While apparel has been among the hardest-hit categories of the pandemic’s economic impact, a new report from Deutsche Bank says D2C company Stitch Fix may be one of the leading beneficiaries of dramatically different shopping patterns.
"The apparel market is likely to change radically in a post-COVID environment," writes analyst Kunal Madhukar, CFA, in a report initiating coverage of Stitch Fix.
As lingering consumer fear about visiting crowded shopping malls and accelerated store closures force more consumers to shop online, they start to like it more. And online clothes shopping is already the new normal.
The report cites Coresight research, finding that 70% of clothing shoppers have made a purchase from Amazon in the last year, up from 60%. And among Prime members -- an estimated 112 million people in the U.S. -- that’s more like 80%.
While Deutsche had regarded Stitch Fix as a niche player, focused primarily on personalized subscription-based sales at full prices, the company’s recently added Direct Buy feature, called "Shop Your Looks," is boosting sales.
And its recent expansion of Direct Buy may be a game-changer, Madhukar notes. "In its post-COVID avatar, which Stitch Fix calls its Act III, the company has decided to extend this offering to new customers, whether they have purchased a fix or not," substantially enlarging its potential audience, he writes.
Deutsche’s research on subscription-based shopping shows acceptance has increased during the pandemic, but that it remains a niche category. Stitch Fix, by removing the subscription requirement, "can offer every consumer their own personalized store,” writes Madhukar. "As consumers look for alternatives online, we think Stitch Fix's personalized store, which is individually curated for each consumer could be an extremely appealing option."
Deutsche Bank estimates the company may command as much as 2.5% of the clothing sold online in 2025, up from 1.8% last year. And Direct Buy accounts for an additional 1% share.
The forecast comes as Deutsche estimates that COVID's impact on brick-and-mortar shopping continues, with current foot traffic at malls at only 59% of levels seen before the pandemic.
"Even as retail doors have reopened, online retail sales have remained robust, suggesting the potential for more permanent channel mix shifts," he adds. Even people who had been reluctant to shop online "have likely engaged meaningfully in the channel over the past few months," since it offers greater ranges of price and selection than physical shopping.
Stitch Fix has an advantage because it adds the element of personalization to shopping. "We think the reason people have purchased apparel on Stitch Fix is not because it is the cheapest or the fastest, but because it supports discovery via personalization, and because about half of the selection is exclusive. In the future, that differentiation is likely to create a distinct competitive advantage for Stitch Fix," according to Madhukar.