You've probably reviewed the Annual Report from Stitch Fix (click here).
Let me show you something: Here is pre-tax profit percentage for the past five years.
- 2015 = 9.7%.
- 2016 = 8.3%.
- 2017 = 1.3% (company went public earlier in the year).
- 2018 = 4.4%.
- 2019 = 2.0%.
I don't have any inside information into how the company works, therefore what comes is speculation ... I see a Management Team that knew the relationship between marketing and profitability, leveraged it to perfection in the two years prior to becoming a publicly traded company ... the VC folks got paid handsomely, and since then? Either there is a ton of marketing and other investment (which is not translating to sales increases), or there is a merchandise productivity issue ... or both.
I've written favorably about Stitch Fix in the past, and a Twitter follower pointed out the disconnect between my criticism of profitability and my praise for their "data-driven" approach.
Here's what needs to be said.
- Data-Driven / Machine Learning / Personalization are important.
- The points in (1) are not nearly as important as merchandise strategy is.
- The points in (1) are not nearly as important as an appropriate new customer investment strategy is.
- The points in (1) are not nearly as important as pricing strategy is.
In 80% of my projects, one of three issues are identified as causing a business to struggle.
- New/Existing Merchandise Strategy.
- New Customer Strategy.
- Pricing Strategy.
When somebody tells you that Machine Learning is the secret to success in retail, realize that math / statistics / models / Machine Learning / AI can improve performance at the increment. However (2) (3) (4) above are SO MUCH MORE IMPORTANT, and ultimately dictate your profitability.