Stitch Fix’s Elizabeth Spaulding on retail’s “seismic shift”

How fashion and luxury will evolve in the face of disruption brought on by the pandemic, new technologies and environmental and social concerns is a question top of mind for the industry. What will fashion look like in 2, 3 or 10 years time? To answer it, we're spending 30 minutes each week with industry innovators leading the way through a changing landscape. I'm Hilary Milneys and this is the future of fashion, the innovators by Vogue Business. This podcast is sponsored by PayPal, the most trusted buy now pay later brand according to a recent survey which gives merchants access to PayPal's 377 million users worldwide. Learn more at paypal.com/paylaterenterprise. Hello and welcome to this episode of the future of fashion, the innovators by Vogue Business. I'm your host, Hilary Milneys. Stitch Fix has paved the path to personalized retail, pioneering the tribe for you by model and digitizing the personal stylist. Now, 10 years after launch, the company's founder Katrina Lake is transitioning to a new role and taking over as CEO is Elizabeth Spalding, who's here today to discuss Stitch Fix's path forward. Welcome, Elizabeth. Thank you, Hilary. Excited to be here. Absolutely and I'm sure you're super busy getting ready for the new role which starts August 1st. So, we're really excited to chat. I think it's a great time to check in on Stitch Fix. It's been a tough year for retail in general, but the company's bouncing back. You've been at the company for a bit now and so what does this path back to normally look like for Stitch Fix? What has the past year been like? Yeah, I joined the company the end of January of 2020, so about a year and a half ago and really only about six weeks before we went into lockdown. So it was kind of an interesting experience to join a new company and really have to lead entirely remotely with only having had a chance for six weeks to really be with people in person. And I think we all have dealt with just a crazy last year and a half, whatever industry you're in. And I think one thing that's so unique about Stitch Fix is just the nature of our model within this broader apparel retail environment is that we weren't burdened with stores. We weren't burdened with debt. There are a lot of things to be thankful for as we entered into that March and April timeframe as everyone was just dealing with tremendous uncertainty, both consumers. How are these folks going to want to shop? Are they going to want to wear apparel the way that they used to? Of course, not the same, but are they even going to buy clothes? And then just how to manage our supply chain, how to manage our teams. And I think for the most part, we were just incredibly fortunate because even though people weren't shopping for the same things, undoubtedly the category compressed, sales online really skyrocketed and people's behavior dramatically changed. And so for me and Katrina, it accelerated the plans we had, I think from that very moment of going into lockdown of my opportunity to focus on really accelerated innovation for the business, all the ideas I had come in with strategically for the next 10 years. And for Katrina to really help us manage through the crisis. And so as the last year plus has unfolded, what it's allowed us to do is really say, what are all these next things that we think our model can become? And we kind of joke around that sort of similar to a Netflix, we've sort of gone from our DVD into our streaming era. And this idea of the fixed model originally, you explained it, but for those who aren't familiar with it, has been this pretty radically idea, different idea of shopping. Usually you go in and you weed through racks of clothing or you filter through a ton of inventory online. We send our consumers five items and miraculously because of the power of our data science, the human touch of styling, people keep around half of those things that they're shipped. And that's a pretty amazing thing that we're able to bring this amazing personalized rack of clothing to your door. You try that on in the comfort of your home, you get that advice and encouragement of our styling community and we get better and better over time. We have increased our keep rates from those fixes every quarter on record because of the understanding of consumer preferences, the power of data science. And now with this streaming era, what I meant by that metaphor is that we now have created this own personalized store on this shopping feed experience. And we launched it kind of in the middle of COVID for our existing active clients and we've been just aggressively adding new features to that, recognizing that this is an entirely different new way of shop of personalized discovery. And so we're really excited because we think the next phase of apparel e-commerce is going to be characterized by browse and discover and this personal touch rather than really what has been search-based shopping through endless catalogs for the prior era. And we're really at the forefront of that because of the 10-year advantage we have. We've sold $7 billion worth of clothes site unseen, which is kind of an amazing stat. And so we feel just incredibly fortunate and well positioned for this next phase. Let's talk about the new shop model because I'm sure that's a pretty big pivot from what StitchFix set out as the business model. And so when you pull together the idea of curation, personalization, data-led shopping, how did that all come together into the experience that users have now and how has the StitchFix experience changed? Yeah, I think one of the kind of obvious early insights before launching it and it was in beta mode, right, as I was joining the company at a very early incarnation. And we, in our fix experience, when we ship these fixes out to clients, we include what we call style cards, which have photography of lots of ways to where the items were shipping with things that we think you might also have or that you might want to buy in the future. And our clients have told us, like, can I just buy those other items, which is kind of an obvious use case. And in general, we know that with fixes, there's purchase occasions that we don't necessarily tap into, you know, the thing you want this weekend, the thing to fill in that outfit that maybe we showed in the style card that wasn't necessarily immediately available. And so how it originally launched was this idea we called shop your looks. And then we, after that, launched trending for you. And what that meant was we curated outfits in the context of anchoring them on something you'd already bought. So say you had a black pair of boots or you had some fun, you know, polka dot top. We would show, we would algorithmically generate 24 outfits that we'd refresh multiple times a day in your own personalized store. And that's a pretty compelling way to shop. It turned out to be far stickier and engaging that we probably even anticipated. And I think one of the reasons why is that we all buy clothes in the context of an outfit. We all want things to go with things we already own that we love. And so now what we've been doing for the last year is saying, gosh, this is really the future of a personalized store. Wouldn't everybody rather have, you know, Hillary, wouldn't you rather just have your own personal store where everything is relevant for you versus walking into a store where kind of like probably 95% of it is irrelevant for you because of it being sizes that don't fit you or styles that you don't love or, you know, things that you don't need because you already just bought that. And so the intelligence of being able to bring that to life is a very, very powerful idea. And just the nature of how we've built our model to date is so well suited for it because we've built our understanding deeply of fit or understanding of our own style graph that we've contributed to on an ongoing basis with this widget in our app that you may have played called Style Shuffle where people thumbs up and thumbs down apparel items. We have 7 billion ratings from that and we continue to add more. And so this personalized store really has become the big idea, really paired with our styling services. And so it's not that we're walking away from fixes, but, you know, I think the foray into personalized shopping was through the fixed model. Now it's like, well, how do we just make that available to everybody for every use case and really layer on together with that what we're doing with our styling services? Definitely. And that's what I wanted to ask. How do you make changes to the company model, listen to what consumers want, how they want to shop with Stitch Fix without straying from that core value proposition, which, you know, I think really started to define next generation retail. It was, you know, I think Stitch Fix really set out to say, how do people who don't have time to shop for themselves want to shop? And how do we kind of bring something different to the table here? So how do you get into, you know, more direct e-commerce while keeping what makes Stitch Fix so differentiated? The nature of human touch within e-commerce is a big idea and one that we really pioneered and will continue to innovate around. So in addition to working on the shopping experience, we've actually been what we've called renovating our fixed experience. And so in the last year, a couple of things that we've launched. One is fixed preview, you know, one of the really interesting, you know, to your point on responding to the customer and really innovating on behalf of the client. One of the data points that I had looked at right upon joining was we have a lot of people who come to Stitch Fix. They give us all this information that helps us provide the depth of understanding to get going to curate, you know, what we think they will love and our mission of transforming the way people find what they love. But there's a good chunk of consumers that got all the way to that finish line and then they don't sign up. And so in trying to understand like, why is that? What is the reason that that happens? Because it's a lot of, you know, it's a personal investment to take those few minutes to go through that exercise. And one of the biggest insights was, well, I want to like really trust that I'm going to love what you send me is probably the biggest barrier for those that don't convert. And so during kind of that early period of, we launched kind of a number of strategic pillars back in May of 2020, one of which was this vision of renovating the fix experience. And so out of that came both fix preview and live styling. And with fix preview, what we now do is we, before we ship your fix, we curate 10 items. We give you a chance to give feedback. You might love all of them. You might really want to give us feedback on all 10. You might pick a couple. And then we surprise and delight with the rest of the fix with the couple that you might have selected. And so we incubated at first actually in our UK business, which is our newest market. We just crossed our two year anniversary in that market. And it's been so wildly successful there that it's now being rolled out in the US. We're up to 50% of the US. And what's exciting is we see higher average order values. We see happier clients in the UK that where it's been there longer, we see higher retention. And so it's really, you know, how do we bring that styling DNA to more people as well? And I mean, really like people are signing up, of course, we're super excited about this shopping offering, but Citrix has had really an incredible year since kind of we sort of moved out of the early part of the COVID crisis. Like in the last three quarters of fiscal 21, which we just announced our third quarter, we've added more clients this year than any full year on record outside of 2016. And given how quickly the company has grown, that's a pretty extraordinary thing in terms of people signing up for our fixed model, because that's the only way to still enter in the coming months, you'll be able to enter through shopping as well. But that's really a testament that that service is very, very powerful. And so fixed preview, I think is one incarnation, which really is just a signal that, you know, and three quarters of people who are exposed to that opt in to getting that preview, which is a sign like consumers want some agency. They want to engage a little more with our stylist. And so the other thing that we've been incubating is also live styling sessions where you can do a Zoom call, we expose kind of a upgraded version of our internal facing software program, our stylist use, and they're just these rich dialogues, our stylists love them, consumers love them, where they're getting a chance to really engage, select their fix, but also give like a lot of feedback, ask styling related questions. And so we absolutely think what we've created is kind of the combination of personalized shopping together with this tremendous guidance, advice, coaching, and, you know, every kind of touch point for a consumer might be a little different. Sometimes it might be that shopping and styling on demand moment in our app. Sometimes it might be a live styling call, but all those things really work together in harmony. Yeah, and when you think about that rebound that you're saying Stitch Fix has started to see after getting through that, you know, the difficult early stages of COVID, what do you think that says about overall, you know, the health of the retail industry? Where do you see the consumer trends, you know, leading the industry moving forward? And what are the behaviors that, that Stitch Fix is really watching that you think will change just the way people in general want to shop retail? I think we've looked at what's happening in terms of the store for traffic starting to bounce back. It just seems like everything's rising on all levels. How do you sort of put the retail industry and what's happening right now into words? Yeah, I think it's just an incredibly exciting time in terms of just an enormous seismic shift. You don't get these changes every year. Like this has been a catalytic event that has changed behavior dramatically. If you look at e-commerce for apparel, it was kind of sticky in stores. If you look at pre-COVID, only about 25% of the category was online. That has jumped to 40% as a result of COVID. And it was even higher, of course, during the peak of lockdowns, but it's really kind of settled out in this sort of 40% online. That's, that's an enormous jump from what was kind of one or two points a year slowly moving online. And I think that's really the result of consumers realizing that they, they do want that convenience back. There are ways they can shop and really we were made for this moment. And so I think we feel really fortunate that that's true and we're accelerating the innovation around it. So I think that's one thing that has shifted for consumers. I also think this notion of, you know, we think there's like three or four major themes that will characterize this future of retail and we're really the blueprint for it. So one is this theme of really browse and discovery relative to search and scroll. Like I think consumers are going to become increasingly impatient with traditional apparel e-commerce because of what they become used to in other categories. Like, isn't it amazing that I like look at a couple of things on TikTok and all of a sudden it's like, how did they know I would love that? Well shouldn't your apparel shopping be the same way, the same way you love, you know, going through your Netflix feed and the content you're seeing, it really reflects like what you might be in the mood for and maybe pushes your boundaries a little bit or gives you a sense of what's trending. I think that's the same way that consumers are ready to shop for apparel and really the way that both we built our fixed model and now we're building our shopping experience. I think another big shift is just this nature of just ongoing dynamic feedback from the consumer. And I think the desire to kind of give and get so that the experience does get better, it reflects someone's personal style. A third is just like it being more relationship based versus transactional. Like I think, you know, brands like Peloton, brands that are building like these relationships with communities and people you trust, there's a lot of transactional e-commerce where you might maybe appreciate the convenience, but it's not necessarily a trusted relationship. And one of the things that I think is so special about, you know, what we're doing is this idea of building a real trusted relationship with our stylist or the broader styling community. So those are some of the shifts I think we're seeing. And then there's of course, just like how consumers are shopping by category. I mean, I think the whole movement to like sweatpants and leggings and joggers this year, I mean, those were the highest growth categories for us were the act of athleisure, which is not surprising. And luckily, because of the way we capture signal and data, we were able to very quickly lean into that. I don't think that trend's going away. I mean, I do think people are now so pent up on like fun going out clothing. We see it in our data with these big rises and rompers and jumpsuits and people asking for vacation clothes. So for sure that's happening. But I think people as they're starting to buy blazers again with us, they're asking for like these soft stretchy blazers, you know, like, I think people's way of probably working more hybrid is going to be here to stay, therefore wanting more comfortable clothing. But then maybe splurging when they go out again, especially after all this pent up demand and just getting excited to go out again, but really actually looking for advice. Like we have a lot of our clients in our request notes saying, I haven't really gotten dressed in a year. Like what should I wear? So I think this desire for more advice is also on their eyes. And you mentioned search and scroll, you know, this idea that curation and customers really want to shop somewhere where they feel like they are understood and technology plays such a big role there. And I think one of the most interesting things we've seen is that we're now looking at companies like Facebook, Instagram, Google wanting to become competitors in the retail space as well. And they also have these big technology backgrounds. They have the data. What do you see as being the competitive landscape and where do legacy players fit in? Yeah, I think that's a good point. I mean, we've kind of thought about those content companies kind of leaning into more commerce and we think of ourselves as a commerce company deepening relationships and probably starting to bring more content into the equation. So we're kind of coming at it from a very different direction. I do think the power of those platforms is the understanding of personalized data, which is why they feel like they have a right to participate. And I think to some extent that is true in terms of being able to match, you know, you know, Hillary might have a friend in your social network that likes very similar things to you. They bought something. Now you're sort of seeing that too. That's valuable. And I think that will give a sense of like style perhaps that you like. But what's really missing. And I think what's so different within a vertical category like apparel is how deeply fit matters, how fabrics matter, what you actually keep versus what you return, life stage. And all of those things are really what our model has been purpose built for where our return rates within our shop offering are actually materially less. We've actually shared there about half of traditional apparel in e-commerce. And part of that is because of our understanding of fit, our style graph, we're not sending you five pairs of jeans. We send you one and eight or nine times out of 10, they fit like that's just a very different idea. And I don't think it's going to become the strength of those more media based content platforms. But I do think to your point of like, what about the rest of retail? I think it's a challenge for a traditional player because they've relied so heavily on stores. They have this big footprint. And of course, I think there's the promise of omnichannel, but the data gathering has not been focused on all of these dimensions of fit and feedback and size. And for the competitive landscape to really be at the forefront in terms of consumer expectations in the digital world, I think people are going to expect you get my fit. People are going to expect it's really relevant for my personal style and what I just told you. And I think that's where our model has really got some major competitive advantages. And a lot of people have data, but it's like, do you have the right data? We gather feedback on 85% of the items we ship. The widget of style shuffle, any new item in our catalog, we ingest and we quickly understand who should we really send that to? Who's going to love that? And that's just a part of our DNA that's been there from day one. And Katrina has a joke she makes, she's like, I'd love to be five nine, but that's not my DNA. And you can't really change your DNA. Like the DNA of Stitch Fix from the beginning has been about the data within this vertical category and really the right data. And I think that's just, it's easy to underestimate that and think, okay, all these other platforms have a lot of data, but did they really have the right data? So obviously you're taking over a CEO this summer. What has that transition been looking like? And what are your main priorities as you are taking over the position? Yeah, well, I feel super grateful and deeply humbled to have the opportunity. I think it's just such an incredible company. And one that's kind of just at the beginning, I feel like the next 10 years and, you know, Kat would say this, our board members like a Bill Gurley would say this are even more exciting than the last 10. So it's just, it's a very, very exciting time for Stitch Fix, given all the things that we've been talking about, Hillary. So that's a big moment and something that's creates probably some anxiety in addition to this tremendous exhilaration and excitement of like, okay, let's go do this. And so, yeah, some of the things that we've been focused on, I mean, Katrina and I have been really thoughtful about this transition from the very beginning. We've had an executive coach from the first week we started working together. We invested so deeply in our partnership before I even joined of just making sure we felt like our chemistry was right, our shared intent and our values were equal. I mean, things like diversity, equity and inclusion and sustainability, like those are really meaningful topics to both of us and just making sure we shared really like-minded values. And those have obviously been put to the test in pretty dramatic fashion in the last year and probably the most positive way in the sense of our relationship becoming even more deeper and trusted. And so the last several months, I mean, we've kind of been, I mean, externally, it sounds like new news internally. I don't think there was a huge surprise probably just in the sense of how we've been running the company. My focus for the first 12 months was very, very deeply on future strategy, leading all of our tech teams into kind of this accelerated push of innovation, really helping support the continued acceleration in the UK as we start to think about globalizing our platform. And now in the specific phase of the transition, we've been really focused and we've added a couple new members of the management team, a great new CFO and Chief Product Officer who really round out our ability to capture this next chapter together. But how do we get that new team really gelled at our management lever, but also the entire company? Like we're spending a lot of time right now investing in our culture, which Stitch Fix has an amazing culture. There's a lot of focus on authenticity, inclusivity, kindness. It's a like pretty deeply vulnerable culture, which honestly has been like an area of growth for me. I came from a background where it was pretty buttoned up. I think there was a lot of kind of love and excellence was like kind of the way I thought about Bain and Company where I came from, which has an amazing culture as well. But you're in the client service. And so I think this nature of leading an operating team, there's a lot of desire for like leaders to say what's hard, say what's not working, say what they're working on. And that's been an area of growth for me personally. And so with our culture, how do we maintain the secret sauce of what has been Stitch Fix but really add to it what we think are the behaviors and the behaviors we want our teams to live for this next phase to accelerate innovation, take our client's intensity and be even more maniacal about our customer focus, take bold risks as deeply in the organization as we possibly can. And so I'd say a really big focus right now is how do we support this new phase of growth, this new phase of the leadership team that has come together? And then how do we put in place some of the infrastructure we need? There's a lot, you know, when you've scaled as quickly as a company, as Stitch Fix has, there's a fair amount of infrastructure investments that, you know, some you choose and you can opt into, some you delay. And there are a number that we have delayed in the spirit of going after new opportunities that there's a lot of infrastructure investments we're also making in parallel with growth. And so it's an exciting time. And I think it's one where everyone's like, what's this new team going to really feel like? And so I think there's a lot of investment right now in us deepening our relationships as a management team with our BPs and with the broader company of like really being on this big journey together. Great. And we're almost out of time, but in terms of where Stitch Fix goes next with expansion, you know, there's been reports that resale might be on the table. What are you thinking about in terms of where the company can go, particularly in bringing in new customers? I know Gen Z is the trend leader at the moment. How is Stitch Fix thinking about a younger customer and new areas for expansion? Yeah, I think we're incredibly focused right now on launching and expanding this personalized way to shop. We think that opens up our total addressable market, whether you think about it as demographics, categories, purchase occasions, like it just is going to open up that market in such a big way for us and just the unique way that we're approaching it. And you know, better powering and bringing into that things like our influencer community, our stylist and making it really a daily habit that you're excited to see the new news inside of your store, whether that's influenced by other people you trust, beyond Stitch Fix or the stylist within our community or other people who are Stitch Fix shoppers, like those are all things that we're very focused on bringing to life, you know, paired with expanding our styling services. And so for sure, to your point on secondhand, that's something we're deeply curious about. We think overtime is a place we uniquely could play well, just given our understanding of garments and where they've been and, you know, consumers might be ready to part with them and get something new, but for the short term, the next couple of years, we're incredibly focused on this expansion of your own personal store, like what a better way to shop. And we think that's a really big idea that we're excited to bring to life. Great. All exciting stuff. Thanks so much, Elizabeth, for joining us. Thanks for having me, Hillary. It's been fun to be here. That marks the end of this season of the future of fashion by Vogue Business. You can find all our shows from this series on iTunes, Spotify, Google Podcasts, or via the Vogue Business website. For more coverage on the future of fashion, subscribe to the Vogue Business newsletter at VogueBusiness.com. My name is Hillary Milneese. That was the future of fashion. Thanks for listening. This podcast is sponsored by PayPal, the most trusted by now pay later brand, according to a recent survey, which gives merchants access to PayPal's 377 million users worldwide. Learn more at paypal.com/paylaterenterprise.