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Leadership story: Stakeholder value is shareholder value

Reading Time: 5 minutes

Stitch Fix’s early focus on creating value for all stakeholders, especially its vendor partners, benefitted Stitch Fix in a very tangible way when the pandemic hit. For CEO Katrina Lake, it’s one of many examples that validates her belief that stakeholder value is shareholder value.

Very early on in the pandemic, apparel retailers rightfully expected a huge drop in customer volume, and so they pleaded with their suppliers (clothing brands) to get out of or scale back the volume of clothing that they had committed to purchasing.

It was a difficult situation. The suppliers, incurring business expenses of their own, surely would not be able to give up all the revenue that had been committed to them from retailers. They would have to make decisions about which retailers should get better treatment than others. So which retailers would it be?

Stitch Fix aligns its business model with the interests of all stakeholders

Meanwhile, prior to the pandemic, CEO Katrina Lake and Stitch Fix always focused on creating value for all of Stitch Fix’s stakeholders, especially its vendor partners. 

That appreciation is evident at a fundamental level for the company—its business model aligns much better with the interests of its vendor partners than the previous generation of innovators in the apparel industry: flash sales. 

“[Flash sales] had really done a lot of harm to a lot of our vendor partners who now, all of a sudden, had customers who expected that their products would always be on sale,” Lake said in a podcast interview in August 2020. “It did damage to their brands.” 

Now compare the flash sales model with Stitch Fix, who provides a full price growth channel for its vendor partners, and you can understand why their vendor partners love Stitch Fix.

Stitch Fix doesn’t stop there when it comes to aligning its success with the success of its vendors. The company has incredible amounts of data on clothing styles and sizing that its vendors are able to learn from to create better products for all their channels (not just Stitch Fix).

“We need our vendors to be successful in order for our model to work,” Lake said. “I think being able to make sure we’re a partner of choice for our vendors was important from the beginning.”

Stakeholder value became a competitive advantage for StitchFix during the pandemic

Now, back to the question posed at the beginning of this post: With retailers needing to scale back volumes from suppliers due to the onset of the pandemic, which retailers would suppliers give the best treatment to?

Not surprisingly, vendor partners treated Stitch Fix very well.

“We were at the top of the heap…Vendors wanted to make sure…they did right by us first,” Lake said. “That was actually a huge advantage then, and it’s a huge advantage now, where…we’re trying to chase into inventory that’s working…and support the growth in our business.”

Stakeholder value is shareholder value

There’s a growing movement of companies who seek to maximize value for stakeholders, rather than shareholders. While Lake would say she subscribes to the philosophy of stakeholder capitalism, she’d argue that stakeholder value is shareholder value, with the above scenario being a perfect example of that.

The value Stitch Fix had created for its stakeholders (especially its vendor partners), prior to the pandemic, turned into very tangible shareholder value once the pandemic hit.

This is the third article in a series of leadership stories. Check out the previous articles: Operationalizing core values featuring Shopify and Leading with an infinite mindset featuring King Arthur Flour.

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