Stitch Fix’s woes reflect a broader subscription box problem
Photo: Stitch Fix

Stitch Fix’s woes reflect a broader subscription box problem

Stitch Fix CEO Elizabeth Spaulding’s exit last week and plans by the company to lay off 20 percent of its workforce mark another troubling sign for the subscription box category.

Active members for the personalized clothing service grew from 3.2 million pre-pandemic to 4.1 million by October 2021 as subscription boxes offered some excitement to homebound consumers. Membership has shrunk to 3.7 million in its most recent quarter as the economy opened up.

The personalized styling opportunity may be weakening, as indicated by Nordstrom’s decision to close Trunk Club last May. The macro environment may be showing subscription boxes to be highly discretionary, as well.

In reducing its outlook in early December, Stitch Fix’s CFO Dan Jedda told analysts, “We know that high rates of inflation are impacting consumer purchases, and high levels of inventory are impacting pricing, with deeper discounting across the retail industry.”

Among other subscription boxes, Blue Apron and Rent The Runway announced layoffs last year while restructuring. Birchbox announced in November it was considering bankruptcy.

Analysis by PYMNTS and sticky.io found that by spring 2022, cost had become the main obstacle to subscription enrollment due to inflation. Among existing subscribers, “subscription fatigue,” or finding the subscription experience no longer novel or relevant, was seen setting in as the pandemic subsided.

The Atlantic last year concluded the subscription space was undergoing a shakeout. Columnist Amanda Mull wrote, “As more markets become oversaturated with these kinds of services, more buyers will get bored of the concept entirely, and investors will eventually become weary of waiting for profit.”

The promise of recurring revenue and access to data to deliver personalized curation is expected to continue to support opportunities for subscription boxes.

In a Harvard Business Review column, Nir Eyal, a former Stanford lecturer and the author of “Hooked: How to Build Habit-Forming Products,” wrote that the leading drivers of churn for subscription boxes are the novelty wearing off, choices becoming too complicated and not offering enough “stored value” — or supportive data, content or connections — to build long-term relationships with customers. He said, “Subscription services don’t win on unit price or quality alone.”

BrainTrust

"Stitch Fix faces a perfect storm of changing consumer behavior, internal challenges and subscription fatigue."

Ryan Mathews

Founder, CEO, Black Monk Consulting


Discussion Questions

DISCUSSION QUESTIONS: Are Stitch Fix’s challenges mainly due to its own business model and the apparel space or more so a reflection of broader challenges facing subscription services? Do you see consumer fatigue, inflation, their inherent value or some other factor as the primary reason for recent slower growth for subscription boxes?

Poll

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Mark Ryski
Noble Member
1 year ago

I believe Stitch Fix is a reflection of a broader market trend. There are several headwinds facing the subscription category, not only including consumer fatigue and inflation. Subscription services like these that send a constant stream of goods to subscribers is the epitome of discretionary spending, and it’s just not a fit for the current market. And let’s not forget the demand surge these services got during the pandemic, which for all intents and purposes is in the rear view mirror.

Jeff Sward
Noble Member
1 year ago

When Rocket Money (“Take control of your subscriptions.”) finds a market opportunity, it suggests that subscription services may have proliferated beyond a healthy, sustainable level. Subscription services are a great business model for categories with lots of knowns and predictable timing. My personal favorite is dog food. The apparel business is rife with unknowns and complex variables that are always in motion. Add in inflation, recession and a resurgence in brick-and-mortar shopping and Stitch Fix has some formidable obstacles.

Cathy Hotka
Trusted Member
1 year ago

Another reason: people who work from home don’t need cool new outfits. Working remotely means professionals can wear that sweatshirt from junior high. The pandemic has savaged apparel retailers across the board.

Nikki Baird
Active Member
1 year ago

I don’t think you can pin this all on larger economic concerns. I’ve been a long-time subscriber and I’ve found that, over time, the selection has just gotten boring — I feel like I’m stuck in some kind of sub-optimized hole. Yeah, I like black, but the point of using Stitch Fix is to suggest things I wouldn’t normally look at. I have plenty of black, thanks. Then there’s the whole pandemic disruption. Stitch Fix should be able to move to accommodate that — they cover casual as well as business. But there’s also a backlog of clothing that I can work through, of things that I just haven’t worn nearly as much, so they last longer. Finally, I do think there’s something of a “subscriber lifecycle” and companies would do well to build their business around that. There is going to come a time of subscriber fatigue. If you can plan for it and roll with it, you can focus on finding the right time to win them back later. And I don’t think Stitch Fix has done that.

Christine Russo
Active Member
1 year ago

I agree that subscription services do not win on price — in general, it’s about the product. Selections for the clients — either by AI or human (or somewhere in between) — has to be spot on. Because as exciting as it is to get a box of curated items, it’s more deflating to get a box of items you do not like or love. The risk of disappointment is quite high leading to churn.

Neil Saunders
Famed Member
1 year ago

A lot of subscription services are nice to have rather than must have. As such, when finances get tough they are an easy thing to cut out. That is part of the trend we have been seeing play out in the company’s weak results. However other factors are also at play: there is some boredom with subscription services, a growing number of consumers dislike the lack of flexibility, other retail offers have become more compelling with increased discounting, and Stitch Fix’s recommendations have become less sharp.

Dave Bruno
Active Member
1 year ago

Subscription fatigue is legit, and as the economy continues to put pressure on discretionary spending, consumers are prioritizing their monthly commitments. And my guess is that apparel subscriptions (many of which also suffer from stale assortments) will be far easier for most people to cut than entertainment subscriptions. Many people are prioritizing their streaming subscriptions as well, but I suspect apparel boxes will go long before Netflix.

Ryan Mathews
Trusted Member
1 year ago

Stitch Fix faces a perfect storm of changing consumer behavior, internal challenges, and subscription fatigue. Subscription services may have just jumped the shark. There are too many of them in the face of declining consumer interest and demand, and that’s going to negatively impact any number of them.

Camille P. Schuster, PhD.
Member
1 year ago

The novelty has worn off, more people are going back to stores, working from home brings demand for new clothes down, and constantly presenting new options becomes challenging. As the business model matures the successful companies need to address market and consumer challenges.

Doug Garnett
Active Member
1 year ago

Subscription services have always been a highly limited opportunity — a useful addition to a retailer’s offering but not something which would stand on its own. That truth is finally becoming obvious at Stitch Fix as investors no longer are willing to fund endless losses.

Paula Rosenblum
Noble Member
1 year ago

I think there are multiple issues at play. No market is infinite and everyone seems to have some kind of subscription service offering now, and there are just so many of anything people need or want.

Some of the services made sense when people were out and about more — but a pet food/accessory subscription service? Animals aren’t like people — they prefer consistency over novelty.

A market will remain, but I’m not sure it’s viable. Every six months, maybe. Every three months, possibly. Every month? Nope.

I’m not sure it’s going to turn out to be a profitable space for almost anyone.

Oliver Guy
Member
1 year ago

Retailers have sought to find new business models and revenue streams and subscription is an area where some retailers have considered investing because of new entrants who offer these models.

Arguably, like gym memberships and Netflix, because the time of payment is disconnected from the time of receiving the good/services the value is not considered in the same way as a specific purchase. Consequently the subscriptions are forgotten.

When pressed in terms of cost of living — as consumers have seen over the past 12 months — consumers will look at all subscriptions and evaluate. Netflix and Amazon Prime have both lost members as a result — consequently all subscription services could face these kinds of issues.

Patrick Jacobs
1 year ago

Consumer fatigue takes a big bite out of the experience Stitch Fix offers consumers. Even with the service not requiring a subscription, Stitch Fix has had a hard time justifying the overall value. Elizabeth Spaulding stepping down as CEO last week complicates the capacity of the company to revamp or transition to a more relevant model.

Mohamed Amer, PhD
Mohamed Amer, PhD
Active Member
1 year ago

Just like retail has been historically overstored in the US, by the end of 2021, there were five retail subscriptions for the average US consumer compared to two subscriptions in 2020. Layered on this fatigue is that the novelty of Stitch Fix’s boxes is wearing off. While the personalized, curated business model is sound, the combination of data algorithms and stylists that create customer relationships has run into rough waters that alienated the human element of the equation. Customer acquisition costs are still high, and the company has introduced initiatives to keep current customers more engaged. However, for the average consumer intent on reducing her wardrobe budget, Stitch Fix will be one of the casualties.

Rachelle King
Rachelle King
Active Member
1 year ago

The hard truth is that the novelty of getting a surprise, bespoke wardrobe in the mail has worn off. And with it, so has the discretionary income to support this luxury shopping behavior. Or, at least those funds are being stretched in other directions like travel and hybrid office attire as consumers shuttle between home and office during the week now.

Novelty fades. Consumer preferences change daily. The pandemic changed everything. The world is changing again, as we ease out of this pandemic. But, it’s not going back. That’s not good news for Stitch Fix.