Please ensure Javascript is enabled for purposes of website accessibility

Is Stitch Fix the Role Model Blue Apron Needs for Its Turnaround?

By Jeremy Bowman – Dec 20, 2017 at 8:36PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The meal-kit provider could learn a thing or two from the profitable subscription-styling service.

Blue Apron (APRN 23.95%) has been one of the most-maligned IPOs on the market this year, and it's easy to see why.

Shares of the meal-kit service are down nearly 60% from their $10 IPO price, and were down as much as 70% before the company ushered out CEO and co-founder Matt Salzberg to replace him with CFO Brad Dickerson, who had previously served as CFO and COO at Under Armour.

While the company owes many of its problems to its own mistakes, including a mishandled transition to a new facility in Linden, NJ, the success of Stitch Fix (SFIX 2.23%), another -subscription-box service, may shed light on a fundamental flaw in Blue Apron's strategy.

A plate of roast chicken and mashed sweet potatoes

Image source; Blue Apron.

Misjudging the market

Blue Apron sees the market for its meal kits, which are shipped directly to your home, as pretty much anyone who eats food. According to the company's prospectus from earlier this year, "Our market opportunity is broad, as we believe our customers choose to buy Blue Apron meals instead of shopping at grocery stores, ordering takeout, or eating at restaurants."

While there is truth to that statement, at $9.99 per meal for two people, Blue Apron is considerably more expensive than shopping at your local supermarket, as my colleague Tim Green has pointed out. In fact, it simply wouldn't be sustainable for the average American family to rely on Blue Apron as its primary source for meals. Instead, the company would be better off positioning itself as a luxury product and catering to a customer base that finds value in the time saved by ordering meal kits. Luckily, there's a model for this in another industry.

Stitch Fix, a subscription-based clothing service, priced its IPO last month, and the stock has already gained more than 50%. Unlike Blue Apron, Stitch Fix is profitable, proof that the model works despite the company being just six years old. Though Stitch Fix doesn't identify as a luxury company, it has brought on more premium labels this year. And since clothes range widely in price, it only makes sense for the company to expand into the high-end market that comes with better sales and margins.

My own experience trying out Stitch Fix confirms that I should expect to spend more money than I would in a store. Though I chose the budget option for most categories, my recent order ended up costing nearly $300 for five items (which includes a 25% discount for keeping all of them), one of which was socks. And I noticed that the company chose the high end of the price range for nearly every category of clothes.  I ended up keeping all the items they sent me as I was mostly happy with the service and selection, but it shouldn't be surprising that I paid more than I normally do at a store. Stitch Fix is a curated service with a stylist and items selected for you, shipped directly to your door. Like Blue Apron, there's a premium involved in saving the customer the time and effort that usually goes with shopping.

A stitch in time 

Blue Apron may want to consider adapting its service the way Stitch Fix has. While diners don't need stylists, Blue Apron could make more of an effort to personalize its service for customers, offer premium ingredients, or save the customer time by doing things like including pre-chopped vegetables in each meal kit. I've also tried ordering from Blue Apron and see little advantage in getting a whole onion or stalk of broccoli delivered to me in a box. I could easily buy that at a grocery store.

With a usual price point of $9.99 per person per meal or higher, meal kits are unlikely to become a regular staple for most Americans -- but Blue Apron and its peers have demonstrated that there is a robust market for these services. By focusing on a higher-end customer, Blue Apron should be able to move more quickly to profitability.

Jeremy Bowman owns shares of Under Armour (C Shares). The Motley Fool owns shares of and recommends Under Armour (A Shares) and Under Armour (C Shares). The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Blue Apron Stock Quote
Blue Apron
$6.21 (23.95%) $1.20
StitchFix Stock Quote
$4.13 (2.23%) $0.09

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.