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Stitch Fix reviews brand marketing strategy and digital spend as stock plunges

Stitch Fix reduced its yearly revenue guidance to $1.84bn

Stitch Fix has announced it is postponing a slated push into brand marketing and reviewing its reliance on Facebook off the back of a disappointing second quarter.

The online styling service saw its shares tumble by as much as 33% after it announced a bleaker yearly outlook after reporting Q2 2020 results. The company reduced its full-year revenue guidance to between $1.81bn to $1.84bn, down from Q1’s estimate of $1.90bn to $1.93bn.

Stitch Fix spent $35.6m on advertising in Q2, representing a year-on-year lift of 49%. Altogether performance and brand marketing accounted for 7.9% of the company’s net revenue.

However, the company is now pulling back on ad spend. Founder and chief executive Katrina Lake told investors it would be “applying more conservatism in the way we are thinking about our marketing spend”, ultimately lowering its marketing spend all the way to the end of the fiscal year.

Two factors contributed to this decision: a review of a forthcoming brand campaign and an increase in digital media costs.

The company had set aside cash for a brand marketing push in H2, however a change in branding strategy has now put this on hold.

Stitch Fix, which has historically relied on selling styling-as-a-service batch deliveries known as ‘Fixes’, has begun building out a direct buy offer that allows consumers to purchase single items à la carte.

The company announced the commerce expansion in October last year and now plans to offer it to more of its clients. As a result, its brand marketing messaging needs to be readjusted to “fully incorporate direct buy, and ... appeal to an even larger audience”, explained Lake.

“The reality is, we’re evolving our products and incorporating direct buy and Fixes, and having a new marketing messaging is a really important way to think about kind of the new product and how we engage with clients,” she said. “And so, we are postponing that spend and plan to spend that in the future.”

When asked why Stitch Fix isn’t planning to raise awareness of the direct buy offer with more haste, Lake said the brand is still figuring out the messaging and offer.

“Right now, we feel like we want the product to be in a little bit more of an evolved state,” she explained. “We want kind of the shop experience to be better integrated. I think we have some work around how ... we position it.”

Stitch Fix is also looking into diversifying its digital marketing spend after witnessing media costs rising but customer acquisition costs remaining flat.

“We’re working on both product innovation as well as experimenting into new and emerging channels to offset this,” said Lake, adding that Facebook in particular has become “more competitive”.

“We believe that we can invest in other channels. Being able to think about our marketing and knowing that there’s risk and this one channel that’s growing, that’s something that we want to be more conservative on.”

Stitch Fix’s global chief marketing officer, Deirdre Findlay, departed for Condé Nast last December. In February, Lake said she was in no hurry to rehire for the role.

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