Stitch Fix CEO Katrina Lake Wanted to Work at the 'Apparel Retailer of the Future,' So She Founded It

… and turned it into a billion-dollar public company.
By Dhani Mau ,

Katrina Lake. Photo: Courtesy

Of the many fashion tech startups and e-commerce companies we've seen flood the retail landscape in the past eight years or so, the personal styling service Stitch Fix has stood out as one of the fastest-growing and the first to go public, with a $120 million initial public offering last November. The IPO received an abundance of media attention across industries with journalists and analysts not only pointing to it as a potential model for other rapidly-growing fashion startups like Warby Parker, but also because of founder and CEO Katrina Lake's gender. Many stories pointed out that hers was the only female-led tech IPO of 2017.

Tech is a very male-dominated industry. According to recent statistics, women own only 5 percent of startups and hold only 11 percent of executive positions at Silicon Valley companies. Fashion has disturbingly few female CEOs as well. And while Lake faced some challenges along the way, her success with Stitch Fix, as she tells it, was simply the result of intelligence, hard work, product/market fit and a succession of strategic education and career moves. She knew she wanted to work at "the apparel retailer of the future" and took the steps she needed to get there — ultimately creating that retailer herself. 

In many ways, Stitch Fix, a subscription service through which customers receive boxes of clothing chosen by stylists specifically for them and pay for what they like while returning what they don't, does represent the future of retail: It uses a combination of data science, artificial intelligence and human stylists for a business built around personalization. "How are people going to buy jeans 20 years from now?" Lake asked herself early in her career. "I don't think it's going to be spending a half day wandering around a bunch of stores at a mall. I don't think it's going to be sifting through a million pairs of jeans using filtering, sorting, ratings, and reviews in a traditional e-commerce setting." Many things point to personalization being an overarching theme in retail for years to come, and Stitch Fix appears to be a few steps ahead of the game.

So, we caught up with Lake a couple of months post-IPO to learn where Stitch Fix began, how it's grown so quickly, the challenges she faced (like getting investors interested in clothes) along the way and what's next. Read on for our interview.

Where did your career start? Were you always interested in retail?

I did a major in economics and, when I first went to college, I was thinking that I wanted to be a doctor. So I was also doing the pre-med human biology track. I was in those but really just got interested in the economics and business side and loved how applicable in real life it was. I took a job out of college and I did retail and restaurant consulting. That really was the beginning of, I guess, my interest in this business.

I could look at retail and restaurants and really felt like the world has come such a long way in the last 20 years and yet the way that people are choosing clothes, for example, has not really changed all that much. So I felt like there was just a real opportunity to bring more innovation into the way that people are buying clothes.

What were you doing when you came up with the idea for Stitch Fix?

I didn't necessarily say, 'I want to start a company, what company should I start?' I wanted to work at the apparel retailer of the future, and when I looked around, I just didn't feel like I saw that today. So it was like, how are people going to buy jeans 20 years from now? I don't think it's going to be spending a half day wandering around a bunch of stores at a mall. I don't think it's going to be sifting through a million pairs of jeans using filtering, sorting, ratings, and reviews in a traditional e-commerce setting.

I interviewed a couple of places after I decided I was going to leave consulting. Didn't really find a retailer I wanted to join so I did venture capital for a couple of years. I saw hundreds of companies, and I thought that would be a good way for me to meet the next company that I wanted to join. I didn't see the company that I wanted to join, but I at least saw that many of these entrepreneurs were just as unqualified as I was to be running a business.

I felt like if I didn't see the future of retail out there, that it could be something that I could create. So my risk-reduced path to entrepreneurship was that I applied to business school and I felt my goal was that I would graduate from business school with paying myself a salary. So, if I was going to start a company, I needed to be able to raise money for it and be able to have it off the ground before I graduated. If I wasn't able to achieve that, then I felt like I had a great backup plan. I would have an MBA from Harvard and would be able to go work at a great company.

Relate Articles

How Artificial Intelligence Can Help You Build Your Own Personalized E-Boutique

5 Startups Bringing Personal Styling to the Masses

How Brands and Startups Are Using AI to Help You Get Dressed

I assume that's where Stitch Fix started — how did you get your first customer?

I started testing [the Stitch Fix concept] in my second year, and honestly I tested it with friends, family, with friends of friends, anybody who was willing to try it. Before I raised money I was buying clothes at retail boutiques, and returning anything that I didn't sell. I was using my own credit card to do that.

Once I raised money, we were able to start buying at wholesale and start to actually ship 'fixes.' Our first, in April of 2011, we shipped to 29 clients. Those were basically all friends and that grew to 35, and grew to 110. From there, it continued to grow organically for quite a long period of time. We were very fortunate that this was a business that had incredibly strong product/market fit, and so this was a business where people were sharing their experiences with Stitch Fix on social channels, on their blog, telling their friends.

Why do you think it resonated with so many people?

It was just a concept where, if you are somebody who wants to look great, and wants to feel confident, and wants to feel up to date but you weren't going to prioritize shopping in your life... I think many of us go through a transition like that where maybe when you're 18-19-20, you love shopping, you love going to the mall, you love looking at new arrivals on shopping apps. But there comes a point where that's not going to be the number-one priority.

Screenshot: Stitchfix.com

What was the process like in terms of reaching out to brands and getting the product as the customer base grew? What were their reactions initially?

The early days, the first couple of years, it was harder. People weren't aware of the concept, people were resistant to new things. I think the flash sales stuff had happened just before we were starting. People weren't that happy, I think, with what they experienced through the flash sale channels. I think people felt like they wanted to protect their brand. Ultimately, those ended up being great dynamics for us, because we're a full-price channel where people are discovering new brands through us and we're almost like a matchmaker of clients and brands. Ultimately now, I think that's a huge selling point. At the time... I think there's some resistance to anything new.

Were there any other major challenges or road blocks you experienced along the way as you grew the company that you had to overcome?

Yeah, there were many. Fundraising has always been a challenge for Stitch Fix, and trying to get people excited to put a million dollars into the company knowing that a good portion of that is going to buy clothes. That was something that investors I think weren't super excited about in the early days. There also aren't as many female investors as you'd like. So, to be a company where a lot of your audience and a lot of your customer base is women, it's a little bit harder to connect with a venture-capital audience that looks and feels pretty different. So those are certainly challenges.

[Another challenge is that] this is a very human business. All of our fixes are hand selected by stylists who are trained and hand picked in our warehouses by people who are thoughtfully folding every single garment. So we're a business that has over 5,000 employees and how do you scale a culture that quickly? How do you make sure that people in the warehouses feel as connected as our stylists, as connected as our engineers? Those are all challenges that we faced along the way.

Going back to the fundraising aspect, how did you overcome that initial issue of investors not connecting? Did you feel you weren't taken seriously?

It's definitely not that we weren't taken seriously. We had a real business, we had a great team, we had great economics. It was really about the connection to the business that they had. If you think about the job of a venture capitalist, you're joining boards, you're helping teams grow. People just didn't feel excited and passionate about the business that we were in.

I think the saying that 'what doesn't kill you makes you stronger' was very true for us because it forced us to focus on: How can we build a healthy, strong business that's not going to be sensitive to what venture capitalists are passionate about? What that meant was, how can we be thoughtful about getting profitable? How can we make sure that our core economics are really good? How can we raise as little money as we possibly can so that our success is not subjected to the hobbies of venture capitalists?

It probably changed the way that I talked about the business. I probably talked about the business more in terms of the numbers and tried to appeal to the capitalist element of the venture capitalist rather than the connection to the business, per se.

Screenshot: Stitchfix.com

Can you tell me a little bit about the development of the technology side of the company? I know you've been investing heavily into artificial intelligence recently.

In the early days, it was just as simple as saying, there are some maxi skirts that are going to be good for people who are tall, and some maxi skirts that are good for being short. That's not necessarily data science, that's really just using data to better understand products. Today, what that developed into is that we're using data science to inform what products should we create; we're using data science to decide which stylists should style which fix. In many cases, we're using data science in combination with human judgment, which I think is really unique about Stitch Fix.

Ultimately it's still the stylist's decision. So she's aided with data science but it really is still her decision. I think that's a really differentiated part of Stitch Fix is that we're kind of leveraging the best of both worlds. We're recognizing that data is going to be really great at some things and the stylists are going to be really great at others, and we're combining the best of both to be able to deliver the best experience.

We've written about so many different fashion tech startups over the years, and you were one of the first ones to hit that milestone of an IPO. I'm curious why you feel you got to that point and what the process was like preparing for that?

We have very significant scale. This is a billion-dollar business, we've been a very large business for a while actually. I think we got to a scale where we have healthy economics, we have a history of profitability, we have a fantastic team and we are ready. 

We were already generating cash, so we didn't need to go public, but this is a company that is a healthy, growing company that intends to be here for a very long time and to continue to generate value for investors for a very long time. 

Generally speaking, how do you feel like things have gone since the IPO?

Honestly, I think in a lot of ways, it's just business as usual for us. An IPO is a fundraising event; we have new investors, and we have different investors than we had in the past. Other than that, nothing changes about our strategy, nothing changes about who we are as a company, nothing changes about the way that we interact with our clients.

What's next for you guys? What are your goals for Stitch Fix in the next five years?

We launched three businesses in the last year and a half. (Men's, plus size and premium brands.) Those are still in early stages, so we have our hands really full in kind of helping cultivate those businesses and helping see those businesses grow.

I would love to be able to feel like we're able to fill many more parts of our clients' lives with personalization, and being able to meet her shopping needs, and being able to serve her whole family. I think there are elements of Stitch Fix that may change over time but I think the essence of it is really about this personalization, getting to know each person as an individual and being able to help them find what they love. 

What do you base those decisions on as far as what new businesses to add? Is it demand that you see from your existing customers?

I think the demand that we already have from our clients is a huge asset that we have and a big signal. So, that certainly was true about men's. Plus size, we had 80,000 people on a wait list for plus size before we even launched the business; there were so many people who wanted access to that business. I think with premium brand also, there were already clients who really wanted more of those brands that they knew and loved, so that was really a way that we could help serve that client better.

Of course, we also just look at market opportunity and what businesses we think that we can serve well. Plus size for example, we would have loved to have served that business earlier, but years ago we didn't feel like there was the right vendor base; we didn't feel like we had enough leverage with vendors. When we launched the plus-size business, we brought some vendors along with us. We had vendors who had never done plus size before whose first plus-size products were with us. That was leverage that we didn't have years ago.

Screenshot: Stitchfix.com

A lot of stories about the IPO emphasized the fact that you were the only female-led tech IPO last year. Is that something you think about and are there any positive or negative experiences you'd point to in your career that were unique to being a woman in the tech startup world?

I think years ago I probably was more reluctant to be labeled as a female CEO or female entrepreneur and not just an entrepreneur, but I think today I feel really proud of that, and I do think there's a great opportunity to be able to feel that I can represent for many people out there, kind of what is possible. I think there is an element of, if you don't see somebody doing something like what you want to do, then you don't see it as being possible for you. 

So it's certainly different and I think in some ways good, and in some ways bad. At the same time, I think it is possible for women and for minorities, and for many people who don't necessarily look like all of the tech CEO's that we've seen historically to be able to be successful in this world. I hope I can have a small part in helping show that.

You mentioned in the beginning of our interview that your goal was to work at the apparel retailer of the future. Do you feel like that's what Stitch Fix is at this point?

Yeah, absolutely. I see personalization as being the future of how we're going to shop. If you think about what people go through today, it's like, oh I want a yellow flow-y dress. Try looking for that in a search engine. Try looking for that in millions of yellow dresses to try to find exactly the one that you have in your mind. Today's e-commerce is not well suited for apparel. Today's e-commerce is all about the cheapest price and the fastest delivery, and that's not what you care about. You care about what's going to fit your body, what's going to represent your style. Those are really hard things to search for in today's online world.

I think stores are going to have a very different role in our lives 20 years from now than they are today. As I think about, what is the best way to help somebody find that yellow dress or that pair of jeans that fits, personalization and the approach of using an expert stylist alongside great recommendations, to me, is a superior way to do apparel shopping. It's a superior way to do a lot of things. I think we're just at the tip of the iceberg of what personalization is going to mean.

What advice would you give to someone who wants to start their own retail company or wants to be in a similar position as you?

I would really focus on product/market fit and really understanding your client. I think this is a world where it's very hard to get people's attention and it's ... the customer is the most honest. You can come up with all the ideas that you want and then customers ultimately vote with their dollars. So I think the quickest way that you can get feedback from your clients and listen to your clients, and evolve to be able to have the right products for them: All of that is the right place to start.

This interview has been edited and condensed for clarity.

Never miss the latest fashion industry news. Sign up for the Fashionista daily newsletter.

Loading ...
Join the Conversation