Matt Baer cuts $500M in costs, shifts Stitch Fix back to retail fundamentals

Matt Baer is 3 years into his Stitch Fix CEO tenure, and the turnaround headline is brutally specific: the company cut $500 million from its cost structure while reporting a fifth straight quarter of year-over-year revenue growth. In a business that used to sell the idea that algorithms could outperform retail, that kind of pivot is basically a confession: the tech darling story didn’t survive contact with merchandising fundamentals.

In Baer’s telling, the fix is not to abandon the data, but to use it like a retail executive would. “Transformations take time, and we had the appropriate amount of patience through this process because the goal is for durable profitable growth,” he told Fortune this week. So Stitch Fix is recasting itself from “a tech company that sold clothing” into “an apparel company that’s tech-forward,” marrying tech DNA with retail best practices.

To understand why that matters, you have to rewind a decade. Stitch Fix was founded in 2011 by retail consultant Katrina Lake, who still serves as chair of the company’s board. The subscription service combined data analytics and remote personal stylists to build wardrobes for individual customers, using algorithms to predict what people would keep. In the early days, it found demand among Americans who either didn’t like shopping or didn’t feel confident building outfits. For a while, the bet worked: revenue tripled between 2016 and 2021 to $2.1 billion, fueled in part by the pandemic shift toward shopping from home. The market loved the story. Stitch Fix’s market cap hit an all-time high of $11 billion in 2021.

Then the other shoe dropped, and it wasn’t a mystery. After the pandemic boom, shoppers left in droves. They described the assortment as predictable, a sign that Stitch Fix’s data advantage wasn’t translating into compelling merchandising. The site also lagged in evolving quickly enough for customers. And competition got louder: new subscription services cropped up, while big retailers like Walmart and Target improved their apparel offerings. Meanwhile, “natural attrition” did its quiet work as more consumers returned to physical stores post-COVID.

The customer math followed that narrative. In the first year after the COVID surge, Stitch Fix lost 400,000 users. Between 2021 and 2025, revenue dropped 40% to $1.27 billion. Baer’s framing is blunt and boardroom-relevant: “You can acquire a really large absolute number of clients but that doesn’t mean you’re building a healthy business.” That is the entire risk of tech-led growth stories in consumer retail: traffic and signups can mask margin and retention problems, until the bill comes due.

So in 2023, Stitch Fix hired Baer, a former Walmart and Macy’s e-commerce executive, to stabilize the company and refocus it. His approach leans into classic retail levers with very unsexy names, like private label. Stitch Fix’s in-house brands now account for about 40% of sales, and crucially, they carry higher margins. That’s not just product strategy. It is how you buy back profitability in a subscription model where customer acquisition costs can swing wildly and retention can get expensive fast.

Baer also expanded the “fix” beyond core apparel, pushing into activewear, footwear, and accessories like handbags and eyewear, where he thinks Stitch Fix can command a similar market position to apparel. He argues the company was leaving a billion dollars of market share on the table. Operationally, Stitch Fix gave shoppers more flexibility in how they build a fix, including item selection and delivery cadence. Under the hood, it still uses tech, but the company positions those updates as service to the retail experience rather than tech for tech’s sake.

One of the newer examples is AI-backed technology that lets customers superimpose an item of clothing onto a photo of themselves to see what it would look like. Stitch Fix is also deploying AI to identify trends, cutting design time for its private label brands to weeks from months. These moves matter because they target two failure points from the unraveling period: assortment excitement and speed. If customers felt bored by what they were seeing, you either change what’s being offered, how fast you can change it, or both.

The financial signals are at least directionally encouraging, even if Wall Street is still skeptical. In its most recent quarter, Stitch Fix reported a fifth straight three-month period of year-over-year revenue growth, rising 4.7%. It posted record revenue per active client of $578, supporting the idea that existing customers are spending more. Active client count rose for several quarters and stood at 2.39 million at the end of last quarter. The pain shows up in what the company had to do to get there, including ending full-time employment for stylists as part of the $500 million cost reduction.

Strategically, Stitch Fix still has to prove durability. Its market capitalization is about $500 million, only about 5% of what it was at peak five years ago. For executives and boards watching this story, the lesson isn’t “AI failed” or “subscriptions are dead.” The lesson is that consumer retail does not forgive weak merchandising. Tech can help you listen and personalize, but it cannot replace product-market fit, assortment quality, and retention economics. Baer’s wager is that the original model can work again, if it is run like retail, with tech focused on making the experience better and faster.