A range 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 his master’s degree a decade ago, David Hill wanted to spice up his personal style and signed up with Trunk Club, who promised to send him boxes of tailored clothing as often as he wanted.
Hill would visit the company’s Chicago showroom to meet with a stylist and select outfits to wear to the office or for special occasions. The stylist helped him design a tailored suit and sent handwritten notes to check how he liked his clothes, making Hill a loyal customer.
Then the Covid-19 pandemic struck.
“In the beginning they tried to tell me to buy sweatpants and sweatpants,” he said.
But Hill, 41, no longer needed new clothes as he worked from home and rarely went out, and he canceled his subscription.
Not long ago, major retailers were scrambling to jump on the subscription craze that was sweeping the apparel industry. But then the pandemic turned daily routines upside down and made shopping behavior far less predictable. Now some analysts and investors are questioning the appeal of these types of companies and their ability to retain customers who often sign up during major life transitions but eventually lose interest.
After acquiring Trunk Club in 2014, Nordstrom announced in May that it was winding up the deal and focusing on its in-house personal styling services. Rockets of Awesome, which curates boxes of children’s clothing, ran out of funding earlier this year while looking for a buyer. Stitch Fix, one of the most well-known services in the industry, rose to prominence 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 extracting profits from the playbook is harder than they thought.
fading interest
Stitch Fix’s efforts 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 styling fee when a customer begins the styling process with items of clothing called “fixes” they might like. The money can later be used on items that customers want to keep from a box that can be delivered every few weeks, every month, every two months, or every three months.
Edward Yruma, managing director and senior research analyst for the retail industry at Piper Sandler, said people often sign up for subscription services when they’re looking forward to a big change, such as a new store. B. starting a new job, losing a lot of weight, or getting pregnant. But he said excitement often wanes, making it difficult for businesses to retain customers.
According to analytics firm M Science, new customers account for a majority of Stitch Fix’s revenue, but their spend generally decreases over time. Roughly 40% of Stitch Fix’s revenue came from new customers since the first quarter of fiscal 2020, the company noted.
“There definitely seems to be boxing fatigue,” Yruma said.
Over time, he noticed that companies are also realizing the downsides of the subscription business model: “People are giving back too much stuff with these boxes, and you just can’t get enough profit out of it.”
David Bellinger, executive director at MKM Partners, said he believes Stitch Fix’s active customer base may have peaked in the August-October quarter, when the company reported a record 4.18 million active customers.
“This calls into question longer-term membership potential,” Bellinger said, noting that inflation and other macroeconomic challenges could lead to more layoffs.
In the company’s most recent quarter, which ended April 30, Stitch Fix announced that it had lost 200,000 active customers, bringing its total to 3.9 million. Net loss increased to $78 million from a loss of $18.8 million a year earlier. The company announced that it would lay off 15% of its employees, or about 330 employees.
To attract new customers, Stitch Fix last fall expanded the launch of its “Freestyle” option, which allows shoppers to purchase individual items from their site without signing up for a plan or paying a styling 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 moment will be easy,” wrote Elizabeth Spaulding, CEO of Stitch Fix, who took over the reins from founder Katrina Lake in August 2021, in a memo to the employees in June.
A spokeswoman said Stitch Fix avoids calling itself a subscription company because it allows customers to choose the cadence in which they receive boxes of clothes.
In November 2017, when it went public, Stitch Fix had a market valuation of more than $1.6 billion. The market cap is now less than $800 million.
The company is trying to turn a profit as consumers say they are trying to cut their spending on subscription plans overall, according to a survey by consulting firm Kearney.
The company found earlier this year that 40% of consumers think they have too many subscriptions. People said they spend the most on streaming plans, followed by music and video subscriptions, games, meal memberships, and drink boxes. Shopping subscriptions, which include fashion, came after these categories.
A consumer in transition
Sonia Lapinsky, managing director of retail practice at AlixPartners, said the subscription business model is going through a major reset in the wake of the pandemic. Businesses also need to get better at keeping up with evolving shopping behaviors, she said.
“Not only are they different than they were before the pandemic, they’re constantly changing,” she said of consumers.
Tara Novelich, a teacher living in Orange County, California, is one of the once loyal Stitch Fix customers who have since discontinued the service. Novelich signed up for the service in 2012 when she was pressed for time, and says she bought at least one item from her monthly box of “fixes” for about 18 months.
But then she said the quality of the clothes and service “went downhill” and that deliveries were too frequent.
“I wasn’t that excited anymore,” said Novelich, now 46.
More recently, she enjoys her subscription to FabFitFun, which sends customers a selection of beauty items, jewelry, and seasonal accessories. Novelich is supplied four times a year.
In other cases, subscriptions might feel like too much of a waste.
A 35-year-old advertising executive who requested that her name not be used to protect her job became a part-time stylist and client for Stitch Fix in 2016. But during the pandemic, she quit working at Stitch Fix to focus on her full-time job and started shopping at Trunk Club, which she felt offered better quality. At some point it became too expensive.
“I could never afford most of it because it would cost $600 to $1,000 every month,” she said.
Now she works mostly from home and buys most of her clothes from Amazon, which offers a “try now, buy later” option. She also recently shopped in Stitch Fix’s Freestyle section.
Hill, the head of marketing, who now lives in New Jersey, hasn’t returned to shopping via a subscription, instead choosing his own clothes at a nearby Nordstrom. He recalled the days 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 wasn’t that sustainable,” Hill said.