Stitch Fix Falters as Online Economy Buckles

Stitch Fix helps people personalize their clothing, in part with the use of software that helps fit their customers. This makes it among the more sophisticated online retailers. Its earnings collapsed and it will lay off 15% of its salaried workers. They have become another victim of an e-commerce company that grew too fast.

When the company announced earnings, its stock fell 16% after hours, following 10% during the normal trading day. That pressed the price to $6.50, which is below the 52-week low, as well as astonishingly less than the 52-week high of $68.15. Anyone who bought the stock earlier this year and held it has been slaughtered.

The Stitch Fix results beg the question of whether the problem was poor management or a drop in demand. In the most recent quarter, revenue dropped 8% to $492 million. The company lost $78 million, compared to a loss of $18 million in the year-ago period. Management did not offer much of an excuse. CEO Elizabeth Spaulding commented, “While third quarter top-line results, as well as active client counts, were largely within our expectations, we know we still have work to do.” Management aimed low and hit the mark.

There is no apparent reason Spaulding was made CEO. She was head of the Digital Practice at Bain & Company. A management consultant was hired to fix a broken retailer. The decision hardly makes sense when the company could have hired a veteran retail executive.

As it turns out, Stitch Fix founder Katrina Lake would have been a better option to manage the company. At least she had the experience to have a chance.

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