Stitch Fix, a company that regularly sends a personally curated assortment of five pieces of clothing to roughly 2 million customers — men and women — went public on Friday, with opening shares selling for $16.90 apiece.
But by closing, investors who bought the shares when it initially went public barely squeezed out a profit on their investment. Shares rose to $18.53 in the late morning but closed at $15.15, which is only a hair above its estimated price of $15.
This paints a tough first day on the New York Stock Exchange for the fashion startup. IPOs typically "pop" on their first day of trading and rise healthily throughout the day.
Even with a rough first day as a public company, Stitch Fix, which was founded in 2011 in the Cambridge, Mass., apartment of its founder, Katrina Lake, still had an initial valuation of $1.63 billion, placing it ahead of such brick-and-mortar clothing retailers as Abercrombie & Fitch ($1.07 billion) and J.C. Penney ($1.01 billion).
Stitch Fix asks customers to create an online profile describing their style, size, budget and other preferences. Customers then receive a box of clothes, shoes and accessories, try them on, keep what they like, and send the rest back. If they want to keep everything in the box, they receive a 25% discount on the total cost of the items.
Customers can schedule when they want to receive their box, and, while membership fees and subscriptions are not required, recurring sales are part of the company's business model.
The model has been successful — so far. Stitch Fix's cash flow has increased every year since 2014, according to a regulatory filing. It has also grown from 867,000 customers in 2015 to 2.1 million in 2017.
But lately tech IPOs have been scarce and disappointing — Snap and Blue Apron are examples of companies that went public only to see their shares sag — and Stitch Fix didn't see everything go as it had hoped. The company said in a regulatory filing that it anticipated an opening price of $18 to $20 per share. By Thursday evening, it set on a price of $15 per share, only to open Friday on the Nasdaq at $16.90 a share.
The lower-than-expected opening price doesn't bode well for the fashion startup, and may raise questions about the long-term viability of subscription box service companies that have sprung up over the last couple years as brands look for new ways to reach consumers who are moving towards online shopping.
Stitch Fix also is likely to face growing competition, including from Amazon, which recently introduced a service called Prime Wardrobe that lets people try on clothes at home before they buy them and then send back the ones they don't want.
On Friday, Lake, the CEO of Stitch Fix, seemed unfazed by the ambiguous outlook for her company.
"I'm thrilled to embark on this next chapter & I'm immensely grateful to everyone who believed in us over the years," she wrote in a tweet. "While we're proud of all that we've achieved, this is just the beginning."
Paul Chambers, co-founder of the Subscription Trade Association, also expressed optimism about Stitch Fix and the subscription box industry.
"There can be up and down moments, but we feel really positive about the IPO and what’s its doing for the industry," he told BuzzFeed News. "When you look at their growth and bottom line, they’re looking healthy and strong. We think this is a good place to invest in for new shopping and for growth."