Prov­ing that data-pow­ered hu­mans re­ally can build a bet­ter fash­ion re­tail busi­ness

Inc. (USA) - - INNOVATE -

N FE­BRU­ARY 2012,

Eric Col­son, then Net­flix’s VP of data sci­ence and en­gi­neer­ing, was in­tro­duced to an un­known entrepreneur named Ka­t­rina Lake. The founder of Stitch Fix—an e-com­merce com­pany that pairs an army of stylists with an ar­se­nal of data to de­liver cloth­ing—asked Col­son if he’d con­sider be­com­ing an ad­viser to her one-year-old com­pany. Col­son de­clined. “I’d dis­missed the Stitch Fix busi­ness model as in­ter­est­ing but sort of whim­si­cal,” he says.

But a few weeks later, the con­cept was still tug­ging at him. So Col­son in­vited Lake for a glass of wine, and by the time his was empty, the data per­son­al­iza­tion whiz had con­cluded that the per­son across the ta­ble was an in­tel­lec­tual clone of his long­time boss, Net­flix founder Reed Hast­ings. “You feed them a lit­tle bit of in­for­ma­tion and they can paint a vi­brant pic­ture that matches re­al­ity,” says Col­son. Within a few months, he’d left Net­flix to be­come Stitch Fix’s chief al­go­rithms of­fi­cer. Col­son ranks as one of the many who’s been sur­prised by Lake. The Har­vard MBA has proven to be one of the smartest founders to emerge in e-com­merce. As tra­di­tional re­tail crum­bles, last year her San Fran­cisco–based on­line styling com­pany earned $730 mil­lion in rev­enue, and it filed to go pub­lic this fall with an es­ti­mated mar­ket cap­i­tal­iza­tion of $3 bil­lion or more. Stitch Fix has raised a rel­a­tively small $42 mil­lion, yet is one of the few up­starts that is al­ready prof­itable—and it has been since 2015. Like many founders, Lake started her com­pany be­cause the one she was look­ing for didn’t ex­ist. “I wanted to work at what­ever com­pany was go­ing to be the fu­ture of re­tail,” says Lake, who was a con­sul­tant and a VC be­fore she re­al­ized no one had suc­cess­fully merged fash­ion with data.

In 2011, draw­ing on her ex­pe­ri­ence with her sis­ter—a cloth­ing buyer who of­ten sent

Lake style sug­ges­tions—the then-27-year-old cre­ated a per­sonal shop­ping web­site. It hardly had al­go­rith­mic so­phis­ti­ca­tion: Lake used Sur­veyMon­key to track cus­tomers’ pref­er­ences, and then toted arm­loads of gar­ments to their homes, ac­cept­ing checks to cover the $20 styling fee.

By 2013, the busi­ness was tak­ing shape. With Net­flix’s Col­son on board, the team col­lected vast amounts of data on Stitch Fix cus­tomers—body di­men­sions, pat­tern pref­er­ences, what clothes they’d kept, what clothes other peo­ple who’d kept those clothes had also kept—to ar­rive at as­ton­ish­ingly ac­cu­rate pre­dic­tions. A Stitch Fix’s stylist would then take a pre­dic­tion and de­ter­mine whether it seemed right for par­tic­u­lar shop­pers—to­day re­sult­ing in 24 per­cent of cus­tomers stick­ing with the sub­scrip­tion ser­vice for at least nine months.

Lake says her com­pany’s hu­man-fil­tered pre­ci­sion—in which 3,300 stylists work with 600 cloth­ing brands, in­clud­ing its own pri­vate la­bel—will keep ag­gres­sive com­peti­tors like Ama­zon at bay. “Con­sumers don’t want thou­sands of jeans they can read all these re­views of,” she says. “They want to put on the one pair of jeans they look awe­some in.”

As she’s about to take her com­pany pub­lic, Lake re­flects on the in­vestors who didn’t take her se­ri­ously. She re­calls one con­fess­ing: “Your busi­ness is on fire, your team is great, but I just don’t feel pas­sion­ate about women’s ap­parel.” (As re­ported in June, Lake was among the founders sex­u­ally ha­rassed by Justin Cald­beck, manag­ing di­rec­tor at Light­speed Ven­tures, and an ob­server to Stitch Fix’s board, a role that he lost af­ter Lake re­ported his ac­tions to the firm.) Lake hopes Stitch Fix’s suc­cess will prompt VCs to— as she puts it diplo­mat­i­cally— re­ex­am­ine their men­tal fil­ters. “At least I know the cap­i­tal­ist part of the ven­ture cap­i­tal­ists will be re­gret­ful of the de­ci­sions they’ve made.”

JEFF BERCOVICI, with ad­di­tional re­port­ing by Sonya Mann

Pho­to­graph by MOLLY CRANNA

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