Stitch Fix (SFIX 0.60%) has delivered impressive revenue growth since its November 2017 IPO. The company is coming along at a time when more consumers are seeking convenience and personalization in everything from entertainment to shopping for clothes, and that is providing a tailwind for growth. 

Stitch Fix ended the most recent quarter with 3.2 million clients. That's an increase of 18% over fiscal 2018 (which ended in July). Over the same time period, revenue climbed 29% as existing clients engage with the service and spend more money per client. Winning new customers is important to fueling sales growth, but keeping existing ones coming back and possibly buying more is just as important. Two new features -- "Shop Your Colors" and "Shop Your Looks" -- were recently introduced that aim to do both.

Image source: Stitch Fix.

Taking personalization to the next level

The secret to the online personal styling service's strong revenue growth has been how it uses data science to learn the taste and preferences of each client. It makes sense that, as more customers sign up, the smarter Stitch Fix becomes at recommending items. Management's strategy is focused on coming up with new methods to learn more about each client and, in turn, deliver new ways for them to engage with the service.

Shop Your Colors launched last quarter and allows customers to purchase items they already own in different colors, prints, and sizes. So far, management likes the feedback and engagement they are seeing. The interesting thing about this new feature is that it allows clients to purchase items directly from Stitch Fix like any other retail store, without using a stylist.

Shop Your Looks recently launched as a beta test and expands on the other new feature. It provides a selection of between 30 to 40 items that are personally curated for each customer based on the items they decided to keep from previous Fix shipments. This new feature shows how Stitch Fix is starting to leverage the massive amount of data it has on clients' likes and dislikes to go after larger competitors that tout massive selection but don't really help clients find the right item in the most efficient way possible.

Shop Your Looks widens the company's competitive moat

Some analysts are concerned that Shop Your Looks won't drive incremental spending, but only offset the spending currently being generated through the stylists. While some spending might be cannibalized, there is a real opportunity to drive higher engagement and more sales. As management explained in the fiscal fourth-quarter shareholder letter, "We believe this direct-buy functionality has the potential to drive further engagement between Fixes, increase our ability to serve clients well and gain greater share of wallet, while also providing new entry points into our business." 

In the beta test, Shop Your Looks is only available for U.S. women's clients, but over one-third of clients that use the new feature engaged with the service multiple times. The company also reported that "approximately 60% of clients who buy through the offering purchase two items or more." Shop Your Looks is clearly driving higher engagement with those that use it.

What's more, the growth of Shop Your Looks should boost profitability. It's early, so management didn't have specifics to share during the fiscal fourth-quarter conference call, but CFO Paul Yee said, "As we scale the business, we see opportunities to improve our margins overall from the business with direct buy." 

CEO Katrina Lake expanded further and talked about what the new features mean competitively: "We are taking tens of thousands of things and actually only showing you at any given time 30 or 40 shoppable items. And so, it's a very counter approach to what a lot of other e-commerce does." 

Lake's comment is getting at the heart of Stitch Fix's competitive advantage over other retailers that pride themselves on a huge selection. Sometimes people can feel frozen shopping online because there are so many choices. Even if a shopper completes a purchase, there is a lot of time wasted browsing countless items to find the right style, color, or size.

Stitch Fix removes the friction of getting what you want. The stylist option gives the consumer a totally hands-off approach, while Shop Your Looks provides customers more control over the process. Both options save clients a lot of time by delivering a highly personalized selection that further differentiates the shopping experience compared to larger competitors.

Shop Your Looks could significantly expand Stitch Fix's addressable market, and Yee hinted as much during the recent conference call: "Shop Your Looks is just one of many initiatives we have ahead of us to continue to engage with clients and to get to know them really well. So, from that standpoint, that's the fuel that's going to allow us to grow at 20% to 25% for many years to come."