Stitch Fix lays off 20% of salaried workforce, CEO steps down

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?