This growing retail company has a $500 billion market opportunity

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stitch correctionit is (NASDAQ: SFIX) the stock has taken a hit over the past year, but there are positive signs to come. In this video clip from “The Virtual Opportunities Show” on Motley Fool live, recorded on May 31Fool.com contributor Rachel Warren describes the significant growth potential the online styling service foresees by 2026.

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Rachel Warren: It’s a business I’m looking into right now. It’s not the one I own, it’s not the one I’m going to buy right now, but it’s the one I pay more attention to, as you mentioned they’ve been beaten very hard these last months.

For anyone who doesn’t follow Stitch Fix, it’s a personal styling service and their mantra is that we combine data science and human judgments delivered for clothing, shoes, accessories, personalized according to unique customer tastes. They ship to all 50 US states and territories, plus UK shipping returns and exchanges are free.

Basically, you go to Stitch Fix, you take a styling quiz, you pay a $20 styling fee that covers the stylist’s expertise and time. You can try on items before you hit the buy button, and you can also do shipping returns for free, so if you try on those items and say you want to go ahead and buy a few pieces and that you don’t like the rest, there’s a prepaid return envelope, it’s included, so there are no hidden charges. You don’t have to subscribe.

It is a fairly simple and easy to understand business model. They recently announced a new service that’s a bit outside of that traditional way of doing things. I think it’s called Freestyle, where basically you can just go to Stitch Fix and you can purchase items directly rather than going through a stylist.

Super interesting company, we don’t have much time here today, but I want to cover briefly. One of the interesting things they see in their most recent investor presentation. We see that there is a huge and massive market opportunity in the United States and the United Kingdom, which is mentioned, these are the two markets in which the company currently operates.

For example, the US and UK footwear and clothing accessories market represented a $434.9 billion market opportunity in 2021. They believe that the same market in the US and UK will represent a $543.8 billion market opportunity by 2026. In just four years. Online sales representing approximately $258.3 billion. There are a lot of opportunities there.

Again, one of the things that they do and is kind of their mantra is that they have this personalization model where they leverage stylist insights as well as data science to basically predict what their customers will love and want to buy. They say predictive algorithms help stylists serve their clients successfully. They have a match score of 63%.

It’s a really interesting model. There are clearly plenty of growth opportunities in this space. It’s no secret that the wearable accessories market in the broader e-commerce space, there are a lot of opportunities out there and even outside of e-commerce.

What’s been interesting and I think what remains to be seen for Stitch Fix is ​​how profitable it can be for them. We know the space they operate in, there is a lot of growth potential. That’s still a lot of market that hasn’t been tapped yet. They have a very simple and easy to understand business model.

But financial metrics haven’t been very strong lately, so they’re releasing their third quarter results for fiscal year 2022 in early June. Coming in just over a week here. In the last quarter, net sales increased only 3% year over year. Active customers exceeded four million. That was up 4% year over year. Net revenue per active customer grew at a much stronger rate of around 18% year over year. Although the company reported a net loss of around $31 million.

It’s an interesting business. I like what they do. This idea of ​​personalized style services, also combined with the online shopping model using a really solid and proven platform based on data science. They have a whole team of data scientists that they employ. It’s really fascinating.

Rachel Warren has no position in the stocks mentioned. The Motley Fool has positions and recommends Stitch Fix. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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