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Better Buy: Nike vs. Stitch Fix

By Jennifer Saibil - Jan 19, 2021 at 6:43AM

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One is the leading apparel retailer; the other is trying to shake up apparel retail.

The pandemic blindsided apparel retail, with physical stores closed and customers saving money for essentials. Thankfully, the economy looks like it's heading toward recovery, and these companies are bouncing back. Nike (NKE 4.55%), a global retail leader, had a huge sales decline during the worst of the lockdowns, but it's now back on track to score high sales from its devoted fans.

Companies with a significant online presence were better positioned to weather the storm, and many saw digital sales soar. Stitch Fix (SFIX 2.66%) is a relative newcomer that's trying to change the way we shop. As a fully digital operation, it's poised to succeed in the post-pandemic world.

Let's see which is the better buy today.

Meeting customer demand in the new normal

With about $37 billion in fiscal 2020 sales, Nike is the leading U.S. apparel retailer. That's a slight decline from the fiscal 2019 total of $39 billion. But the company is still at the top. That's an impressive feat for what's essentially an activewear company, particularly during a pandemic.

Along with companies such as lululemon athletica, Nike has pioneered the trending athleisure concept. More people are buying and wearing the company's apparel for more than just exercise.

A pair of Nike sneakers.

Image source: Nike.

But Nike sees itself as more than a clothing and footwear maker. It has a dedicated following of fitness enthusiasts and several apps to bring them together. In the 2020 fourth quarter ended May 31, sales dropped 38% over the prior year, but digital rose 75%. That improved to a 1% decrease in the 2021 first quarter and an 82% increase in digital. It completely recovered in the second quarter, with a 10% sales increase. Digital growth remained impressive at 84%.

Nike had expected to reach 30% digital penetration by fiscal year 2023, but it hit that threshold in 2020. Digital is part of the strong omnichannel program that the company sees as the future of shopping. The SNKRS app, for example, combines livestreaming with shopping. In an event launch during the second quarter, a new sneaker model sold out in under two minutes.

On the other hand, there's Stitch Fix.

A unique shopping model

The company has a unique shopping model in which clients get a personalized "fix," or clothing shipment, monthly or at their chosen schedule. It's also doing well with its recently introduced direct buy option, in which clients shop from a customized collection of items. 

The company had a milder 9% sales decline in the third quarter ended May 2, picking up 3.4 million new clients at the same time. As an all-digital retailer with a high-income customer base, it was less affected by store closures and economic chaos than many storefront competitors. It did, however, post a $33 million loss.

Growth returned in the fourth quarter ended Aug. 1 with an 11% sales increase, but it still posted a loss as it increased marketing to get new customers. In the first quarter, sales growth remained steady at 10% and the bottom line improved to a $9.5 million net income.

A shopper lying on the floor with new purchases of shoes and clothing.

Image source: Getty Images.

The future of shopping

Nike and Stitch Fix are both competitive in the digital shopping space. Nike is opening up more physical stores that have a digital component. It's also tying membership perks to digital, such as product launches and a global members day. 

Stitch Fix is overloaded with new customers who joined during the pandemic, including its highest new customer count ever in the first quarter. Eighty percent of first-time fixers bought at least one item from their first fix and were continuing with the service, the highest number in five years.

The company doesn't share its retention rate, but said that it had its highest-ever success rate in the first quarter, after years of sequential improvement. This metric reflects the number of times items sent in a fix were purchased. Active clients also increased, leading to higher revenue at a lower cost. Right now, Stitch Fix has a big opportunity to convert new customers into actives and reap long-term benefits. It's improving its shopping options, such as allowing customers to preview fixes, and has a lot of potential to grow sales. 

Risk vs. growth?

Stitch Fix stock has gained 250% over the past three years vs. Nike's 120%. Nike pays a dividend that yields 0.69%, which is less than the S&P 500 average of 1.8%, but it's also better than nothing.

I think Nike is a surer bet here as the leader in its field with supporting tailwinds. As the upstart in apparel, Stitch Fix may provide greater growth opportunities, with more risk.

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Stocks Mentioned

StitchFix Stock Quote
$6.18 (2.66%) $0.16
NIKE, Inc. Stock Quote
NIKE, Inc.
$112.91 (4.55%) $4.91

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