What happened
Stitch Fix, the personal styling service founded by Katrina Lake, went public in 2017 and rode the pandemic e-commerce boom to a peak valuation of US$7 billion. When growth slowed in 2021, Lake stepped aside and hired Elizabeth Spaulding — a former Bain partner and the company's president — to lead the next phase.
Spaulding's signature initiative was Freestyle, a direct-buy option that let customers shop from Stitch Fix's inventory without a stylist's input. It was meant to expand the addressable market. Instead it cannibalised the core subscription business, confused the brand positioning, and failed to attract new clients. Active clients began to decline.
On 5 January 2023, Stitch Fix announced it was cutting 20% of its salaried workforce and that Spaulding was stepping down immediately. Lake returned as interim CEO. The stock fell another 10% on the news, adding to a decline that had already erased most of the company's pandemic-era gains.
The layoffs and CEO departure did not reverse the trend. Stitch Fix continued to lose active clients through 2025, and its revenue fell from a 2021 peak of US$2.1 billion to US$1.27 billion by fiscal 2025.
What it cost
Freestyle let customers shop without a stylist, eating the subscription and failing to attract new clients; 20% of staff were cut and the CEO was out in 17 months.
Why it happened
Freestyle diluted the core subscription model — customers who bought directly had no reason to keep a styling subscription
Spaulding was promoted from within and had been part of the strategy she was hired to fix, leaving no fresh perspective
The company over-hired during the pandemic boom and had no plan for when growth normalised
The board gave a new CEO 17 months to turn around a business model that was already under pressure
The lesson
A direct-buy option next to a subscription cannibalises the subscription — the two models serve different customers and one of them wins.
FOLLOW THE EVIDENCE