When Stitch Fix went public in the fall, it boasted profitability, despite raising a modest $42 million in capital. But can the subscription clothing startup sustain that momentum? A report by the Information claims Stitch Fix might face issues with customer retention–and that new customers to the service reportedly may not be as valuable.
Customers who use Stitch Fix for two years spend less the second year than they do during the first year, according to the Information, which obtained data on credit card transactions. And new users reportedly spend less overall: Customers who joined in Q1 2017 spent $172 on average, $6 less than users who joined in Q1 2016, and that gap widened to $13 by Q4, with customers spending $195 on average.
A decrease in spending could be, at least partly, the result of Stitch Fix users tweaking their price preferences, or using the service less frequently while still remaining customers. In its S-1, Stitch Fix said it had a repeat rate–defined as the percentage of net revenue from customers who have previously used Stitch Fix–of 83% in 2016 and 86% last year. Stitch Fix also argued that customers shop in waves, which can result in periods of inactivity or decreased spending:
We believe that client apparel purchasing can be “lumpy,” where clients initially stock up and fill their closets and then slow their purchasing. While a client exhibiting this behavior would spend less in a subsequent period, we believe that serving our clients on their natural purchasing cadence, rather than forcing more spend, fosters the valuable, long-term client relationships we seek to cultivate.
The Information also reported that Stitch Fix is investing more in advertising, reportedly spending $28.2 million in the first quarter of its 2018 fiscal year (which ended October 28, 2017). That accounted for 10% of quarterly net revenue and was double what Stitch Fix spent year over year.
Stitch Fix declined to comment, but the company’s forthcoming earnings report should prove telling.