I don’t get Stich Fix (SFIX).

It’s not that they shouldn’t be a company--I’ve seen worse ideas that didn’t get left on the drawing board--but I don’t see how they ever become successful.

They probably should have invested in Bitcoin at the beginning of the year.

That might be an exaggeration, but it brings home the point that their competitive advantage is marginal, and they haven’t done enough to differentiate themselves amongst competition.

For a company that is fighting for relevancy, they have made some boneheaded mistakes.

For one, customers don’t receive a great sales price on the clothes. Unless you keep the entire box (5 items), you won't get a discount. You also won't find any coupons online for Stitch Fix. You pay retail prices, which can sometimes be high, depending on the brand they send.

For many tech companies that preach the freemium model, Stich Fix is asking customers to pay a premium for the clothing off the bat, and I believe that is turning off a lot of potential customers.

SFIX hasn’t done enough to fetch a premium for its services.

I understand SFIX isn’t willing to discount any clothing, unless it’s the entire box, and this is because the unit economics of this business model is quite poor.

Revenue grew 19% year over year to $581 million, yet they forecasted just 9% revenue growth for the next quarter — that’s not what I call a tech growth company.

A tech company with only $2 billion in annual revenue shouldn’t be growing only 9% year over year. In fact, I would say a company this small needs to be accelerating revenue to somewhere around 40% to command respect among the incremental investors.

It’s no shocker that the stock is down around 300% in the past 365 days.

That’s horrible considering the “reopening trade” was supposed to cause a massive demand in people wearing proper clothes again and not just pajama pants.

To miss that opportunity epitomizes the company’s lack of marginal advantage which I was just banging on about.

Another issue I have with the company is that the clothes are not affordable, and I am not talking about a discounted price relative to the retail price.

If you are a bargain bin fanatic, the sight of SFIX’s service will turn you off.

Stitch Fix claims the average price of items is around $55, but that the items can cost anywhere between $20 and $400.

You can set price ranges for each category, but that doesn't mean your stylist will always follow those instructions.

Pigeonholing oneself as a luxury service but hoping to scale broadly and fast like a tech company is counterproductive.  

Many Americans simply won’t pay up to $500 for a 5-piece set of clothing no matter who is styling it.

This sounds like a service for a computer programmer in San Francisco with a $200,000 annual salary--which isn’t a bad thing, but it won’t get the masses interested.

This leads me to my next point of the company overselling the personalized stylist aspect of it.

Is the stylist really that much better than me just picking out a few pieces at the store or online, and being able to keep it?

They even have Stitch Fix “Freestyle” category now that is SFIX without the styling fee, where the customer can personally choose their clothes. But then, isn’t that the same as any other online retailer but with higher price?

Again, I don’t get the roadmap here and it’s basically admitting that their styling is not good.

In fact, there is quite robust competition that undercuts SFIX such as Amazon (AMZN) Prime Wardrobe.

Amazon Prime Wardrobe is an exclusive program just for Prime members. This service gives users the chance to have chosen clothing items shipped to their home for them to try on before buying. The difference here is that the user selects the item which, for me at least, makes sense instead of SFIX blindly shipping clothes that aren’t ok’d. I just don’t think a “stylist” can get it right more than half the time. You only pay for what you keep and you have 7 days to make up your mind.

The biggest headscratcher is the $20 SFIX styling fee if you don't keep anything.

Seriously, what is that about?

If you hate their expert stylish decisions, you get blamed for it and pay $20 for nothing! Shouldn’t it be SFIX paying the user $20 for failed style sense?

Any person with a brain understands that paying $20 just to try something on then sending it back sounds like the worst way to convince someone to become a long-term customer.

And this is without even mentioning the pain of resending the clothes!

So, in an era where software companies have made software as a subscription (SaaS) almost a religion, there is no subscription service for SFIX.

This means there is a high number of churn where customers use their service once then never again, most likely after they are charged $20 to try on clothes they don’t like and have to send back the failed styled clothing.

Marginally, this company doesn’t cut it, we will check in with the next iteration of SFIX sometime in the future, but in it its current form, the 300% drawdown in the stock is absolutely logical.