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Why Sephora’s Julie Bornstein Joined Hot Startup Stitch Fix

Stashed in: Turing, Benchmark

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Holy smokes, Stitch Fix is doing REALLY well.

Talk to investors and retail industry execs and they will tell you that Sephora CMO and Chief Digital Officer Julie Bornstein has had her choice of new job opportunities over the last few years. So it says a lot about the potential for Stitch Fix, an online retailer that is just four years old, that Bornstein joined the company this week as its chief operating officer.

“I have never seen anything quite like Stitch Fix,” Bornstein, who has also previously worked for Nordstrom and Urban Outfitters, told Re/code in an interview this week. “There’s a lot going on in the convergence of fashion and tech, and I’m sure nothing has hit on a formula that I think is going to be as successful.”

Stitch Fix, founded and run by 32-year-old CEO Katrina Lake, is among a new breed of online retailers that mix a human touch with a data science operation typically found in software companies. New Stitch Fix customers fill out a survey about their style and lifestyle, and that information is fed into a data-crunching system that spits out recommendations to Stitch Fix stylists, who select a final assortment for each customer.

Then, for a $20 stylist fee, customers receive a personalized five-piece assortment of clothing and accessories in the mail. Customers keep — and are charged for — what they like and send back what they don’t without any shipping charges. The $20 fee is subtracted from the order total if they choose to keep one or more items, but it’s still charged if they don’t like anything in the box. If a woman purchases everything in the package, she receives a 25 percent discount off the total.

The company seems to have struck a chord with a wide range of women from busy moms to childless, working professionals, and has benefited from wild word-of-mouth marketing on Facebook and YouTube. I saw this first-hand recently when my sister, a mother of two who runs her own law firm, raved on Facebook about the first package she received. Within a day, more than 10 of her friends signed up for the service, meaning my sister received hundreds of dollars in credit thanks to Stitch Fix’s $25 per-person referral payout. When that first box hits the mark, it feels like magic, she told me.

The numbers suggest such an anecdote is not a one-off. Multiple industry sources told Re/codethat Stitch Fix is projecting more than $200 million in revenue this year with limited traditional paid marketing. Men’s personal stylist service Trunk Club sold to Nordstrom last year for $350 million coming off a year in which it posted $50 million in revenue.

In an interview, Lake declined to comment on the revenue number or whether the company is profitable. But the full-time hire of Bornstein, who has been on Stitch Fix’s board since 2012, means the startup now has an extremely experienced executive overseeing marketing and creative teams, which Lake had led since the company’s founding. Bornstein will also oversee strategy and both the stylist and customer experience.

(Update: Stitch Fix’s original COO, Mike Smith, will retain his title, focusing on business operations and business development, according to a spokeswoman. It is rare for a company to have two COOs, especially when it’s a startup that is just four years old. But the spokeswoman said, “we’ve found that our operations are complex enough to warrant two COOs with different but important responsibilities.”)

The company still faces challenges. It is expensive to ship packages back and forth to customers for free. Stitch Fix also houses its own inventory as traditional brick-and-mortar retailers do and pays a large network of stylists — two more costly operations. It also has dealt with some criticism from customers finding the same piece of clothing much cheaper at a traditional retail store or outlet.

As a result, Stitch Fix has started crediting customers with the difference when they find the same clothing cheaper elsewhere. Lake said the company never charges above MSRP, the full retail price recommended by a brand.

As for offsetting the expense of shipments, Lake said the startup’s data capabilities coupled with the information it has on its customers’ preferences help it make smarter decisions on what inventory to purchase. As a result, Stitch Fix sells more of its inventory at full price than most retailers, she said, and cycles through inventory quicker, too. Stitch Fix also sells clothing from six private-label brands it created itself, which typically carry better profit margins than when it sells apparel from a third-party brand.

In addition to Bornstein, Stitch Fix recently hired Michelle Weaver, Gap’s former head of investor relations, as chief financial officer. The head merchandiser is Lisa Bougie, a longtime veteran of Nike and Gap. And the company’s critical algorithm team is led by Eric Colson, an industry veteran who spent nearly six years at Netflix working on the media company’s recommendation engine. There are few retail industry startups that have amassed an exec team like this as quickly as Stitch Fix has.

“What I’m seeing now is the thing that leads to really big home runs are the entrepreneurs that have the audacity and capability to go recruit high to build a team,” said Bill Gurley, the Benchmark venture capitalist who sits on Stitch Fix’s board of directors. “You’ll hear entrepreneurs say they want to hire people who are smarter than they are, but some of them are intimidated and some of them just can’t close.”

Coincidentally, Gurley and Bornstein go way back. Benchmark invested in back in 1999, and Gurley later introduced Bornstein, who was then at Starbucks, to chief Dan Nordstrom, Gurley said. Bornstein ended up joining in 2000. Now, the two are connected once again.

I count a CEO, two COO's, a CFO, a CTO, and a Chief Algorithms Officer...

That's a lot of Chiefs in this company.

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