Online personal styling service Stitch Fix stepped up its advertising spending by 84 percent in the first quarter of its 2018 fiscal year, with TV campaigns playing a big role in trying to attract new customers.
Stitch Fix’s TV advertising push attracted new customers. One problem: They want cheaper stuff.
So Stitch Fix is giving it to them.
Jason Del Rey has been a business journalist for 15 years and has covered Amazon, Walmart, and the e-commerce industry for the last decade. He was a senior correspondent at Vox.
But the new customers attracted by the mass-market commercials had one common piece of feedback: Stitch Fix needs to offer a bigger selection of less-expensive clothing. CEO Katrina Lake told Recode in an interview following today’s release of Q1 results — its first earnings report as a public company — that these consumers want more options in the $20 to $50 price range.
So Stitch Fix plans to give these new customers more of what they want.
“In the last year, lower price point product has grown to represent a double-digit percentage of our total unit sales,” the company said in a letter to shareholders announcing the financial results. “Given the success of this offering, we plan to increase lower price point sales as a percentage of overall sales over the course of this fiscal year.”
In its first few years of existence, Stitch Fix’s selection of clothing items skewed mid-tier — higher than the range mentioned above, but lower than those of premium brands. But in the past year, the company has started to sell name-brands at premium price points, in addition to beefing up the selection in the $20 to $50 range.
On the company’s earnings call with analysts, Lake was asked what the lower-price push would mean for profit margins. She did not offer specifics on the profitability makeup of the different price points, but said Stitch Fix “can serve very profitably” these value shoppers.
Average order values, on the other hand, would be lower for these customers, but would be largely offset by new sales of high-price premium brands, she said.
For the quarter, Stitch Fix reported revenue earnings and profits that were generally in line with analyst estimates. First-quarter revenue grew 25 percent to $296 million year over year, while the company netted $13.5 million in net income.
But Stitch Fix’s stock was trading down as much as 12 percent in the after-hours market, perhaps over concerns that the company did not provide a forecast for net income.
This article originally appeared on Recode.net.
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