Truist Securities Technology, Internet & Services Conference 2021

Mar 10, 2021

And we are live. Good afternoon, everyone, and welcome to the Truist Securities Technology, Internet and Services Conference 2021. My name is Youssef Sculley. I'm the Lead Internet Analyst at Truist Security. And it is my pleasure to have Elizabeth Spaulding, President of Stitch Fix. So Elizabeth, welcome and thank you so much for taking the time to be with us this afternoon. Thank you so much, Youssef, for having me. All right. So before we begin, I'm just going to need to read the following disclaimer. I think this is what will be the last time I go through this today. So this call is arranged by Truist Securities Research for use by institutional investors and issuer clients as defined by FINRA. If you are not an institutional investor or issuer, please disconnect at this time. For required disclosures, please see our website attruissecurities.com or our Equity Research Library for more details. So, just a quick word on Elizabeth and then we'll get into Q and A. As President of Stitch Fix, Elizabeth is focused on driving the next phase of the company's growth, including direct buy capabilities and international expansion efforts, 2 big topics we'll be discussing. Prior to Stitch Fix, Elizabeth was Global Head and Founder of the Digital Practice at Bain and Company, where she supported clients in digital transformations with a particular focus on consumer and tech sectors. So her role at Stitch Fix seems extremely apropos. All right. So let's start at or let's just set level set the conversation. So you joined Stitch Fix a little over a year ago, I think. Maybe speak to us about the top 2 or 3 reasons that got you to say yes to Katrina Lake, the CEO, and she made you the offer? Well, first, Youssef, I'm so excited to be here. Thank you for having me and happy to be the home stretch of your great event. Yes, Katrina and I just built a great relationship and it was somewhat serendipitous. As you mentioned, I spent the first two decades of my career at Bain and Company, a wonderful place that I considered home for a long time. And in the last sort of 7 to 8 years, I really realized I was kind of an entrepreneur inside of a consulting firm. And on a personal level, I loved what I was doing in terms of building new businesses for Bain. I launched our software practice. I was doing a lot of work on innovation, really at the intersection of consumer technology businesses and traditional consumer businesses. And when I was introduced to Katrina through one of the Board members who was a mutual friend, it just kind of made sense. The company is very much ready for its next big chapter of growth. And I felt like I had this unique vantage point in terms of working with consumer tech businesses and traditional retail businesses, where it was really obvious to me that Stitch Fix had built something extraordinary that could become just a truly enormous global business. And the acknowledgment that I had was working with a lot of the traditional players. It's just really not in their DNA to be a data driven, data science based company. And it's really, really hard to transform having worked on many transformation type projects like that in my career. On the flip side, most of the consumer tech players, although they dabble in commerce and building relationships, for the most part, many of those players are content companies or ads businesses. They're not really building the end to end supply chain, the consumer facing experience. And I guess at the core, I just saw this extraordinary personalization engine that could be taken in so many new directions. And I guess perhaps one of the most important points for me personally was just the culture of the business. I think part of the reason I stayed where I was for so long was a truly extraordinary culture of mentorship, sort of a very change oriented mindset and just a value system that I really believed in. And I think that is one of the biggest strategic advantages of Stitch Fix is just an extraordinary culture. All right. So let me piggyback on this truly enormous business potential. So put it in numbers for us. So at a high level, how do you look at the TAM for your business? And then probably even as importantly, how has that TAM changed with COVID? Yes, it's a great question. I mean, if you look at the U. S. Alone, the apparel market is around $400,000,000,000 over the next several years on a global basis. We'll be getting close to $1,000,000,000,000 market. And it's a very complex choice market. It's not dominated by a few players. And from a consumer standpoint, it takes a lot to find what you want. It's not like consumer electronics, who are a few big players and the barriers to building are so high. And so I think that creates a very unique opportunity. The other thing is just the opportunity just got a lot bigger, a lot faster for us. Over the course of COVID, if we look back to February this time last year, maybe about 25% of apparel was online. It was one of these categories that was really sticky in stores. And part of that is a lot of the category is browse and discovery. You don't know exactly what you want. You're trying to find something that fits you. You're trying to kind of identify your own personal style. And fast forward into COVID, as people have been really forced to try new things and move online and become more technology savvy. We think about 40% of the market is now online and we believe 50% by 2025 will be online. And we really feel like we are the right product at the right time in terms of product market fit. We're seeing it in our year on year growth numbers. We mentioned in our recent quarter that we saw 50% year on year growth in Q2. We saw 25% in Q1. And it really is this idea that we think that the product market fit, the idea of trying on clothes in the comfort of your own home that have been perfectly hand selected for you has never been more resonant. And really what remains in the shift online, it's not the items you're just replenishing exactly what you want and you're searching for. It's those harder to find things, the things where you're in that more discovery and browse mode. And that's what really characterizes the future for Stitch Fix. And so when you ask like, well, what part of that market do you want to walk into your own personal store and see things just for you? We think that market opportunity is really all of it, and that's what we're going after. So about 3 months ago or 4 months ago, we had a conversation in which you talked about a $30,000,000,000 opportunity emerging over the next 18 months or so. Maybe speak to that a little bit. Yes. I think what we had characterized then was this idea that if e commerce for apparel was around 25%, and we're going to see this very rapid shift of around 10 to 15 points move online, that's easily a $30,000,000,000 shift that otherwise in a normal year might have been $5,000,000,000 to $10,000,000,000 And so that's the $30,000,000,000 we were alluding to, and we really do think it's happening right now. And as apparel spending comes back, I think that number gets even bigger. And so a few of the ways we've looked at it is that, that market size overall, the percentage that's shifting more rapidly to e commerce. Another lens that you might take to look at it is just the extraordinary number of bankruptcies. We saw a lot last summer into the fall. If you look at a lot of those players, I think we're going to continue to see challenges of operating big traditional retail footprints in a world where people just aren't shopping the way that they used to. And we think a lot of the behaviors that we've seen during COVID are going to persist. And so that $30,000,000,000 is very much up for grabs and probably a much bigger number as we look towards 2025. And bringing this to the individual shopper, if you were to look at the your typical consumer wallet. Any idea how much do you have of it now if there are annual apparel spend and kind of conversely what's the opportunity there? Yes, it's a great question. I mean one thing that's really unique about the historic Stitch Fix model and of course we're innovating and continuing to evolve it is that it's been a pretty good sized share of wallet for a lot of our clients. The majority of clients when they sign up, they join on an auto ship basis, on a recurring basis, they're shopping with us. What gets us excited though now is as we've seen with the launch of DirectBuy for existing active styling clients is that's actually adding to that share of wallet. We had mentioned in the recent quarter that we as we look at like our 3 6 month cohorts of this year relative to last year, we saw an expansion in contribution profit because of that access that they now have to direct buy in addition to our fixed offering. And so we don't think we have all the share of wallet though yet of those consumers, partially because what direct buy is opening up is other purchase occasions. We're seeing different product categories. And when you're in a little bit more of an intent based occasion, hey, I'm looking for a new pair of athletic footwear, I'm looking for a new pair of joggers. Those are the types of things people tend to be shopping for right now, eventually maybe a fun dress or something for going out. We're beginning to see that open up. That's where direct buy really comes into play and we're really excited to see that being an incremental opportunity to further build that share of wallet. Okay. Makes sense. So I want to touch on the competitive landscape just very quickly and then move to the quarter. But on the competitively, who would you guys index yourselves against? And as you look at the kind of the short term, medium term opportunity, where is this market share coming from? I mean, we really believe our model is fundamentally different than the rest of retail. I mean, the way we think about the data that we amass and the personalization that we bring, I mean, in what other situation do you get a box of 5 items you don't even know are coming and you on average are keeping 2 to 3 of them like that's a pretty unique experience. And then that's powered by our data science capabilities, the unique styling community that is adding value to each of those fixes. And now, this notion of a shopping feed that's just for you. Of course, as we think about taking share and who that's coming from, our women's business has been particularly strong of late, which is exciting given it's our largest segment. And we've seen tremendous growth in the plus segment that we think has been highly underserved. A lot of those stores have closed. It's historically not been as well served online. That's a place where we think we're really taking share. We've seen our athleisure and casual wear grow 3 50% year on year. That's a place where we think we're probably taking share from traditional brick and mortar apparel as people are moving those occasions online. So in some ways, I don't know if we consider it exactly our competitive set because we think of our model is so much different, but we definitely think we're taking share from those traditional purchase occasions that might have been in a department store are now very much moving to Stitch Fix. Right. And so relative to the department store, you guys look really more like a tech company, more like a data company. When we were doing due diligence, this was years ago, we are always really floored by the number of data scientists that you guys have. So to one, can you maybe speak to your personalization as the ultimate competitive advantage? Where are you in that journey? And 2, as you keep adding more and more data, what kind of projects are you guys most excited about right now? Yes. I mean, this was definitely one of the things that most attracted me to the business was just the power of our data science capabilities and the talent on that team and then just the models and the approach that we've amassed over the last 10 years. I mean, that is an advantage that we believe is just a huge moat relative to other competitors. And one of the things that I think is particularly unique is that we're not just using data science to match inventory to an individual client, which is of course, a big part of our secret sauce that we're only showing things that are going to fit you that are representative of your personal style. We've built with our data science capabilities a latent style graph that is very powerful based on extracting through computer vision and other characteristics like what makes style happen and helping consumers do that discovery. But we don't just use data science within that, we use it in the way we manage our supply chain, how we allocate inventory across our distribution centers. We use it in our approach to digital marketing. We have our own internal software tools we've built for that. The tools that our stylists use, it's really woven into the DNA of the business in terms of how we operate really everything. And a big part of maybe a few things I'm particularly excited about, I think one is just this mindset of like data flywheels, how can we create things that are highly engaging, but also kicking off a tremendous amount of insight. So StyleShuffle is an example we've talked about many times. That just continues to be a very powerful data flywheel for us. We've now amassed over 7,000,000,000 data points. We have users playing with that on a daily basis. It's constantly getting us smarter and smarter about an individual preferences, but then being able to abstract that to new customers that join our platform and get smarter that much more quickly. Other areas that I'm really excited about is just our approach to building outfits. If you think about why the early phases of our direct buy offering, I think, has been really successful, it's this idea of seeing an outfit that you an item you might like in the context of an Most people aren't wearing a single item, they're wearing an outfit. And our ability to train machine learning models to generate outfits, we keep getting better and better at. We just released another version of our outfit algorithm that we know is outperformance in the way we do our AB testing and we just consistently are investing in that. And then just finding new ways to dynamically generate things. A lot of things we start off doing with our stylists and then we find ways in some places to do that purely by machine learning and then we can take the styling community to add more value in new places like live styling. And so we always think styling will be a big part of who we are. But what we're able to do is find ways to keep getting better and better at that kind of human in the loop machine learning, which I think is a really exciting part of our model. We don't intend to just have a shopping feed with no stylists. It's really the beauty of working across the combination of that human touch together with the powerful data models that we're building. Yes. Yes. I'd like to talk about lifestyle in a little later. But so being a little into your earnings call and the quarter that you guys just reported on Monday. So you mentioned longer cycle times as a reason for the lighter than expected top line. Can you maybe help us better understand exactly what went on? And is there any way to maybe to quantify the delay in cycle times? We've spoken to some smaller peers and it seems like at least what they've seen was anywhere between 1 week to 2 weeks at the height of the holiday shopping season. So maybe speak to that and maybe provide some more clarity. Yes, yes. It's a very good question. Of course, we've been very much working on this for the last few months and continue to see some challenges there, frankly. Yes, I mean, the way we define cycle time just to be a little more descriptive on that is, our model is obviously unique for our core fixed business. Direct buy operates a little bit differently, but still the majority of our revenue is with that fixed offering today. And of course, that will likely change over time. But in that model, we consider cycle time to time from beginning to create that styling experience. We have the styling time associated with it. Then we pick back in our distribution centers. Then we send it out to a consumer. They try it on, And so we don't recognize revenue till that moment of checkout. And so we don't recognize revenue till that moment of checkout with the consumer. And where we saw just tremendously elevated cycle times was really the combination of that outbound delivery with our carriers together with the return leg of those goods coming back in part as a result of consumers actually holding the goods a little longer. But overall, the majority was these carrier delays. And we tend to see a little bit of an elevation in general in December. That's not unusual. It was just the quantum of elevation we saw was really unprecedented. And then typically that clears in January. So when we were our last quarter, we reported in early December, we were beginning to see this, but it wasn't unprecedented. But as we got into later December, it started to look really unusual of how just how long those cycle times were, how elevated they were. But then the we didn't see them clear in January and we saw that push into even February. So we're doing a bunch of this stuff on our end now to continue to improve that, getting things faster throughout all the things within our control, we're doing even faster. We, of course, have a number of carriers we work with on the outbound. But part of the beauty of our model is it's super easy to return things as a consumer. We have 100% of our inbound back from return things as a consumer. We have 100 percent of our inbound back from consumers through USPS, which we just dropped that pre posted package in the mail, which is usually a big advantage. But I think during this time, it's presented some challenges. So, yes, but I think during this time has presented some challenges. So yes, had we not had those delays, we would have been within our guidance range. And so I think it's a bit of a new challenge. We think it will improve over the course of the rest of the fiscal year. But of course, it's got us working on diversification of our carrier strategy and making sure we can create the best client experience possible. Just out of curiosity, when did you actually start seeing it pick up? And I guess on the other side of it, what's implied in your guidance in terms of when does it finally normalize? Yes, I mean, we actually saw it starting to pick up in like late November, but we didn't realize how the significance of it till probably mid to late December. And then whereas we would have normally start to see clearing in early January, we really didn't see that till the very end of January where things started to look like it was normalizing. But then we had some of that significant weather in February and we kind of were back to where we started at the beginning of January in part because we have big distribution centers in Dallas and Indianapolis, which were a few very hard hit areas. So we have incorporated some conservatism into our guide given what we've been seeing and our best understanding of when we think that will clear. It can have an impact on subsequent fixes with the majority of our customers on a recurring cadence. It might mean if you were a monthly customer, you might miss a month within this 12 month cycle. And so that's part of what we're making sure we're being appropriately conservative in. We are anticipating that we will see this clear before the end of the fiscal year and hopefully well before that. But we've just incorporated some conservatism into our guide just based on this sort of unprecedented behavior we've seen. And we are working on it and we will find our on it and we will find our way out of it. But I think that played a role. And typically customers have what 30 days from where they receive to send that back? Yes. I mean, we encourage consumers within 3 days to actually try it on and return it, but we do have a grace period. And of course, if consumers make requests to keep it longer, we honor that. And I think that was part of what we saw in December, which is not unlike what we actually saw at the beginning of COVID, people holding things much longer. We kind of saw more of that behavior in late December. Is there a benefit or any plans to shrink that period? It's a good question. I do think that's a question we're asking. Like, of course, we want to be able to create a great customer experience, but also making sure that those goods are making their way back and getting back to where we used to be is definitely a goal for us. And I think as the world opening up again, vaccinations rolling out, we would anticipate that normalizing over time. Got it. Got it. Okay. That's super helpful. So thank you for all that. Switching topics a little bit to preview and other things that you guys are doing. So fixed preview is clearly a no brainer. I'm surprised honestly, it took you so long to finally start offering it. But you seem to have tested in the UK, planning to launch in the U. S. Can you is there any way to I think qualitatively, I guess, you guys spoke to it a little bit on the call, but maybe speak to the potential of it to increase maybe retention, shrink returns, etcetera. Theoretically, it kind of makes a lot of sense, but any kind of KPIs you can share to put more kind of details on that? Yes, definitely. Well, first of all, we just feel really excited about the sign ups to our fixed business overall. We saw 50% year on year growth of new customers to our fixed model during Q2, which tends to be a quarter where we don't acquire as many customers just given it's the holiday season. And so the combination of the momentum of product market fit of our core fixed model together with things like fixed preview and live styling, we think are just really exciting, evolutions in our model. And so with fixed preview, maybe just to explain it to your point, Youssef, it is a little bit like amazing. We've been as successful as we have been without having something that seems reasonably obvious that some people might want this. Our model has been historically entirely surprised and delight. Of course, many of our customers send request notes to their stylist of things they'd like to see. But we've sold $7,000,000,000 worth of clothes totally sight unseen. You don't know what you're going to get. It's surprising delight, which is a pretty extraordinary feat of our data science and style and capabilities. But what we to your point, we began testing in the UK back in August was this idea of what, there's a bunch of people who probably would like to preview it. And one data point in particular that I had found super compelling when I joined was trying to study these clients that we call our prospects, who go all the way through our style profile and then they don't sign up, which is now a group of people in the millions. And 45% of them say, if you just showed me a preview, I would convert. And so that was one of the impetuses of testing this out. And so the way that the experience works is we basically trigger an interaction with the consumer and we show them a 10 item preview. And from that, we're gathering their feedback on what they'd love to see actually show up in their fix. And then we get feedback on the things they don't want to, which is actually really powerful data for us. And then based on that, the stylist finishes the fix, we send the 5 items. And what we've seen in the UK has been just fantastic. On average, 10% higher average order values in part because of higher keep rates, just higher client satisfaction and higher retention. And so all of those things are pretty exciting, just revelation of like, yes, this is a great experience for those that are opting in and about 3 quarters of our U. K. Customers are opting into it. So we have now taken that to 100% of the U. K. It's fully rolled out. And then we began testing it a couple of months ago in the U. S. Before fully rolling it out to make sure we're seeing the same things in a market that's much more mature for us. And we're really pleased with what we're seeing. So we're now we just started scaling it with the intent to bringing it to 100% of the U. S. By the end of the fiscal year. Okay. So by end of fiscal year, it will be fully rolled out here. All right. And so you're taking that one step further, you're adding Zoom to it? Yes. Yeah. So tell us about that. How, you know, if the, if preview got you 10%, how much Zoom could get you there? Yes. I mean, we started both in ideation around the same time. And for the live styling, as we're calling it, we're still in incubation mode, but we are seeing very similar trends. And with that, we actually began in a super scrappy way just doing Zoom calls. And then with a set of very excited stylists, We surface the internal software tool that our stylists use, which we call Remix, that they're using to actually build what goes in a fix. And the results we saw, the feedback were really positive. So we said, well, let's start building this into a real product. So we reskin that software to be relevant for a call to make it highly interactive. And we've been really excited with what we're seeing. I think there's a few really probably not unexpected, but maybe surprising things. Clients will go into their wardrobe and pick something out and say, I really want something to go with this or this is my favorite thing. Do you have something like it? It's kind of getting worn out. And so we're kind of building an even deeper trusted relationship. We're getting insight into the client's closet. We're getting insight into other things they might want in the future, ideas of even just advice they might want on styling things beyond transactions. And so, we're doing a lot of work right now to scale fixed preview and get direct buy ready for new customers. We would anticipate scaling live styling in the future, but we're going to keep kind of tinkering with it for now before we scale it. But I do think to your intuition, there are a lot of people who like to maybe do a lot of shopping couple of times a year. Maybe that's the best experience for that. Or maybe you're going through a big life stage change, like maybe you lost a lot of weight or maybe you just came back from maternity leave and you're tired of wearing maternity clothes and you're ready for new clothes, like those could be moments where a session like that, is very impactful. So we're very excited about the possibilities with the intent to continue to fine tune it and hopefully scale it in next fiscal year. Is that something you can scale or you can have? I mean, you're at 4,000,000 subscribers that's growing really fast. My understanding is that you get a chance of spending 30 minutes with your stylist going through whatever. That's a lot of time. And so how do you scale that? So and I guess related to that or maybe not, we saw that you have 6,000 stylists right now. I thought the last time I looked, you were like 2,000. So has there been such a huge increase in STALIS recently? And again, the 2 are not necessarily related, but maybe speak that. Yes, yes. Well, those are both great questions. So I guess on the first one is like the feasibility of scaling a 30 minutes super high touch experience, I think it's a great question. I mean, maybe a couple thoughts there, hence the desire to tinker and incubate that a bit longer. One is I don't know that everybody would opt into it all the time. So I think that I think probably creates some ability for scalability there. But the other is like right now the way we're doing is you schedule a session based on when it works. But a lot of times maybe it's a shorter on demand interaction that you want for just 10 minutes. So I think there's a lot of possibilities that might make sense, that we need to kind of continue to see what consumers would value most. In terms of our client population or our styles population, you're right. We actually over the course of the fall, we added 2,000 plus new stylists and we're continuing to add stylists to that community. Part of it is to be able to do some of these new experiences. Part of it is just the growth that we're seeing in the business. So yes, I think we were probably a little under 5,000 last summer and now we're at about 6,000. And we're just continuing to see a great mix of part time stylists, some are full time. And there's a lot of different roles that our stylists play. They are helping, in some cases, train our outfit models for our shop experience. They're, of course, styling fixes for our consumers. They're helping us test things like live styling and a number of new experiences. In the UK, we actually have had stylists play a role like an influencer and an ambassador within our marketing campaign. So we see a lot possibilities of that community continuing to play a role, both in transaction based experience, but in the future things like advice and content as well. So we're continuing to get the benefit of a very vibrant community, a very diverse community that wants to participate in building these experiences with us. Yes. That sounds really exciting. So talk to us now about direct buy. So we decided to delay the rollout of direct buy to non clients until the end of the year. So what went into that decision? Yes, it's a great question. We've definitely gotten in a lot this week. If you think about how we began direct buy a year ago, we started it off just a year ago with complete your looks, which everything we did in the first phase of direct buy was for the advent of an existing Stitch Fix client and enhancing that experience. Of course, there were certain purchase occasions we weren't supporting them in through the fix that we thought we could help with. And even one of the triggers for that offering was people loving the style cards that we put in a fix of suggesting ways to wear the items that we send. And of course, there are other items that we show in those style cards where people are like, I'd love to buy those items. And so the first algorithm in the first shopping feed was all based on items you had previously bought and seeing other things to go with it. And of course, we refresh it on a very regular basis every day. Then we moved in June into trending for you, which was removing that previous purchase requirement, showing just series of looks that we think would meet your style preferences and of course always everything will fit you. And those have been very successful. They of course are very inspiration browse based experiences. If you think about a brand new customer coming into Stitch Fix that doesn't have that prior purchase experience with us, and a lot of times if you're shopping for something, maybe 40%, 50% of the time, you're kind of looking for something within a particular realm. Maybe you're looking for a new pair of jeans. Maybe you're looking for a new blazer. Maybe you're looking for that first fun shirt going out at night finally and getting back out into a restaurant. And those experiences are harder to shop by just having an outfit based feed. You actually want to be able to engage with categories. You want to be able to kind of browse based on maybe a brand. And so I think, we began testing a categories based experience in late November, and we're really excited about what we're seeing. We've been fine tuning it. But we've realized if you're a brand new customer, we want to make sure we have enough for that to be a very rich and high breadth experience. And that's essentially a big part of what we're working on and how do we even dynamically generate those categories. A lot of traditional e commerce just has fixed tagged data on a top, a bottom identifying what it is. What we're trying to do is actually extract using computer vision features of categories that will allow us to have hundreds of categories over time that we generate based on signal from you of what you might be looking for. So those are some of the things we're working on, some of which will hopefully be at the very beginning of launch, some will be fast follow. There's also the complexity of onboarding a customer very quickly into the experience. We've been testing some new onboarding flows that are simpler and quicker, but also getting a good sense of consumer style. And then things like our supply chain and operations, making sure they're adequately ready. And then even the way that we market and talk about ourselves as a brand. So there's just a lot that goes into it and we've been testing and iterating this whole time and we will continue to do so. But we want to really make sure we get it right. It's a 0 to 1 experience. It's not just the things that we've been doing for our existing clients. There's a lot of newness that we're working on as well. Well, we can't wait. So on the I guess providing the right inventory, the rich experience that you're looking for. Maybe can you touch on the new inventory models that you are exploring, the consignment, the dropship, etcetera? How material are these to you over the short medium term over time, who knows. But how are you thinking about these? Are they just additive to what you're already doing and the vast majority of your business is still going to be as it is today or would drop ship for instance be a big area of growth as you push into these non subscribers? Yes, it's a great question. We're very excited about the flywheel that we feel like we can have by great selection and multiple inventory models together with our personalized shopping experience and just what that will enable us to do for future long term growth. And so just to educate on our current inventory model and the historic model that we've had as a company has been wholesale. We're buying goods on receipt and then selling them through. A good chunk of our inventory are our own exclusive brands. But for all of those goods, we're buying them in a reasonably traditional retail way, albeit with a lot of value add from the way we use data science to inform the goods we're buying, how we optimize them, etcetera. And typically have had 5 to 6 to 7 times turns of that inventory because we're pretty efficient with how we do that. That said, the idea of shopping and really transforming the way people find what they love, matching them with anything out there, like the way we've almost internally been talking about it is infinite inventory. We want to find any good that's right for Youssef, that's right for Elizabeth, our own personal store and we want to ungate the constraint of a wholesale model. And so what we've been working on is the vendor relationships, the infrastructure from a technology standpoint for payments and payments processing as well as how we forecast in a very sophisticated way the usage of things like a consignment like model, which we've been calling flex, where we take more on a vendor's inventory within our warehouses. And once we sell it through, we pay for those goods and the relationship with our vendors, which is different than a traditional wholesale model. And then similarly, drop ship, which is a more standard offering being able to do that as well. So we've been in beta mode now for several months with that flex consignment model. We're excited by what we're seeing, working with our vendors and getting the technology in place to be able to do that and over time scale it. And then we're in early stages of testing of drop ship. And to your question over time, what might that portfolio look like? I mean, we would anticipate both of those other models would be a significant part of our inventory in addition to, in certain situations wholesale. Of course, our exclusive brands, which we're building and we have a very good understanding of, likely will continue to be wholesale, and even part of some of our market brands. But, really the idea is very much win, win, win, win for customers on great selection, win for our vendors, which will hopefully be even more our vendors, which will hopefully be even higher growth with them, by accessing more customers, more clients, and of course win for Stitch Fix to be able to kind of ungate this growth. So I think we'll have a lot more to share in the beginning of FY 2022 as we're seeing more clarity of how quickly we'll be scaling these, but we are very much testing them already right now. Would mean that you would have to increase the number of FCEs that you're operating over the next, say, 12 months or? I think not in the next 12 months. I mean, over time, certainly. So we've shared that we're opening another distribution center in Salt Lake City as we exit the one that we've had for many years in South San Francisco, which we are sad to leave the Bay Area community, but needed to find space that could accommodate our scale. And but what we're doing is we're actually adding right now a tremendous amount of density to those warehouses. We also just had opened up a new Indianapolis facility last year. So we actually have been adding to our network and are already adding right now. But there's also things that we can do like adding mezzanines, which is essentially doubling the capacity of our facilities. We do a lot on hangar today, so also experimenting with flat packing. The combination of those things will actually add a lot of density to the distribution network we already have. Of course, over time, I would imagine we will eventually add to it. But in the foreseeable future, we actually have a lot of headroom within the FCs that we have today. Literally headroom. Exactly. That's great. All right. With the few minutes we have left, I need to ask you a couple of financial questions. I feel bad because Dan is not with you. So you don't have the benefit of throwing the questions to him, but I totally understand if you dodge them, but we did get a whole ton a whole lot of questions. So let me try. So as you look at your, call it 19%, maybe 20% growth that you guys have guided to for fiscal 2021, Is it fair to assume that the vast majority of that is obviously coming from the fixed business with direct buy contributing maybe a few 100 basis points? Just is that the right way of thinking about the growth? Yes. I mean, we don't break the 2 of those things out. I think the majority of our business is still the fixed business. And the things that we have shared are our first fixed growth rates have been extraordinary the last few quarters, the 50 adding 100,000 new clients in Q2, close to $250,000 in Q1. So certainly, our first fixes and that growth rate is part of it. And we have our subsequent fixes, which one thing that's been sort of a lingering effect on our growth has been really missing out on the Q3 cohort of 2020 with COVID, which we're now going to start lapping. So that is contributing to our growth and we will hope to see acceleration there. And then, yes, direct buy, of course, we're starting to lap the business having existed, but it is getting bigger and bigger given it's now around a quarter of our women have participated where that was in the high single digits and maybe a little over 10% this time last year. Okay. All right. That's fair. And then if you look at the business from this predates you, but you're the President, so you're still going to be on the hook for it. So if I look at the business from 2016 to 2020, you guys added about $1,000,000,000 in revenues. Yet your profitability went down by 50% over that period. So can you speak to the drivers of that? And are we at a point yet when we start seeing it reversing, I. E. Start to see margin starting to see some margin leverage margin stabilization at least and then margin leverage, say over the next 12 to 18 months? Yes. No, it's a great question. I mean, I think maybe a few parts to that question. One is like in the near term foreseeable future, we feel like this is a pretty rare moment in time for us to capitalize on growth. The land rush of consumer shifting online, our model being the right place at the right time and what we're introducing to really address the full market opportunity is a growth plan. We want to make sure we're doing that, of course, prudently, but in a way that we're bringing in those new customers and providing the kind of product experiences that will make them long term customers over time. And we are very focused on generating free cash flow in a very significant way in that long term basis. There are some places to your cost structure point that have elevated even just in the very near term that we need to get cost effective on and we absolutely intend to. Just in the last few months, this notion of really making sure that we're in the right place with our warehouse employees. We all all of those employees are now at $15 an hour or more. Also making sure that we have stability within that group. I mean, there's so much shifting to e commerce, making sure that we have a population that can continue to serve our customers. And so there are some near term headwinds that we've seen on that cost structure that we absolutely anticipate being able to get leverage in over time. But there are places we do want to invest. If we're going to continue to see the trends we've seen on positive customer acquisition, we want to invest in marketing. We want to invest in the engineering and data science talent to build new products. But I think the contribution economics of our model are very, very good. And so that is part of why we've been so profitable earlier on in our history. We are now innovating in a very big way, for a big second next chapter of the business. And so I almost think of it as like a new era where we absolutely will see that leverage, but we also don't want to miss the moment of being able to play a very disruptive role in this next phase of e commerce. And so when you put it in that context, it's growth and free cash flow that we really think about and bringing a lot more active clients into the Stitch Fix ecosystem and making sure we're delivering those great contribution economics with a path to overall leverage over time. Okay. All right. So it's growth, growth, growth, but with an eye towards showing margin leverage over time, makes sense and free cash flow. We noticed something in the style shuffle. We noticed that you guys are testing some home decor products. Is that an area that you guys may potentially move into? I don't think we've actually tested any home decor. If not, it might be just a fun game that we're playing. There's no immediate terms, plans to go into home decor. I think we feel like we are a little over $2,000,000,000 company this year in a $400,000,000,000 U. S. Apparel market. There's a lot of headroom there for us to participate in, and in a very complex choice category that we think we're very good at, having a 10 year advantage in our data. Over time, will we explore and get into other categories? I think absolutely, but there's still there's a lot of categories that we feel like there's a ton of headroom and even ones relative to where we're strongest that we see a lot of upside in today. So it's a great question. I'm going to have to get to the bottom of this style shuffle example, but We'll have to get some snapshots and so lastly, from your many conversations with investors and especially, I guess, after the last couple of days, what do you think they're missing or we're missing in terms of the Stitch Fix story and just the opportunity ahead? Yes, it's a great question. I mean, if you think about most e commerce that's out there, you're filtering through tons and tons of things to hopefully find something you might like and might fit you. I think our approach is just fundamentally different where we are creating the personalized store for you together with the human touch of our styling community. And over time, I view us as really a commerce relationship company that has a role to play even more with content and you being part of like that daily active experience, which we can see in people's usage of StyleShuffle. We're starting to see it in the way that they're checking their shop feed every day. And so I think there as we started talking about direct buy, there is sometimes a misinterpretation of, oh, you're now going to do kind of like e commerce too that everybody else does. And it could not be further from the truth of us really wanting to build a fundamentally new approach to how people shop and find what they love in the most personalized way. All right. Well, we'll be watching. So Elizabeth, thank you so much. This was a lot of fun. It was fun. Thank you, Youssef. Thank you. And thanks everybody for listening to us and talk to you soon. Be safe out there.