A selection of menswear packaged by Trunk Club, which closed earlier this year after Nordstrom bought the personal styling service in 2014.
Source: Trunk Club
After earning a master’s degree a decade ago, David Hill wanted to broaden his personal style and signed up for the Trunk Club, which promised to send him boxes of clothing tailored to his tastes as often as he wanted.
Hill would visit the company’s Chicago showroom to meet with a stylist and pick out outfits she could wear to the office or for special occasions. The stylist helped him design a custom suit and sent him handwritten notes to check if he liked his clothes, making Hill a loyal customer.
Then came the Covid-19 pandemic.
“At first, they were trying to tell me to buy sweatpants and joggers,” he said.
But Hill, 41, no longer needed new clothes because she worked from home and rarely went out, and she canceled her subscription.
Not too long ago, major retailers were struggling to get in on the subscription craze sweeping the apparel industry. But then the pandemic upended daily routines and made buying behaviors much less predictable. Now some analysts and investors are questioning the appeal of this type of business and its ability to keep customers, who often sign up during a big life change but eventually lose interest.
After acquiring Trunk Club in 2014, Nordstrom announced in May that it was winding down the business and focusing on its in-house personal styling services. Rockets of Awesome, which curates boxes of children’s clothing, began running out of funds earlier this year as it searched for a buyer. Stitch Fix, one of the best-known services in the space, was gaining traction in the years leading up to the pandemic, but is now losing money and subscribers.
The subscription business model was attractive to apparel companies because it offered a predictable revenue stream based on regular membership fees. But companies are realizing that squeezing profits out of the playbook is harder than they thought.
fading interest
Stitch Fix’s struggles to turn a profit during the Covid-19 pandemic underscores how difficult it can be to run a subscription-based business, especially when consumer tastes are a moving target.
The company charges a $20 design fee when a client begins the design process with boxes of clothing called “Repairs” that they might like. The money can then be applied to items that customers choose to keep in a box, which can be delivered every two weeks, every month, every two months, or every three months.
Edward Yruma, managing director and senior research analyst covering the retail industry for Piper Sandler, said people often sign up for subscription services when they’re excited about a big change, like starting a new job, losing a lot of weight or become pregnant. But he said the excitement often wears off, making it hard for businesses to retain customers.
According to analytics firm M Science, new customers make up a predominant part of sales at Stitch Fix, but their spending typically declines over time. Roughly 40% of Stitch Fix’s revenue has been generated by new customers since its fiscal first quarter of 2020, the company found.
“There definitely seems to be boxing fatigue,” Yruma said.
Over time, he noted, companies are also realizing the drawbacks of the subscription business model: “People return too much stuff with these boxes, and they just can’t make enough of a profit.”
David Bellinger, CEO of MKM Partners, said he believes Stitch Fix’s active customer count may have peaked in the August-October quarter, when the company reported a record 4.18 million active customers.
“This calls into question the long-term membership potential,” Bellinger said, noting that inflation and other macroeconomic challenges could drive more cancellations.
In the company’s most recent quarter, ended April 30, Stitch Fix said it lost 200,000 active customers, bringing its total count to 3.9 million. His net loss ballooned to $78 million, from a loss of $18.8 million a year ago. The company announced that it would lay off 15% of its salaried workers, or about 330 people.
To attract new customers, Stitch Fix expanded the launch of its “Freestyle” option last fall that allows shoppers to purchase individual items from its website without signing up for a plan or paying a design fee. But the company is still trying to make sure people know the option exists.
“We are in the midst of a transformation and we know that not every day or every moment will be easy,” Stitch Fix CEO Elizabeth Spaulding, who took the reins from founder Katrina Lake in August 2021, wrote in a memo. to employees in June.
A spokeswoman said Stitch Fix avoids describing itself as a subscription company because it allows customers to select the rate at which they receive boxes of clothing.
In November 2017, when it went public, Stitch Fix had a market valuation of more than $1.6 billion. Its market capitalization is now less than $800 million.
The company’s push for profit comes as consumers say they are trying to cut spending on subscription plans in general, according to a survey by Kearney, a consulting firm.
The firm found earlier this year that 40% of consumers think they have too many subscriptions. People reported spending the most on streaming plans, followed by music and video subscriptions, games, food memberships and beverage cases. Shopping subscriptions, which include fashion, came after those categories.
A changing consumer
Sonia Lapinsky, a managing director in AlixPartners’ retail practice, said the subscription business model needs to go through a major reset after the pandemic. Companies must also get better at keeping up with evolving buying behaviors, she said.
“Not only are they different than they were before the pandemic, but they change all the time,” he said of consumers.
Tara Novelich, a teacher living in Orange County, California, is among Stitch Fix’s once-loyal customers who have since left the service. Novelich signed up for the service in 2012 when she felt pressed for time and said she bought at least one item from her monthly “Fixes” box for about 18 months.
But then he said the quality of clothing and service began to “go downhill” and that shipments were too frequent.
“I wasn’t that excited anymore,” said Novelich, now 46.
Most recently, she’s been enjoying her subscription to FabFitFun, which sends customers a selection of seasonal beauty items, jewelry and accessories. Novelich receives shipments four times a year.
In other cases, subscriptions may seem too wasteful.
A 35-year-old advertising executive who asked that her name not be used to protect her job, she became a part-time stylist and client of Stitch Fix in 2016. But during the pandemic, she stopped working at Stitch Fix to focus on her full-time job and started shopping at Trunk Club, which she said offered better quality. Eventually, that got too expensive.
“I could never afford most of it because it would be $600 to $1,000 every month,” he said.
Now, she mostly works from home and buys most of her clothes on Amazon, which offers a “try now, buy later” option. She recently also shopped in the “Freestyle” section of Stitch Fix.
Hill, the marketing executive who now lives in New Jersey, hasn’t gone back to shopping through a subscription plan and instead picks out his own clothes at a nearby Nordstrom. He recalled the days when he would visit one of Trunk Club’s physical locations and a time when he and his wife were greeted with champagne.
“Obviously that model was not that sustainable,” Hill said.
Source: www.cnbc.com