As online personal-shopping service Stitch Fix Inc. files for an initial public offering, investors will be faced with the question that’s often raised when venture-backed companies go public: Is this just a retail business or does technology make it more valuable?
It could be a multi billion-dollar question for Stitch Fix. Public market investors like to compare IPO-bound companies to their listed peers to help determine market valuation. U.S.-listed apparel, footwear and accessories companies worth more than $500 million are valued at 1.4-times estimated 2017 sales, according to data compiled by Bloomberg. That falls well short of the 4.4 times garnered by e-commerce companies.
Stitch Fix, which filed Thursday with the U.S. Securities and Exchange Commission, had revenue of $977 million in the year ending July 29.
Founded in 2011 by Katrina Lake, San Francisco-based Stitch Fix collects information on customers’ style, size and price preferences, then sends them five pieces of clothing for a $20 styling fee. Users can keep and pay for the items they like or send them back. It’s all done online with a heavy dose of data analytics — an arena where traditional apparel retailers have struggled.
“Our business is built with the belief that data and technology make us humans better,” Chief Executive Officer Lake said in a letter as part of the filing. “Our algorithmic recommendations are a powerful partner to our stylists.”
Like companies across industries from food delivery to transportation, Stitch Fix’s promise of a technology-enabled way to better serve customers has captivated venture capitalists. Baseline Ventures, Benchmark and Lightspeed Venture Partners hold a combined 65.5 percent of the business, according to the filing.
Traditional bricks-and-mortar retailers have been hit by falling sales as consumers move online to get their shopping fix. Macy’s, J.C. Penney and Sears are closing hundreds of locations and trying to beef up their online sites as the entire department-store industry scrambles to overhaul operations after years of slowing sales.
The technology-enabled customization that Stitch Fix offers has helped draw about 2.2 million active customers as of July 29. For Wendy Liebmann, CEO of consulting firm WSL Strategic Retail, that scale, as well as how the company does business, is enough to make Stitch Fix more valuable than the average retailer.
“It’s helping people not just search for that item but actually build a wardrobe,” Liebmann said. “They’ve used technology to be able to help that virtual shopping experience feel like it’s much more personalized.”
Still, investors will have the final say. Stitch Fix filed with an initial offering size of $100 million in Class A stock, which is a placeholder typically used to calculate fees and may change. Goldman Sachs Group Inc. and JPMorgan Chase & Co. are leading the deal.
The last major IPO of a venture-backed company that ships tangible goods to customers — Blue Apron Holdings Inc.’s listing in June — has suffered as it’s faced questions about how it should be valued. The meal-kit seller has lost half its market value since the IPO, putting the company’s worth more in line with the grocery stores it tried to distance itself from.
Blue Apron’s experience proves that being more tech-savvy than the industry you are trying to disrupt is not enough, Liebmann said.
For Stitch Fix, “it’s a really delicate balance” between technology and retail, she said. “You have to keep refining and making sure that the fashion is relevant.”
— With assistance by Lindsey Rupp