Online retailer Stitch Fix raises cash, tries to set itself apart

SAN FRANCISCO Thu Oct 17, 2013 9:00am EDT

SAN FRANCISCO Oct 17 (Reuters) - Stitch Fix said it has raised $12 million as it tries to establish itself in what is proving a tricky market: online retail sales.

While online sales rise every year, many entrants have a tough time with the razor-thin profit margins and ability to differentiate themselves from established players such as Amazon.com Inc.

But Stitch Fix thinks it has found the right niche: personalized styling, based on client data and algorithms. Customers answer detailed questions on their lifestyle, body shape and fashion preferences, and then Stitch Fix sends them an assortment of clothing which they can keep or return. Most items cost around $65, according to the company's website.

"The majority of the growth at Stitch Fix has been organic, one customer telling another," Bill Gurley, the partner at Benchmark Capital who is leading the investment, said in an interview. Organic growth, rather than marketing-driven growth, has been the hallmark of many other companies backed by venture capital firm Benchmark, such as microblog Twitter, car service Uber and auction site eBay Inc, he said.

Separately, Stitch Fix said in a press release it had hired Lisa Bougie, the former general manager of emerging markets for apparel company Nike Inc, as chief merchandising officer; Meredith Dunn, the former senior director at retailer Stella & Dot as vice president of styling; and Jennifer Olsen, the former chief marketing officer at home retailer Crate & Barrel, as chief marketing officer.

Another algorithm-based online retailer, bra vendor True & Co., said earlier this month that it had raised $4 million from backers including Crosslink, SoftTech, and Cowboy Ventures.

Others that play in niches online include Birchbox, a beauty products provider known for its monthly subscription service, and DollarShaveClub, which delivers razors.

Some online retailers are facing setbacks. Earlier this month, Fab.com said it would lay off nearly 20 percent of its workforce. In August, JustFab bought ShoeDazzle which was struggling to gain traction.

Gurley is joining Stitch Fix's board, along with Marka Hansen, former president of North America for clothing retailer Gap, and John Fleming, former chief merchandising officer of general merchandiser Wal-Mart Stores Inc.

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