The subscription apparel retailer grew revenue by 25% year-over-year (YoY) to nearly $300 million.
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Stitch Fix reported substantial revenue and customer growth in fiscal Q1 2018 (ended October 28). The subscription apparel retailer grew revenue by 25% year-over-year (YoY) to nearly $300 million.
Its active client base — a customer who has reviewed an order in the past 12 months — grew 30% YoY to 2.4 million at the end of Q1. Despite that growth, net income only saw a tepid increase of 2% YoY to $13.5 million.
The company cited its women’s plus-size clothing and men’s apparel, which increased marketing, shipping, and inventory costs, as the reason for lackluster profit margins in Q1.
These new product categories are targeting markets that could be lucrative for the company.
- Men’s apparel. Stitch Fix launched a TV commercial for men to help promote its newly added category. The company sees this segment as crucial to growth — the market for men’s apparel is roughly two-thirds the size of women’s, providing it with a wealth of new clients to expand its user base. Additionally, the company reported that its male clientele is on par with female clients regarding the number of items they purchase from each box sent to them. This is likely due to the improvements Stitch Fix made to its recommendation algorithms, as well as its increased product assortment. Additionally, this proves that men's apparel could be a lucrative segment for the company if it can grow its client base, making marketing a critical cost at this point.
- Plus size. Stitch Fix is aiming to attract this highly underserved market. The demand in this category is high, and the company had already garnered 75,000 people on its waitlist before the plus-sized segment even launched. The company has been partnering with more brands to improve its assortment, and utilizing its algorithms to incorporate feedback, which has led to higher ratings on fit and style in Q1 2018, compared with the previous quarter.
Although the company had increased costs this quarter, it will likely see a corresponding increase in revenues and clients in the next quarter, justifying these investments. Stitch Fix has already brought on one huge brand partner for the next quarter, Nike, helping it strengthen its product assortment. Moreover, the company’s artificial intelligence (AI)-driven approach allows it to provide highly personalized clothing selections in each shipment, which resonates with its existing customers.
Although these initiatives can help it build loyalty and increase purchase sizes among its existing customers, growth for the company may depend on it expanding its client base, which is why introducing new categories could be a good move. As such, these marketing initiatives are a necessary cost of expansion right now, as they'll likely help the company increase brand awareness and draw in customers in the coming quarters.
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