Online personalized styling service Stitch Fix is cutting about 20% of salaried jobs, and CEO Elizabeth Spaulding will step down, the company said on Thursday.
Founder Katrina Lake will return to the CEO role on an interim basis, serving “for six months or until her successor is appointed, unless otherwise agreed by Ms. Lake and the Board of Directors,” the company said in a news release.
“Stitch Fix continues to embark on an ambitious transformation and in the immediate term, the focus for the team is squarely on creating a leaner, more nimble organization to set the company up for a return to profitability,” said Spaulding, in a statement. “First as president and then as CEO, it has been a privilege to lead in an unprecedented time, and to chart the course for the future with the Stitch Fix team. It is now time for a new leader to help support the next phase.”
The CEO transition is effective immediately. Lake, who served as CEO from the company’s founding in 2011 through July 2021, authored a note to employees announcing the job cuts. It’s the second round of layoffs for the company in the last year after letting go of 15% of its salaried workforce in June 2022.
“We will be losing many talented team members from across the company and I am truly sorry,” Lake wrote to employees.
In a third move, Stitch Fix said it will close its Salt Lake City distribution center.
Tougher times
Stitch Fix’s runaway early success helped to popularize the subscription box model. The company employed stylists and data tools to send shoppers a customized order of clothing. Showing how tech and consumer goods could converge for fast growth, the company went public in 2017 and emerged as one of the high flyers in the pandemic. But it has run into tougher times over the last year amid shifting demand for subscription boxes and apparel more generally, as well as a promotional environment amid inflation that challenged the appeal of a full-price styling service.
Stitch Fix is not alone among commerce companies facing struggles, but recent results have been particularly difficult. In the most recent fiscal year, net revenue decreased 1.4% year over year, while its net loss expanded to $207.1 million. In its most recent quarter, net revenue declined 22% and the company lost 471,000 active customers from the same period of the prior year.
Stitch Fix made moves to get back to growth under Spaulding. Notably, the company rolled out a service last year called Freestyle that initially allowed shoppers to use personalization tools to purchase individual pieces of clothing. Spaulding talked about how the company's future was in blending subscriptions and a la carte. But Stitch Fix has since been repositioned as a subscriber-only option.
Speaking on the most recent quarter’s results, Spaulding said, “We did see increases in things like our AOV and our average unit retails. That said, we did see softness in Freestyle relative to what we would have anticipated."
Takeaways for 2023
Coupled with Amazon’s increased layoffs announced on Wednesday, the Stitch Fix cuts offer a few key reminders for everyone about the state of the consumer economy in 2023:
The calendar didn’t change the fundamentals. With inflation and reopening, 2022 brought a shift in consumer behavior. The conditions didn’t change when 2023 arrived, and the forecast is indicating times may get tougher. In fact, with the revenue-boosting holiday season now complete, many companies may be facing a reckoning in the coming weeks. Have a plan for the reality on the ground, and know that it may change.
Profitability over growth. Spaulding stated that the priority is on a return to profitability. Look for that to be a mantra this year as companies prepare to rightsize for an environment with a tougher economy and less freely available loss-covering capital due to rising interest rates.
CEO boomerang. We saw it with Disney’s Bob Iger last year, and now we’re seeing it with Stitch Fix. Founder Katrina Lake is returning to replace her successor. Even if this particular move is only temporary, it's a sign that companies may turn to familiar faces when things get more difficult.
Tough times can bring entrepreneurship. Stitch Fix was among the wave of companies birthed from the convergence of the Great Recession and the social web finding a business model in commerce. What new ventures and innovative approaches to retail will be born this year?
