Dive Brief:

• Online styling service Stitch Fix is focused on diversifying its mix of parcel carriers for outbound shipments and returns. Logistics networks clogged with volume during peak season led to longer cycle times at the company, executives said on an earnings call last week.
• The carrier delays and increased cycle times "resulted in us not being able to recognize all the revenue from Fixes we shipped during the quarter," CEO Katrina Lake said on the call. Still, revenue was up 12% YoY.
• Higher carrier rates and peak surcharges contributed to a margin decline of 190 basis points YoY, CFO Dan Jedda said on the call. Executives said the company's primary carrier is the U.S. Postal Service, "although we also use other carriers, including FedEx, as well," Jedda said.

Dive Insight:

Logistics and last-mile delivery are embedded in the fabric of a company such as Stitch Fix, which curates a box of apparel for consumers based on a style quiz, ships the parcels to consumers and allows the consumers to return any items they don't wish to keep.

A supply chain strategy that takes into account on-time deliveries, reverse logistics and the balance sheet is a necessity in such a business model, built on the foundations of package delivery and returns, and one that offers consumers free shipping, returns and exchanges.

"We strike the right balance between costs and making sure our clients get their Fixes in a timely manner," Jedda said.

Part of that balance comes down to carrier diversification, which Jedda described as "very important to us," Jedda said.

Shippers have been diversifying their parcel carrier networks for years, but the strategy became necessity for many companies ahead of last year's peak season.

Logistics experts last June advised shippers to "shake up that carrier mix" ahead of an anticipated busy peak season, said DHL eCommerce Solutions Regional Sales Manager Kim Gimble.

Later that year, UPS began capping volume, in line with CEO Carol Tomé's "better, not bigger" strategy. FedEx did the same.

"Having multiple carriers is an easy ... resolution for the capped volume. You could just switch it over to another carrier," Gimble said last summer. Many shippers sought USPS and regional carriers to move their products.

Stitch Fix's supply chain relies heavily on carriers not only on the outbound leg, but also on reverse logistics as consumers return items. The company defines cycle times from the point at which it styles items, to when it receives and processes returns from consumers in its warehouse. Any delay in outbound or reverse logistics can add up to longer cycle times.

Increased cycle times have continued beyond the holiday season into February. "We believe [that] could impact revenue in the second half of the year," Jedda said. He said Stitch Fix is working on speeding the time from styling to exiting the warehouse, "so we can alleviate some of that cycle time holding."

Stitch Fix is partnering with USPS, its primary carrier, to more efficiently process returns, Lake said, though she did not elaborate on what that entails. And Jedda added that the company is diversifying carriers on outbound and reverse logistics.

The CFO said returns processing can be "lumpy" if items arrive back to warehouses in large batches. "There’s some operational burden that cycle time does have on our fulfillment centers," Jedda said, adding that the issue hasn't been material. "We have been able to work around that and implement new processes to better align on any sort of lumpiness."

About 90% of Stitch Fix's volume comes through the Port of Los Angeles, but port congestion has not materially impacted inbound shipments or inventory selection, according to Jedda. "We are watching it very closely," he said.