With the world of brick-and-mortar retail currently suffering, Stitch Fix's (NASDAQ:SFIX) plan to stay online is a reason to be optimistic about the company's future.

CEO Katrina Lake told CNBC in an interview that for now, the retailer of personalized shopping experiences doesn't expect to open stores. Instead, Stitch Fix will continue to innovate through its e-commerce site.

A collection of women's clothing and accessories, including a sweater, scarf, handbag, and high heels


The starting point for all Stitch Fix customers is a style quiz. Then Stitch Fix stylists prepare a box of items that's shipped to the shopper for a $20 "styling" fee. A customer then can choose to buy one or more items from the box, and the fee is applied to the purchase. Stitch Fix has launched an additional service called "Shop Your Look" to about 30% of clients and is working on rolling it out to everyone. That offering allows customers to view dozens of items inspired by their previous purchases and select items to buy.

Online sales jump

In either case, Stitch Fix isn't relying on customers making a trip to the mall or to a shopping district, areas that are struggling to overcome flagging traffic. According to Statista, e-commerce accounted for more than 14% of all retail sales worldwide this year. The number has been steadily growing and has nearly doubled in only four years. In the U.S., online retail sales jumped 15% last year from the previous year, while retail sales in stores grew only 3.7%, according to data from Internet Retailer (now Digital Commerce 360's Retail).

That trend can already be seen in Stitch Fix's numbers. The company's number of active clients climbed 17% to 3.4 million in the first quarter of fiscal 2020, compared to the same period a year ago, and revenue per client increased 10%. That means that not only are more clients using the service, but they're also spending more on their purchases.

Though Stitch Fix reported a quarterly loss, compared with a net profit for the previous quarter and the 2019 full year, it has surpassed analysts' earnings estimates for the past four quarters. And while their estimates for earnings per share remain modest for the next few quarters, analysts predict EPS of $0.24 in 2021.

Expanding the customer experience

Stitch Fix faces competition from Nordstrom's Trunk Club, and other companies such as Wantable and Rent the Runway, but Stitch Fix is the only pure play you can invest in. With a market capitalization of more than $2 billion, it's in a position of strength. Still, with other fashion-in-a-box companies as well as general online retailers about, Stitch Fix's challenge will be to continue innovating to keep the customer interested. There too, Stitch Fix seems to be on the right path. As part of its earnings report, the company announced the addition of Elizabeth Spaulding as president, and said she would focus on the expansion of the customer experience beyond what is currently available.

As for Stitch Fix's stock, though it's gained 33% this year, there's still room for upside. Shares are notably trading for about $26, lower than the consensus price target of about $31. Investors shouldn't expect huge gains in the short term. But for those looking for a longer-term retail play, the window of opportunity to buy the shares at a reasonable level hasn't closed yet.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.