After the complete collapse of the last two years, stitch fix (SFIX 4.00%) Finally, face the music.
The once-promising online styling service announced Thursday the resignation of CEO Elizabeth Spaulding and said it would cut 20% of its salary position. It will also close its Salt Lake City distribution center, which opened in 2021.
Founder and chairman of the board, Katrina Lake, will serve as interim CEO for six months or until a successor is found. Investors welcomed the news, with the stock up 9% on Thursday.
The decision comes after Stitch Fix’s share price plummeted 97% from its peak two years ago, with earnings dropping 22% in its latest earnings report from a potential fast-growing disruptor in the apparel market. After that, it became a confused company. A similar decrease this year.
Why Spaulding had to go
It’s hard to overstate Stitch Fix’s failures under Spaulding’s watch. Stocks have plummeted, earnings have plummeted, and businesses seem to have lost direction.
For example, the company launched Freestyle. This is a program that allows shoppers to purchase from a curated selection of clothing on the site, rather than the traditional His Fix model where shoppers receive a box of five of his items at home. Freestyle didn’t add as much revenue to Stitch Fix as he hoped, instead seemingly cannibalizing most of his Fix business. The company also seems unsure of who the Freestyle is designed for. Initially he was only offered to Fix customers, but the company has since expanded it to new customers as well. We then returned the Freestyle exclusively to customers who ordered Fix.
Additionally, during Spaulding’s tenure, the company has accelerated its move away from human stylists and embraced data science algorithms, which may be one reason why revenue is declining. The company’s Glassdoor reviews were riddled with criticism from stylists, who said the algorithm was making basic mistakes, such as recommending seasonally inappropriate outfits like summer sweaters. argues that the algorithm is not yet ready to take over.
Spalding herself ranks poorly on job boards, with only 39% of respondents confirming her as CEO.
With no retail or CEO experience, Spaulding, who worked as a consultant leading the digital practice at Bain & Co., is clearly not the right person for the job.
a step in the right direction
Spaulding’s decision to step down in favor of Lake is just the first step in the company’s turnaround efforts. The company posted a letter Lake sent to employees explaining the layoffs and change in CEO position.
Lake took back the CEO role on Jan. 5, though he did not discuss initiatives or turnaround strategies. It was also unclear why she resigned as CEO in the first place. much of the is still in front of her.
Of course, a change in leadership alone isn’t a turnaround strategy, and Lake doesn’t even plan to stay in the position forever, but finding a successor right now won’t be easy.
The announcement may look like a buying opportunity as the stock has fallen significantly, but investors are better off waiting for signs that the business is starting to improve. I want to see.at least Earnings before interest, taxes, depreciation and amortization (EBITDA) foundations; and communicated clear strategic direction to investors rather than the clichés of the Spalding era.
At the time of its initial public offering in 2017, Stitch Fix was already profitable. This business model has worked before and should work again. If Mr. Lake can get the company back on track, there’s a lot of potential, but there’s a lot of work to be done before then. Investors are wise to wait for a clear upturn signal before buying stocks.