Traditional brick-and-mortar retailers are experiencing serious problems. For instance, hundreds of customers enter retail stores every day, but the retailers do not learn much about them. Unless sales associates interact with them, those businesses will not know a customer's pants size, her purchase history, or what she is looking to buy. Furthermore, many busy women do not have time to go into stores and look through hundreds of items of clothing to find something they like.

Enter Stitch Fix, a personal styling service. Stitch Fix (www.stitchfix.com) is an online retailer that markets itself to busy working women. Since 2012, the start-up has developed a service that shops for women, matching clients with boutique-brand clothes, shoes, and accessories based on recommendations from its analytics algorithms and human stylists. Stitch Fix's core customer is a woman between 25 and 45 who is comfortable paying $55 and up for her clothes and accessories.

Rather than visit a store, Stitch Fix customers pay a $20 "styling fee" to receive a box of five personally selected items either on demand or by subscription at regular intervals. They try on the clothes at home, keep what they want, and return what they do not want. Clients pay the full retail price of any clothes they keep, minus the $20 fee, which is applied as a credit. For the company to make a profit, customers must keep at least two of the five items in each shipment. To encourage purchases, Stitch Fix offers its customers a 25 percent discount if they keep all of the items in the box.

MKT_icon Stitch Fix's business model is all about experience and relevance. The lines of clothing are not exclusive to Stitch Fix, and Stitch Fix does not price them lower than its competitors. Furthermore, the company does not try to ship faster than its competitors. Its strategy is simply to be more relevant and to understand its customers better than the competition. Its increased relevance enables Stitch Fix to address the problem of overabundance of products offered in stores and especially over the Internet. Specifically, CEO Katrina Lake noted that while the vastness of apparel available to consumers might seem appealing at first, they feel overwhelmed by so much choice.

The key concept of Stitch Fix is personalization, and the firm's machine learning algorithms (see Technology Guide 4) are central to the company's business model and drive every business process, including selecting clothing, assigning human stylists, optimizing production and logistics, and designing new styles. MKT_icon Selecting clothing.

Essentially, selecting clothing is predicting the likelihood that a particular client will like a certain piece of clothing. These predictions require data, and Stitch Fix gathers data from customers and from the merchandise.

In contrast to traditional retailers, Stitch Fix knows that anyone who is willing to pay the $20 styling fee is probably willing to provide personal data to ensure an optimal experience. To promote this experience, the retailer collects more than 50 pieces of data from each customer, such as her weight, bra size, and links to her Pinterest and LinkedIn profiles, as well as her Twitter account. Customers answer questions such as: "How do you prefer clothes to fit the bottom half of your body?" "What do you like to flaunt?" and "What would you rather keep covered?" The firm's algorithms use a customer's data to predict how likely she is to keep a given item based on parameters that include the woman's style, her occupation, her age, her zip code (which Stitch Fix uses to predict the weather in her location), and many other data points.

Stitch Fix also uses images from social media and other sources to track emerging fashion trends and evolving customer preferences. With client permission, the company's data scientists augment client questionnaire data by scanning images on customers' Pinterest boards and other social media websites, analyzing them, and using the resulting insights to develop a deeper understanding of each customer's sense of style. This process is called dark analytics (see this chapter's closing case).

The second set of data is about the firm's merchandise. For any given item from the more than 200 brands that it carries, Stitch Fix gathers 100 to 150 data points, ranging from sleeve length to color. Using both sets of data, algorithms match a client to the firm's best-suited merchandise.

Over time, the algorithms learn from the customers, based on feedback they provide. To gather feedback, the retailer captures customer comments in text boxes. Natural language processing algorithms analyze these comments to further refine the matching algorithms. Matching the right stylist with the right customer.

At Stitch Fix, human stylists finalize the clothing selections and even write personal notes describing how the client might accessorize the items for a particular occasion and how to pair them with other clothing in his or her closet. To match stylists with customers, Stitch Fix calculates a match score between each available stylist and each client who has requested a shipment. This score takes into account the history between the client and the stylist (if any), and the similarities between the client's style preferences and those of the stylist.

One of Stitch Fix's 3,600 stylists then reviews the data and chooses five items to include in a customer's "fix" (box of items). In addition, the company values returns as valuable data points. Stitch Fix's stylists actually study the negative feedback in a customer's comments to better discern her style or an item's description. POM_icon Optimize production and logistics.

One challenge that the company faces is managing inventory while selling so many different pieces of clothing and pairs of shoes. A traditional retailer has to largely guess how many pairs of jeans it will sell at the start of a season and then place an order. In contrast, Stitch Fix can be more reactive, thereby limiting its inventory risk. That is, Stitch Fix can order based on a customer order (the pull model), rather than order on the basis of a forecast (the push model). The algorithms are a tremendous help in the ordering process. For instance, Stitch Fix can make predictions based on how many customers are buying pants and then instruct the manufacturers to produce particular styles, colors, or patterns when it places an order.

Algorithms calculate a cost function for each Stitch Fix warehouse based on data about its location relative to a client and how well the inventories in the various warehouses match the client's needs. Therefore, algorithms reduce transportation costs. Designing new styles.

The fashion industry has been built around creative designers. At Stitch Fix, algorithms identify attributes of clothing that have a high probability of client acceptance. The retailer then works with human designers to refine these attributes and ultimately offer new styles that are tailored for particular client segments that tend to be underserved by other brands.

In August 2017, Stitch Fix began offering more than 100 new contemporary brands, including Theory, Steven Alan, Todd Snyder, Kate Spade, and Rebecca Minkoff, with pieces ranging in price from $100 to $600. The company's new premium brands are a response to requests from its customers for more well-known brand names and for higher-quality fabrics, such as leather and cashmere. Providing these new brands enables the company to attract new customers who may have found the company's previous offerings too basic.

Based on data provided by its customers, Stitch Fix is able to offer exclusive styles. For example, Paige Denim has designed a petite line for Stitch Fix because the retailer already knows which customers might be interested in the line based on data regarding size and price preferences that the company has collected. These targeted collections are one of the many benefits that Stitch Fix can offer brands, along with awareness, discovery, and matching for customers who may not be familiar with a certain label but have expressed interest in similar products.

In 2016, the retailer launched Stitch Fix for Men, a similar service for men's fashion. Stitch Fix for Men competes directly with Trunk Club, owned by Nordstrom. (Interestingly, Trunk Club entered the women's category in 2016.) In June 2018, Stitch Fix announced its service for children, called Stitch Fix Kids. In addition, the firm announced its own exclusive brand of children's clothing, Rumi + Ryder.

Stitch Fix does face stiff competition. Le Tote (www.letote.com), M.M. LaFleur (www.mmlafleur.com) for professional women, Dia & Co. (www.dia.com) for plus sizes, and Rocksbox (www.rocksbox.com), which sells only jewelry, are all operating in this space. In addition, Rent the Runway (www.renttherunway.com) has been rolling out its "Unlimited" subscription.

Amazon has a growing interest in fashion. In June 2017, Amazon introduced a new program called Prime Wardrobe that allows people to order clothingfrom 3 to 15 items at a timewithout actually buying it. Customers have one week to try on the items and return those that they do not want. Customers can return the items they do not want in a resealable box with a preprinted shipping label in which the order was shipped. Amazon charges them only for the items they keep but does not offer any incentive for keeping a set number of items. This service is an option only for members of Amazon Prime, the company's membership service that, for $119 per year, offers customers fast shipping at no additional charge.

In June 2018, the e-tailer launched a European menswear fashion line, called Meraki. That same year, Amazon made its Echo Look device available to U.S. consumers. The device is a small, voice-activated camera that can take full-length photos and short videos to enable shoppers to see how they look from multiple angles while, at the same time, helping Amazon gather valuable intelligence about the clothes that consumers are wearing.

Stitch Fix is one of the few major success stories in the subscription shopping marketplace. The firm has more than 5,000 employees, and it operates five clothing warehouses across the United States. Stitch Fix claims that nearly 40 percent of its customers spend more than half of their annual apparel budget on its collections. In addition, about 80 percent of customers who order one box then order a second box within 90 days.

Stitch Fix continues to explore new opportunities. For example, the company's Style Pass is an invitation-only feature that is offered to some of its customers. Style Pass costs $49, lasts for an entire year, and waives all of a member's styling fees for that year. Furthermore, the cost of the Style Pass is automatically deducted from the member's next Stitch Fix purchase.

How successful is Stitch Fix? On November 17, 2017, Stitch Fix went public with 8 million shares priced at $15 each. As of July, 2019 Stitch Fix's stock price had nearly doubled since its IPO.

For its 2018 fiscal year, Stitch Fix reported revenue of $1.2 billion and net income of $45 million. For the third quarter, 2019, the company reported 3.1 million active clients (an increase of 17 percent year-over-year) and net revenue of $409 million (an increase of 29 percent year-over-year).

Describe the descriptive, predictive and prescriptive analytics applications of Stitch Fix's business model.