Why Stitch Fix and Big Lots are Getting Rid of Warehouse Space
Stitch Fix is closing two fulfillment centers as the online personal styling service pares back its distribution network.
The e-commerce clothing business isn’t renewing its lease on a Bethlehem, Pa. fulfillment center, which is expected to wind down by October. Stitch Fix will close a Dallas fulfillment center next year.
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Interim CEO and founder Katrina Lake said the company will undertake a “phased approach” to closures to preserve the customer service.
Lake said in an earnings call Tuesday that Stitch Fix’s three distribution centers in Atlanta, Indianapolis and Phoenix will stay open, “even with a larger client base in the future as we could expand capacity within these locations in the short term and the long term.”
The decision comes as Stitch Fix reevaluates its wider business, which Lake returned to this year after stepping in 2021. The company, known for using recommendation algorithms and data science to personalize curated orders, is still losing money and customers.
Stitch Fix reported $394.9 million in net revenue, down 20 percent year over year and 4 percent sequentially, while net losses totaled $21.8 million. Active clients totaled 3,476,000, down 11 percent from 3,907,000 in the year prior.
Stitch Fix reduced net inventory by 29 percent in the quarter, ending the period with $151.6 million worth of product.
“We believe our inventory would be better optimized across a smaller network of warehouses in the U.S.,” Lake said in the call. “This consolidated network will allow us to deliver a better client experience, with access to more inventory for a given fix, while, at the same time, allowing us to operate with lower, more cash-efficient inventory levels.”
The San Francisco company expects inventory levels to decline in the fourth quarter as it works to manage inventory closer to demand and revise its assortment strategy to align with the core experience, which could take several quarters, Lake said.
“The consolidation of the warehouses really does allow us to be able to hit more of that variety,” Lake said. Because Stitch Fix is “over-indexed” in items like tops, running fewer facilities means company stylists will gain easier access to underrepresented categories.
The 484,000-square-foot Bethlehem warehouse, owned by real estate investment trust Prologis, opened in 2016. Stitch Fix confirmed WFMZ’s report that the closure would terminate about 375 jobs.
A search of the Pennsylvania Worker Adjustment and Retraining Notification (WARN) doesn’t didn’t uncover a notice documenting the facility’s closure. The law requires most employers with 100 or more employees to provide 60 calendar days of notice before they go ahead with mass layoffs.
The Bethlehem and Dallas closures, which should save about $15 million a year, come as Stitch Fix also could get out of the U.K., where it’s been since 2019 but will likely lose $15 million adjusted EBITDA this year, in fiscal 2024.
Last June, Stitch Fix laid off 15 percent of salaried positions, or nearly 330 employees before closing its Berks County, Pa.-based sewing and knitting mill, which cut 56 jobs.
When Lake returned in January to replace Elizabeth Spaulding as CEO, Stitch Fix laid off another 20 percent of salaried staff, and closed its Salt Lake City distribution center, affecting workers there..
Big Lots closes four DCs
Stitch Fix isn’t the only retailer looking to get rid of warehouse space. In May, home décor and furniture retailer Big Lots said goodbye to four distribution centers in McDonough, Ga.; Bethel, Pa.; Lacey, Wash.; and Merrillville, Ind. as the low-cost company makes tries to save money and right-size its footprint.
The retailer has now identified more than $100 million in structural operational expense savings, up from $70 million.
Big Lots also plans to sell and lease back its Apple Valley, Calif. distribution center, its Columbus, Ohio corporate headquarters and most of its owned stores in a deal valued at roughly $240 million.
The company launched these forward distribution centers during the pandemic when consumers bought up furniture online to outfit their homes for months of confinement. They were intended to move bulky items, like furniture, away from its five regional DCs and simplify the distribution network.
Since then, Big Lots reported higher selling, general and administrative expenses associated with these facilities, including two of its newest forward distribution centers.
