What Online Retailers Got Wrong about Algorithms and AI

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Around the time that the COVID-19 pandemic took hold in 2020, a group of ecommerce, direct-to-consumer fashion, personal care, and prepared meal-kit companies were being hailed as leading-edge retailers reinventing the online shopping experience by crunching data on customer behavior.

 

In 2018, industry trade journal RetailDive.com declared Katrina Lake “Disruptor Of The Year” for her role as founder and CEO of Stitch Fix, a fashion site offering a subscription service of goods curated by 3,900 part-time stylists. In an article published in the Harvard Business Review around the same time, Lake described her company as “a data science operation,” with revenue “dependent on great recommendations from its algorithm.”

Stitch Fix has been among the more visible examples of the rise of so-called subscription box retailers. The list includes beauty products retailer Birchbox, which “curates” and ships to subscribers a collection of products based on previous purchases and algorithms that categorize consumers based on age, location, and other data points. Blue Apron, a prepared meal subscription service, was another notable entrant.

At the beginning of 2021, three years after the company went public, Stitch Fix’s market capitalization was a whopping $10 billion.

 

Today, just eighteen months later, the stock has lost about 95% of its value and the company is expected to post its first annual sales decline since it went public in 2017.

 

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