Layoff News: Stitch Fix to Replace CEO and Cut 20% of Workforce


Key learning points

  • After peaking at about $96 per share in January 2021, Stitch Fix
    has trouble with. The share price has fallen to about $4.
  • Stitch Fix is ​​the most recent public company to announce layoffs, and it will eliminate 20% of its workforce. This is in addition to the layoffs from June 2022, where 15% of the salaried workforce was laid off.
  • With consumers focusing on saving money by discontinuing subscription services, it will be a challenge for the fashion brand to bounce back as they search for a new CEO.

It seems we can’t go a day without hearing about job cuts as companies adjust to reduced demand from the current economic climate. Stitch Fix is ​​the most recent company to announce layoffs as the company struggles to adapt to shifts in consumer spending patterns.

The subscription-based online personal shopping service has recently been in a tailspin after being a pandemic success story. It is making some drastic changes to try to turn its business around.

We’ll look at the layoffs and changes at Stitch Fix to see how this news could impact investors – and how can help.

Stitch Fix to replace his CEO

Elizabeth Spaulding will step down from her position as CEO of Stitch Fix. Katrina Lake is back as CEO after stepping down just 17 months ago.

Lake founded Stitch Fix as a business student at Harvard in 2011. She was the youngest woman to take a company public at the time, and it was one of the few companies to make a profit when entering the market.

With a BA in economics from Stanford University and an MBA from Harvard University, Lake will remain in the interim CEO position for approximately six months, or until a replacement is found. She will also lead the search for the next CEO to lead the company into the future.

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In a January 5, 2023 press release, the online personal styling service shared Lake’s email confirming the changes and how affected employees would be supported. The memo also stated that the company would close its distribution center in Salt Lake City.

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Spaulding had only been the CEO of the online personal styling service since August 2021, but there were many issues during her time in this position. As leader of the company, Spaulding moved from human stylists to data-based scientific algorithms.

Many stylists were quick to respond to Glassdoor about concerns about how the algorithm was making basic mistakes and failing to replace the human approach needed for fashion. In even worse news, only 39% of the site’s respondents approved of Spaulding as CEO. With no prior experience in fashion or retail, it was clear she wasn’t right for this position.

News of Spaulding’s resignation and headcount cuts led to a 9% increase in the share price on January 5. However, this slight increase does not make up for the worrying fact that the company’s share price has dropped in two years.

Stitch Fix is ​​going to cut 20% of its workforce

In addition to replacing the CEO, the company will cut approximately 20% of its workforce. According to the internal memo sent to staff, those affected can expect the following:

  • At least 12 weeks of severance pay, depending on the employee’s employment with the company.
  • Healthcare support until April 2023 and mental health support until the end of April 2023. These services include self-help, counseling, and legal and financial services.
  • Career support to help those who have lost their jobs find a new job.

The second round of layoffs

This reduction in the workforce of 20% of salaried employees comes on top of the 15% reduction in June last year.

When the company released its financial results for the quarter ended April 30, 2022, it was revealed that the online fashion brand lost 200,000 active customers. Net loss skyrocketed to $78 million, up from last year’s loss of $18.8 million.

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Stitch Fix responded by laying off 15% of its salaried employees, which amounts to about 330 people.

How is Stitch Fix performing financially?

When the company went public in 2017, it had a market capitalization of more than $1.6 billion. Its market cap currently stands at $444.34 million, with a closing price of $4.01 on January 10, 2023.

Stitch Fix stock hit a high in January 2021 at about $96 per share. It is currently about 79% lower than a year ago.

On December 6, 2022, Stitch Fix announced its financial results for the first quarter of fiscal year 2023. Here are some of the notable financial figures:

  • Net sales declined 22% year over year to $455.6 million.
  • Active customers fell to 3,709,000, with 471,000 users opting out of the service last year.
  • There was a net loss of $55.9 million.

This news was considered unfavorable as it provided further evidence that the online shopping brand was struggling to adapt to the post-pandemic climate.

Is this a good time to invest in Stitch Fix?

The recent cost cutting news indicates that the company is taking the necessary steps to turn the business around. However, the theme of macroeconomic tailwinds cannot be ignored if you are considering investing in Stitch Fix.

Here are a few other factors to consider before investing in the company.

Consumers want to save money

It’s no secret that consumers are shifting their spending patterns. However, a study conducted last year confirmed this. Kearney, a consulting firm, found that 40% of consumers felt they had too many subscription services.

With streaming platforms, meal delivery services and more, people increased their subscription spending during the pandemic. With inflation rising and fears of an impending recession, consumers are now looking to cut back on their monthly spending.

The freestyle product has not been successful

The Fix product is a box of clothing that is sent to users who then decide what to keep and what to return. In the fall of 2021, Stitch Fix launched the Freestyle product to reach a wider market.

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Instead of offering a subscription service in the form of a box that consumers would receive, the Freestyle service was to let customers choose clothes based on style, fit and budget.

The company then changed the direction of this new revenue stream by limiting it to those who ordered a Fix. Ultimately, this offering is struggling to gain traction.

Sales growth is necessary

While cutting back is essential, it’s worth seeing if the company can focus on revenue growth by bringing in new customers into its current business model.

With active customers down 11% year-over-year, it is a sign that the company needs to focus on investments in attracting new customers to increase its revenues.

How should you invest?

We’ve seen some dramatic implosions from companies that performed high during the pandemic era and hit all-time lows. It’s hard to know if the cuts will help them become more profitable or if consumer spending habits have changed too much.

Knowing how to invest your money now can be challenging. Fortunately, takes the guesswork out of investing. uses artificial intelligence to scour the markets for the best investments for different risk tolerances and economic situations. They are then bundled into Investment Kits that make investing easy, strategic and fun.

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it comes down to

As layoff news continues to dominate the headlines, it is essential to take this information into account when deciding how to invest your money. Stitch Fix was a darling of a pandemic that is now struggling as consumer spending patterns have changed due to fears of a potential recession.

We’ll continue to monitor and see if the company can recover or if we’re at the point where consumers aren’t willing to sign up for additional subscriptions.

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