A large number of retailers are hurting in the wake of the coronavirus pandemic, and dozens have filed for bankruptcy in the course of the past nine months. Operating restrictions and consumer fears have caused a major decline in store traffic, and while some retailers have managed to successfully pivot to focus on online sales, others have seen their revenue take a dangerous hit since March. Throw in the fact that there's general competition from online-only retailers, and it's no wonder so many real estate investors are worried about a surge of store closings in 2021.
But while it's easy to point a finger at online giants like Amazon (NASDAQ: AMZN) and blame them for the demise of the common retail store, there's another player in the mix that may be snatching up some of that revenue as well: Stitch Fix (NASDAQ: SFIX).
Stitch Fix is thriving during the pandemic
The Stitch Fix model is simple. Customers create a style profile and sign up to have specially curated fashion boxes delivered at specified intervals. A personal stylist puts outfits together and ships them off in the mail, and then consumers get to try on that clothing and either keep it or send it back. With a modest styling fee that's either charged to the customer's credit card or returned as a credit for purchases, Stitch Fix is a pretty low-risk endeavor for consumers with healthy spending budgets -- and an extremely convenient one. And during the pandemic, it's easy to see why a clothing delivery service would hold a lot of appeal.
Stitch Fix's most recent numbers back that sentiment up. For its fiscal quarter ended Oct. 31, the company reported earnings of nine cents per share on revenue of $490.4 million, well exceeding Wall Street estimates for a loss of 20 cents per share on revenue of $481.2 million. Not only that, but Stitch Fix managed to grow its customer base to nearly 3.8 million, up over 10% from a year ago. And given these recent numbers, the company anticipates its revenue growing between 20% and 25% in 2021.
Will Stitch Fix drive physical retailers into the ground?
While strong numbers from Stitch Fix are certainly a reason for retailers to be nervous, one thing to keep in mind is that Stitch Fix generally caters to a pretty specific clientele. Though customers can select a preferred price range for the items they receive in the mail, even the lower end of that range is higher than what budget-conscious consumers may choose to spend. As such, shoppers who are used to coupon clipping and bargain hunting can't use Stitch Fix as an alternate source for apparel; the cost simply doesn't work.
Furthermore, despite the convenience Stitch Fix offers, many consumers like the idea of hand-picking clothing and trying it on in stores, where they have the option to instantly swap out a size for a better fit. Stitch Fix does its best to estimate sizing based on user inputs, but it sometimes falls short.
Stitch Fix's popularity may also start to wane if working from home becomes the norm and the need for higher-end wardrobes begins to decline. Plus, once customers no longer have to fear entering a mall, they may not relish the idea of having to pay Stitch Fix's styling fee.
As such, real estate investors don't necessarily need to panic over Stitch Fix's success. While its service may draw in specific customers at present, it can't, in its current iteration, replace department stores or other mall staples. Though retail closings may be inevitable in the near term, Stitch Fix won't necessarily be a huge driver in that regard.