stitch-fix-business-model

How Does Stitch Fix Make Money? The Stitch Fix Business Model In A Nutshell

Stitch Fix is an American online personal styling service using algorithms and data science to recommend clothing based on style, budget, and size. It was founded in 2011 by Katrina Lake to help women discover and explore their personal style through a client-focused shopping experience. Stitch Fix has a surprisingly diverse revenue generation model for an online clothing retailer, from clothes sales to a styling fee of $20 charged by the company approximately two weeks before an order is sent out.  The company also designs, produces, and then sells clothing under the Hybrid Designs brand

History of Stitch Fix

Stitch Fix is an American online personal styling service, using algorithms and data science to recommend clothing based on style, budget, and size.

Stitch Fix was founded in 2011 by Katrina Lake, with initial operations based in her apartment in Cambridge, Massachusetts.

She created Stitch Fix to help women discover and explore their personal style through a client-focused shopping experience.

She also lamented that the fashion industry was ripe for innovation, with most still purchasing their clothes in brick-and-mortar stores.

Initially, the company was called Rack Habit. It was funded by a credit card with a $6,000 limit and sold clothes to friends and family that Lake had purchased in fashion stores around Boston.

Through word-of-mouth, the company began to grow and secured angel investment funding in April 2011.

The next two years saw thousands of users flock to Stitch Fix, but subsequent investors were hesitant to provide funding because of high levels of unsold inventory.

In 2014, the company started to become cash-flow positive. Three years later, Lake led an IPO on the NASDAQ – becoming the first woman to do so at the time.

The platform now targets men and children in addition to women and boasts over 32.5 million active clients.

Stitch Fix revenue generation

For an online clothing retailer, Stitch Fix has a surprisingly diverse revenue generation model.

Let’s take a look at it now.

Clothes sales

Stitch Fix purchases clothing in bulk from designer brands and endeavors to sell them for a profit. Margins are characteristically slim in the fashion industry because of high competition and constantly shifting consumer trends.

However, the company can maximize profits by employing a team of over 100 data scientists. This data can be made into algorithms that notify the company when an item is likely to become out of stock.

Algorithms also predict various clothing parameters that sell best, including particular styles, sizes, and colors.

Perhaps the most significant contribution of data is in Stitch Fix recommendations.

Over 80% of customers have used the recommendations tool in search of inspiration for their next purchase. This retains clients, encourages repeat purchases, and maximizes revenue.

Styling fees

A styling fee of $20 is charged by the company approximately two weeks before an order is sent out. 

This fee covers the expenses associated with a professional stylist picking out five items to send to each customer.

If a customer decides to purchase any of the five pieces, the styling fee is credited toward the total cost of their purchase.

Private labels

The company also designs, produces, and then sells clothing under the Hybrid Designs brand

Creative direction is provided by algorithms that use data science to identify gaps in the clothing market.

Once a gap has been identified, a team of Stitch Fix designers ensures the finished piece has an on-trend look. Margins for this clothing range are higher because the company utilizes vertical integration.

Shop Your Looks

Shop Your Looks is the name given to the online marketplace where Stitch Fix users can purchasing clothing directly.

Purchasers can discover entire outfits based on previous personalized deliveries. The more data the company has on a customer, the more tailored the clothing suggestions will be.

Key takeaways

  • Stitch Fix is an American online personal styling service. It was founded by Katrina Lake who wanted to provide a platform for women to explore their clothing style via a personalized shopping experience.
  • Stitch Fix makes money by purchasing bulk clothing from designer brands and reselling it for a profit. Although profits tend to be slim in fashion, the company maximises profits by using data science to manage inventory levels and provided tailored customer recommendations.
  • Stitch Fix collects a $20 fee in exchange for providing professional styling advice to consumers. It also sells a range of own-brand clothing using algorithms to identify gaps in the market.

Read Next: Subscription Business ModelHow Does BoxyCharm Make Money, How Does Birchbox Make MoneyHow Does Dollar Shave Club Make Money.

Main Free Guides:

Read Next: ASOS, SHEINZaraFast FashionUltra-Fast FashionReal-Time Retail, Slow Fashion.

Related Visual Concepts

Subscription Business Model

subscription-business-model
Subscription-based business models are built on a recurring customer base, where customers usually have access to the product or service rather than their own. The customer can have the upside of the service without owning the good underlying it, which is maintained by the company running the subscription-based business.

Ipsy Business Model

how-does-ipsy-make-money
Ipsy is a monthly subscription service for cosmetic and beauty products founded in 2011 by Michelle Phan, Marcelo Camberos, and Jennifer Goldfarb. Phan used her large YouTube following to launch and grow the platform. Ipsy makes money by charging customers monthly for beauty subscription boxes. Various subscription plans are available depending on the beauty product size and customization level. Ipsy also operates an eCommerce store selling branded and in-house beauty products. The company also sells product placement spots to brands eager to receive highly targeted exposure.

Birchbox Business Model

birchbox-business-model
Birchbox is an online American monthly subscription service for skincare, perfume, and other cosmetic items. Birchbox was among the first players to start leveraging a subscription-based model to reshape how value is delivered to customers. Instead of a one-off purchase, Birchbox curates a set of samples that each time are sent to its subscribers, enabling them to discover new cosmetic products while reducing the friction and cost of discovery for new products.

FabFitFun Business Model

how-does-fabfitfun-make-money
FabFitFun is an online subscription box service sending electronics, cosmetics, fitness, wellness, and fashion items every quarter. Founded in 2010, it started as a simple website, and as it gained popularity, thus following later on a similar subscription-based model to Birchbox. It now generates revenues through membership services and brand sponsorships.

Dollar Shave Club Business Model

dollar-shave-club-business-model
Dollar Shave Club is an American online subscription service delivering razor blades and grooming products monthly. The Dollar Shave Club business model flipped upside down the “razor and blade” model popularized by Gillette. In short, where Gillette sold its razors at cost while making fat margins on its blades, Dollar Shave Club offered a subscription model to cut off the costs and friction of getting new blades and grooming products with a curated package.

BoxyCharm Business Model

how-does-boxycharm-make-money
BoxyCharm recognized a gap in the popular beauty subscription box market. Most companies were shipping boxes with sample-sized products that were not on trend or seasonally appropriate. As a proponent of the subscription box business model, BoxyCharm makes money via subscription revenue.

Razor and Blade Business Model

razor-blade-business-model
The razor blade business model, also known as the razor-razorblade model, involves selling a product at a lower price to sell a related product later for a profit. The razor and blade business model was popularized by King C. Gillette, founder of the safety razor company Gillette, which sold a durable razor at cost while selling disposable blades at a premium.

HelloFresh Business Model

hellofresh-business-model
HelloFresh is a German provider of meal kits founded by Dominik Richter, Thomas Griesel, and Jessica Schultz (née Nilsson) in 2011. HelloFresh has a relatively simple revenue generation model. The company makes money by charging users a weekly subscription fee for meal deliveries.

Related Visual Resources

Slow Fashion

slow-fashion
Slow fashion is a movement in contraposition with fast fashion. Where in fast fashion, it’s all about speed from design to manufacturing and distribution, in slow fashion, quality and sustainability of the supply chain are the key elements.

Fast Fashion

fast-fashion
Fash fashion has been a phenomenon that became popular in the late 1990s and early 2000s, as players like Zara and H&M took over the fashion industry by leveraging on shorter and shorter design-manufacturing-distribution cycles. Reducing these cycles from months to a few weeks. With just-in-time logistics and flagship stores in iconic places in the largest cities in the world, these brands offered cheap, fashionable clothes and a wide variety of designs.

Inditex Empire

inditex-fast-fashion-empire
With over €27 billion in sales in 2021, the Spanish Fast Fashion Empire, Inditex, which comprises eight sister brands, has grown thanks to a strategy of expanding its flagship stores in exclusive locations around the globe. Its largest brand, Zara, contributed over 70% of the group’s revenue. The country that contributed the most to the fast fashion Empire sales was Spain, with over 15% of its revenues.

Ultra Fast Fashion

ultra-fast-fashion
The Ultra Fashion business model is an evolution of fast fashion with a strong online twist. Indeed, where the fast-fashion retailer invests massively in logistics and warehousing, its costs are still skewed toward operating physical retail stores. While the ultra-fast fashion retailer mainly moves its operations online, thus focusing its cost centers on logistics, warehousing, and a mobile-based digital presence.

ASOS Business Model

asos-business-model
ASOS is a British online fashion retailer founded in 2000 by Nick Robertson, Andrew Regan, Quentin Griffiths, and Deborah Thorpe. As an online fashion retailer, ASOS makes money by purchasing clothes from wholesalers and then selling them for a profit. This includes the sale of private label or own-brand products. ASOS further expanded on the fast fashion business model to create an ultra-fast fashion model driven by short sales cycles and online mobile e-commerce as the main drivers.

Real-Time Retail

real-time-retail
Real-time retail involves the instantaneous collection, analysis, and distribution of data to give consumers an integrated and personalized shopping experience. This represents a strong new trend, as a further evolution of fast fashion first (who turned the design into manufacturing in a few weeks), ultra-fast fashion later (which further shortened the cycle of design-manufacturing). Real-time retail turns fashion trends into clothes collections in a few days or a maximum of one week.

SHEIN Business Model

shein-business-model
SHEIN is an international B2C fast fashion eCommerce platform founded in 2008 by Chris Xu. The company improved the ultra-fast fashion model by leveraging real-time retail, quickly turning fashion trends in clothes collections through its strong digital presence and successful branding campaigns.
Scroll to Top
FourWeekMBA