Katrina Lake, founder and CEO of Stitch Fix (SFIX) , rang the opening bell at the Nasdaq, for the online personalized styling service.
The company, whic offered 8 million shares at the underpriced $15 a share, aims to rethink clothing shopping with a combination of data science and human judgment.
Before you consider if its target price is valued accurately, here's a guide as to what Stitch Fix offers as a company and how it's seen such steady growth.
It's only kind of a subscription box...
Founded in 2011, Stitch Fix delivers an order of five clothing items and accessories every month, every other month, or quarterly for $20 per box, promoting itself as an alternative for those who shun shopping. Customers can try on each item, choose what they want to keep and send back the rest. What they keep is essentially what they choose to buy.
Here's the kicker: The $20 monthly fee, which accounts for free shipping and free returns, will also go toward the purchase. This means that if a customer decides to keep a blouse that's priced at $50, she will only pay $30 on top of the $20 fee.
Stitch Fix calls itself a personal stylist, putting together each box based on a 10-minute survey the customer completes. The survey takes down users' shopping habits, sizes, style preferences and pricing preferences. Then, Stitch Fix claims to use "a proprietary styling platform" along with its own algorithm to determine what goes inside each shipment.
The products are a mix of private labels and outside brands.
Prices vary, starting at $28 per item. The average price is about $55, but the company announced in August that it will carry pricier brands such as Rag & Bone; Kate Spade, which is owned by Tapestry, Inc. (TPR) , or formerly known as Coach; Theory; Helmut Lang, owned by the Prada Family; and Rebecca Minkoff.
Stitch Fix works with vendors similar to how a department store does, and it's also planning to ramp up its own private label offerings. In this pursuit, it will possibly go head-to-head with Target Corp. (TGT) and Amazon.com Inc. (AMZN) , which are investing in their own apparel lines. In 2017, it began offering services to men, too.
Apparel subscriptions have a brief and already-rocky track record.
Stitch Fix is hardly the first subscription box in retail. Competitor Trunk Club, for instance, was acquired by Nordstrom Inc. (JWN) in 2014 for $350 million. Two years later, the department store announced it was taking a $197 million writedown on Trunk Club as growth stunted.
Subscription retail emerged as a mainstream trend just five years ago. Beauty company Birchbox, for instance, was among the first subscription companies to become a household name. The startup, which started in 2010 and once raised $60 million in a single round, fell from grace in 2016 after funding dried up and customers jumped ship, complaining of irrelevant or repeat products.
Investors are skittish about the IPO.
When Stitch Fix first announced its intention to go public, its target was set at $18 to $20 apiece. The company will likely reduce the offering price, the Wall Street Journal reported Thursday, due to concerns about its long-term prospects.
Still, the company has reported robust growth in revenue, posting positive net income for six straight quarters. Total revenue amounted to $977 million in its most recent fiscal year, a 34% increase from the previous one.
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