Bay Area fashion startup Stitch Fix files for IPO in style

If Stitch Fix has its way, the San Francisco-based fashion startup just might bring IPOs back in style.

The startup filed publicly for its much-anticipated initial public offering Thursday, revealing something few aspiring public tech companies have these days — profits.

Stitch Fix is trying to revolutionize shopping by shipping curated boxes of clothing to customers’ doors — eliminating the hassle of going to a store or even picking clothes out online yourself. The company made money in 2015 and 2016, before slipping back down to a $600,000 loss this past year, according to the filing it submitted to the Securities and Exchange Commission. But those two years of profits are likely to capture investors’ attention, in a world where many tech companies are burning through cash with no end in sight — like Uber, which is losing billions of dollars a year.

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Stitch Fix raked in nearly $1 billion in sales in 2017, after raising just $42.5 million from investors — relatively little compared to other tech companies. The company has had positive cash flow since 2014, according to its SEC filing.

But the startup’s growth is slowing. Stitch Fix reported its revenue increased by less than 34 percent between 2016 and 2017, compared to 113 percent from 2015 to 2016. And new customers aren’t signing up as quickly, either. The startup reported its client base grew by 31 percent this year, down from 93 percent the year before.

More than 2 million people use the service, according to the Stitch Fix SEC filing.

The secret sauce behind the company’s success is the algorithms it uses to match customers with outfits personalized to their body type and style tastes.

New customers start by filling out a questionnaire, giving the company details about their size, style and the body parts they like to flaunt. The Stitch Fix algorithms use that data to come up with a list of clothing options, which a human stylist then reviews, choosing five items to send. The customer can buy those items or return them free of charge (there’s a $20 styling fee if the customer buys nothing). Stitch Fix learns more about a customer’s tastes with every return, helping the company do better with the next box.

Customers can sign up for regular deliveries, or order one box at a time. And they can pick their prefered price range, including “the cheaper, the better.”

But Stitch Fix isn’t the only company looking to transform the way we buy clothes. It faces plenty of competition, including from Amazon, which recently launched a subscription clothing service called Prime Wardrobe. Customers can use the service to pick out clothes online, try them on at home before they buy, and return what they don’t like for free. Trunk Club, owned by Nordstrom, offers a similar service. The company originally focused on men’s clothing, but has since expanded into women’s fashion.

Stitch Fix plans to trade on the Nasdaq under the ticker symbol SFIX. The company said in its SEC filing it plans to raise $100 million, but that number is likely to change.

Photo: Clothing from a Stitch Fix order is arranged for a photo. (Courtesty of Stitch Fix)

 

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