With demand for clothing still subdued, online styling service Stitch Fix Inc. said Monday it is trying to become a more “fun” destination for customers, while secondhand online store ThredUp Inc. is trying to give a boost greater push for consignment sales.
But both companies have said these ambitions will take time to realize, and their forecasts for the months ahead have disappointed investors, one way or another.
In the process, Stitch Fix shares SFIX,
It fell 14.7% after the close on Monday, while ThredUp’s TDUP stock,
slipped 8.5%.
Over the past two years, higher prices for basics such as groceries and gasoline have dampened spending on less essentials, such as clothing, and many retailers have slashed prices on clothing in an effort to attract customers. Stitch Fix has faced declining sales and recently closed its UK operations. Last year it laid off employees and shook up leadership.
The company reported worse-than-expected fiscal second-quarter results on Monday. And it said it expects fiscal third-quarter sales of $300 million to $310 million, lower than FactSet’s forecast of $322 million.
For the full year, which ends around the end of July, the company said it expects revenue of $1.29 billion to $1.32 billion, down from previous expectations of $1.3 billion a year. $1.37 billion and below analysts’ estimates for $1.35 billion.
CEO Matt Baer, during Stitch Fix’s earnings conference call, said that in the coming months the company wants to create a more “fun and visual” experience that is more interactive. He added that more steps would be needed to deepen relationships between customers who want to try new styles and the Stitch Fix stylists who help them do so.
“Our stylists play a critical role in our value proposition, and our customers have told us they want to know the stylists behind their Fixes,” Baer said, referring to the shipments of custom apparel his customers receive from stylists.
But he added: “While some of these initiatives will begin to roll out in the coming months, it will take time to realize our ambitious plan to significantly evolve the Stitch Fix customer experience.”
ThredUp, meanwhile, said it expects first-quarter sales of $79 million to $81 million, just below Wall Street forecasts of $81.2 million. For the full year, the company’s sales forecast was in the range of $340 million to $350 million, in line with analysts’ forecasts of $345 million.
Over the years, the company has tried to attract younger customers. It has largely moved toward consignment sales, where the person selling their clothes can get payment after the sale.
This change began in 2019 in an effort to increase margins. But the company said Monday that its efforts to shift its business in Europe, as well as its business that resells clothing from bigger brands, to a consignment model would weigh on sales growth in the near term.
“While switching these businesses to consignment should be a boon to gross margins over time, we expect it to dampen revenue growth simply due to the accounting treatment,” Chief Financial Officer Sean Sobers said during the company’s earnings call society.
“As a reminder,” he said, “shipping payments reduce net revenue. We expect shipping revenue to be an increasingly important part of our business throughout 2024.”
Both companies on Monday highlighted their use of technology, which they say has improved the shopping experience.
ThredUp recently introduced AI-powered search capabilities. Stitch Fix’s Baer said the company’s approach helps alleviate consumers’ frustration in trying to buy clothes in stores — a process he says is often “cumbersome” — as well as the sometimes “overwhelming” experience of try buying them online.
“At Stitch Fix, Day Zero, we know our customers better than many retailers can aspire to know their customers over the course of their relationship,” he said.