Stitch Fix has restructured its pricing plans. Now it offers three different pricing tiers for customers to choose from. New pricing structure of business can now cater for people needs across all economic classes (Annual report, 2017). With most subscription services by competitors the products are usually expensive. Stitch Fix on the other hand with its streamlined operations in terms of shipments to customers all over the world, now business can afford to charge lower prices for premium brands (Annual report, 2017). The positioning target of Stitch Fix in customers’ minds is classy and fashionable women’s clothing at an affordable price. The primary focus of Stich Fix is entirely customer centric. Stich Fix retail business is not just about clothes but about personalized experiences which customers receive. The customer provides the information about their preferences in color, materials, design, style, sizes, and the frequency of the delivery. This information is used to choose the clothes that are specific to particular customer choices and are delivered to their door when they desire. Stich Fix’s market share consists of consumers who value service along with the quality products. Stitch Fix is providing convenience to the customers with wide range of clothes selection as well as various accessories. The target customer are busy and fashion conscious women who does not want to or have time to go shopping and are happy to get new things

delivered by innovative integration of web retails, so the members get great styles, without the effort. Supply Chain: Stitch Fix is committed to deliver the products manufactured legally, ethically, and responsibly. The business promotes fair, safe and healthy conditions in manufacturing facilities. In online retail business inventory is held at different locations at various states in the supply chain. Logistics flow includes the manufactures, in distribution centers, in local warehouses, in transit, in storage rooms of the retail stores, on the shelves of the retail stores (Brick and mortar). For Stitch Fix this inventory becomes more granular as there is one more place inventory is held in the hands of a customer as the customer considers the merchandise (Business official web). Stitch Fix makes use all of above storage locations in order to maximizes the amount of inventory it holds especially “in the customers’ hands”. In customers ‘hand the inventory has maximum chance of being purchased. Through its algorithms, it ensures it has the right things in the right customer's hands. This is actually a more efficient model considering inventory and supply chain management. SWOT Analysis The following table represents SWOT analysis which outlines the key strengths and weaknesses within Stitch Fix and describes the opportunities and threats for the company. Strengths: 

Personal stylists for convenient

Weakness 

Extra cost of building new supply chain and logistics

shopping 

Up-to-date trends



High cost of replacing existing experts



Purchase and returns provide instant



High turnover of employees at the lower management

feedback 

customer incentive



Loyalty among suppliers is low



Prices are selected by customer's



Declining per unit revenue

budget which increases probability of



Business model has low berries of

entry

purchase 

Leveraging brand recognition in new



operations

segments 

Diverse Revenue model



First mover advantage



Track record of innovation



High margins compare to Retail

 Wide geographic presence Opportunities:

Unique shipments causes inefficient

Threats Maintaining the brand reputation is



Lower inflation



Accelerated technological innovations



Customer preferences for ecommerce



Local Collaboration



Rapid Expansion of E-Economy



Shortage of skilled human



Low cost of new product



Changing demographics



Commoditization of the product



critical to driving clients 

Growing technological expertise of local players

segment 

Trade Relation between US and China in 2019

Competitive Strategies: Stitch Fix annual sales were $730 million in 2016 and $977 million in 2017. One hundred percent of revenue resulted directly from business experts’ recommendations, which are the core of the business. Stitch Fix has more than 2 million active clients in the United States, which carry more than 700 brands. Business makes unique and personal selections by combining data and machine learning with expert human judgment. Offering quality products at affordable prices is aim of Stitch Fix (Annual report, 2017). Business reduces its operational costs by the way it handles shipments. When there are fewer transactions, the cost per transaction is high so, only solution is larger shipments at a time

which significantly reduce shipping overheads, and help the business to offer products at more affordable prices (Annual report, 2017). Setting up real-time shopping quotes also works wonders for Stitch Fix. A real-time shipping quote enables customers to pay exactly what they would pay to ship the package. Real-time price calculator results in winning trust of customers. Data science is business culture of Stitch Fix. Business has employed more than 80 data scientists who report directly to CEO Selling point. Stitch Fix wouldn’t exist without data science management (Katrina Lake, June2018). Marketing Programs: Stich Fix relies heavily on social media to generate awareness about the product. By using platforms such as Facebook, Instagram and Twitter, Stich Fix is able to create a social media buzz to build new customers. Following figure represents business social media presence and number of its follower/likes on social media (Official web page).

The business model of Stitch Fix has been divided in equal parts of technology and retail. It has grown rapidly by word of mouth from women who love the service. By using a combination of personal data, and algorithms, Lake’s goal to take the work and anguish caused by shopping by attempting to send merchandise to customers is successful and that Stitch Fix’s stylists have determined will fit size and style preferences of customers(Katrina Lake, CEO Stitch Fix, 2018).

Stitch Fix has been sourcing its clothing and accessories from more than 200 suppliers, six of which are exclusive supplying to the company. The average price point is $55, but with the upcoming fashion in the box companies Stitch Fix restructures pricing. Business now offers three different pricing tiers for customers to choose from with an extended return policy of 5 days. The return policy is important to clients in e-retailing so business has reviewed all competition and has accommodated customers’ needs based off of some benchmarking techniques. Stitch Fix works with over 250 of the best up-and-coming labels and brands, the kinds featured in magazines and on stylish celebs. Major brand feature clothing by Collective Concepts, Kut From The Kloth, Daniel Rainn, RD Style, Citizens for Humanity, or Gorjana. Stitch Fix also introduces its customers to new brands that bring diversity and freshness in their wardrobes (Annual report, 2018). Financial analysis: Major financial indicators are summarized in following figure (Source: Stitch Fix's S-1 Filing 2018)

Business shows a continuous growth and sustainability of its financial indices. The business grew active client account to 2.7 million as of April 28, 2018, an increase of 614,000 and 30% year-over-year. Stitch Fix has delivered net revenue of $317 million, representing 29% year overyear growth in 2018.These results demonstrate business approach to deliver disciplined growth while continuing to make measured investments in future opportunities. Stitch Fix stock is a

long-term winner going through a near-term rough patch in early 2019 (NASDIQ: 2019). This rough patch will clear up any time soon and this stock will march significantly higher. Conclusion and Recommended Keys to Success: Primary objective of current study was to evaluate business performance of Stitch Fix in a dynamic marketplace. Comparison analysis of Brick and mortar and online ecommerce retail business shows a remarkable growth in market shares of online retailers, especially in fashion industry. According to U.S. Department of Commerce Statistics percentage of total retail sales of e-commerce sales have risen from 5.1 percent in 2007 to 13 percent in 2017. The total share for online retail was 8.6% to total retail sales in 2018 (Statista, 2018). These results indicate a high market shares and high revenues for Stitch Fix in a fast-growing industry. In annual report of 2018 business has announced net revenue of $1.2 billion which is an increase of 26% as compared to previous year. Effective targeting and appropriate market targeting has enabled the business to attain sustainability by dominant unique value proposition. The novelty of unique selling proposition has resulted in increase in new customers by 25% in year 2018 with 2.7 million satisfied and loyal customers (Stitch Fix, 2018). This study also aim to understand and establish innovative strategies for making e-commerce activities of Stitch fix more efficient and increase business’ competitiveness. Increasing access to new market segments, speedy technical changes, flexible market environment and dynamic customer preferences play crucial role on performance of online retail businesses (Albastroiu, Irina, 2007) like Stitch Fix. The business without any doubt was able to create an innovative value proposition for its customers shopping. However, there are opportunities to grow with their data analytics and fashion experts. Industry experts admits the success of unique selling proposition of stitch Fix (Emma Johnson 2015), But there are other factors to consider in value chain of business. Least control on supplies, shipping, and private brands are still major challenges for business. Performance of business is business is highly subjected to risks associated with sourcing, manufacturing, and warehousing. Customers demand for the customized product has to travel a long way from raw material to hands of customers like refining, production, packaging, distribution and retail processes (Scheuplein, Christoph, 2010).

The backward vertical integration strategy is recommended for Stitch Fix to control supply chain functions. Additionally, there is also an opportunity for Stitch Fix to utilize data to improve the in-store shopping experience. Customers should be provided the option to go to a store to try on their curated package of items. The personal service, immediate gratification of customer needs, wait-less shipping, risk reduction and most importantly social experience are not possible in online shopping (Levy et al., 2012). The touch and feel experience by physical store can also provide a sustainable advantage for Stitch Fix. If Stitch Fix doesn’t want to enter the brick and mortar retail business, they can sell the algorithm to a big box retailer who would bene...