Stitch Fix, a San Francisco-based online personal styling service, announced that it will lay off 1,400 stylists, representing almost 20% of its workforce.
The personal stylists make up a large portion of the total staff—5,100 out of 8,000 employees—and a big part of the costs. They offer style recommendations in addition to Stitch Fix’s algorithms and data analytics that personalize the clothes for its customers.
The company—early on—was considered a “unicorn” due its fast growth. Stitch Fix went public in 2017 and has a valuation of under $2 billion. Like many companies in this current economic environment, Stitch Fix seeks to control costs. According to an internal memo, the company said, “As we grow and want to invest in our other styling hubs around the country, it does not make financial sense to maintain a large styling team in California.”
Although Stitch Fix is laying off staff in San Francisco, the company plans to hire 2,000 stylists in lower-cost locations, like Dallas, Pittsburgh, Cleveland, Minneapolis and Austin.
Anna Hensel, a reporter covering the digital strategies of big-box retailers and startups for Modern Retail, tweeted about the downsizing, “When Stitch Fix announced the layoffs on Tuesday, the company said it would extend healthcare benefits for impacted employees. But, most of the employees laid off were part-time employees. Stitch Fix doesn’t give part-time workers healthcare coverage.” Hensel added, “The 2,000 styling jobs that Stitch Fix will be hiring for in other cities, like Minneapolis and Austin, will also be part-time.”
A company spokesperson said, “Employees who do not want to relocate will receive a minimum two-week severance payment, continued healthcare, help getting another job and possible bonuses for staying on until the layoffs are complete.” Stitch Fix founder and CEO Katrina Lake said in a statement, “Any decision that impacts our hardworking and talented people is incredibly tough, but we believe this is the right thing to do for our business.”
This move follows a number of emerging corporate trends. Many companies are giving strong consideration to—or in the process of—moving operations out of expensive cities, such as San Francisco, to lower-cost locations. They’re also offering remote work-from-home options and hiring part-time personnel, as opposed to full-time employees.
These measures are designed to cut costs and save the company money. It also seems apparent that companies, generally speaking, are getting less concerned with the individual worker, as unemployment spiked with over 40 million people filing for unemployment since the start of the Covid-19 pandemic.
The company didn’t offer any specific pay differential between those who remain in San Francisco and those who relocate—or the newly hired in other states. It’s reasonable to believe that Stitch Fix will take a page out of Mark Zuckerberg’s playbook, as it relates to compensation. Zuckerberg said that the employees who move to lower-cost locations will receive compensation commensurate with that location.
In a statement, Stitch Fix said, “We have taken the very difficult decision to reduce the number of stylists in our styling team in California, as we invest in our other styling hubs across the U.S., and the innovations that will help evolve our experience in the future. All of our California-based stylists will be offered the opportunity to relocate to the new roles in other states.”
As this trend continues, we’re likely to see less businesses remain in crowded, expensive, high-taxed, big cities. More companies will seek out locations that are less densely populated, so as not to worry about the re-emergence of Covid-19 or future new virus outbreaks. They will save money on real estate costs and the sky-high taxes attended with major metropolitan cities.
They’ll also continue to have their employees work from home, as it’s been proven to be effective, offers a better work and life balance and helps the environment with less emissions from commuting. The part-time trend has picked up pace, as companies lack clarity about their economic future and deem it cheaper and more expedient to hire people on a part-time basis, at least initially, until there is better visibility for the future.