Stitch Fix and Amazon continue to dominate apparel e-commerce

I recently wrote about the surprising statistic that Amazon leads in apparel e-commerce sales. In that post, I also discussed the relative…

I recently wrote about the surprising statistic that Amazon leads in apparel e-commerce sales. In that post, I also discussed the relative data advantage that Stitch Fix has, especially when it comes to information on its customers’ fit and style preferences.

Even since then, both Amazon and Stitch Fix have continued to quietly innovate, compounding on their advantages and creating further moats around their apparel businesses.

Via Techcrunch, analytics and insights firm 1010data tracks the growth of Amazon’s private label sales. Most staggering is the 542% annual growth of Amazon’s private label children’s brand, Scout & Ro. Directly tied to Amazon increasing the SKU breadth by 5x, its growth dwarfs Amazon’s other well known lines.

Equally, if not more impressively, Stitch Fix is on a tear. Gearing up for a reported IPO, Stitch Fix announced that it is expanding its brand selection to move upmarket. According to today’s Business of Fashion story, the company is offering over 100 new contemporary brands including Theory, Steven Alan, and Alice & Olivia. The introduction of these brands will surely increase the current average price point of $55 in a meaningful way.

The most interesting revelation in this announcement is that more than half of this higher priced assortment will be exclusive styles or colourways.

These established brands creating exclusive products for Stitch Fix clearly signals its growing importance as a channel in the industry. Not only are brands like Kate Spade willing to associate their brand with Stitch Fix, but also to specifically cater to their customers’ needs.

Stitch Fix can direct brands to create styles, sizes, and fits that they know will sell with high certainty based on their customers’ past buying behavior, fit needs, and express interest in certain products. In addition, Stitch Fix can guide pricing using their customer data on price preferences and spend. As if it couldn’t get any better, not only can Stitch Fix predict general demand for a specific product, but it can also predict which customers might be interested. This demographic data is important to its partner brands, who likely do not have this data today.

All this data and prediction is immensely valuable to its partner brands even in the traditional metrics of retail. If Stitch Fix can accurately predict which products to produce, which customers to sell to, and at what price point, it can increase sell through rates without discounting. This last point cannot be underscored enough — in an industry where brands offer retailers inventory on consignment with deep discounting and therefore margins at the discretion of the retailer, Stitch Fix is a godsend to brands if it can offer growth at a full-price margin.

If retention is any indication, Stitch Fix’s prediction capability is working. About 25% of customers return monthly for at least 9 months, according to today’s article in The Information. In Q2 2017, Stitch Fix averaged a 45% retention rate each month for customers who first made a purchase 3 months earlier, up from 40% during the same period in 2016. This data also does not take into account less frequent buyers, like those that buy quarterly or semi-annually.

With 600+ brands and an increasing volume of private label and exclusive products informed by Stitch Fix’s own data about consumer preferences, it will be interesting to see what the company’s growth looks like when it files its S-1.