StitchFix Business Model

I like to look at different companies business models. I also like to see who has received funding recently and write about them on the Venture Capital Update website. There is a company to call that caught my attention merely for their business model named StitchFix. Stitch Fix raised $4.75 Million in series A funding At first I did not pay much attention to the funding because the business had to do with a personal buyer sending you items of clothing. Not to say that that is a bad business but not something that I particularly would use. However many people probably will.

StitchFix Business Model
stitchfix-logoHere is what caught my attention about their business. Essentially you go on to their site and tell them a little bit about yourself. You answer questions and I assume they create a profile for you and from that they determine what types of clothing you may be interested in. They then send you a box with five pieces of clothing in it. You are able to decide if you would like to keep any of the clothes. Now this is not just any clothing they grabbed off the rack but the idea is that it has been chosen specifically for you based on the questions you answered and what they know about you. Therefore you have a personal buyer, or personal stylist. If you want to keep any of the clothes you then pay for that particular piece of clothing and can you send the rest back.

They state on their site that the average price for a piece of clothing is around $75. They also state that if you send all the clothing back there is a minimum cost to you of $20 for their styling fee. So even if you send everything back you will spend at least $20. If on the other hand you were to buy all of the clothes you would spend on average $75 times 5 which is $375. They happen to provide you with a 25% discount if you do indeed choose all five pieces of clothing which would take your total to $281.25. If you happen to just buy four pieces you do not get the discount and that would come to $300 so in that case I’m assuming if you are going to keep four you might as well keep all five because it is cheaper.

What I Love About The Business Model
Here is what I love. Regardless of what you do you are going to spend anywhere between $20 and $300. That means that for every box they ship out they are guaranteed to make somewhere between $20 and $300. To me that is a really smart business model because they have protected their downside with the styling fee and the upside can be quite substantial. It is always nice to see a business that thinks through their business model before they launch their company.