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WHEN: Today, Friday, November 17, 2017
WHERE: CNBC's "Squawk Alley"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Stitch Fix CEO Katrina Lake and CNBC's Jon Fortt on CNBC's "Squawk Alley" (M-F 11AM-12PM) today, Friday, November 17th. Following is a link to video from the interview on CNBC.com: https://www.cnbc.com/video/2017/11/17/stitch-fix-ceo-how-we-use-data-to-power-personal-styling.html.
All references must be sourced to CNBC.
SARA EISEN: FIRST, WE ARE WATCHING STITCH FIX MAKE ITS PUBLIC DEBUT THIS MORNING LETS SEND IT OUT TO JON FORTT AT THE NASDAQ WITH CEO AND FOUNDER KATRINA LAKE. JON, OVER TO YOU.
JON FORTT: THANK YOU, SARA. KATRINA, THANKS SO MUCH FOR BEING WITH US AND CONGRATULATIONS ON YOUR FIRST DAY AS A PUBLICLY TRADED COMPANY. THE STOCK UP BETTER THAN 16%. GOT A SHEET FROM THE NASDAQ HERE, IT'S HARD TO COME BY THE EXACT DATA, BUT YOU MIGHT JUST BE THE YOUNGEST FEMALE FOUNDER/CEO TO TAKE A COMPANY PUBLIC EVER. BUT, ALL THAT ASIDE, STITCH FIX IS AT THE INTERSECTION OF RETAIL AND BIG DATA. TELL ME WHY IS IT IMPORTANT TO HAVE THIS FUNDING NOW TO GROW THE BUSINESS?
KATRINA LAKE: ABSOLUTELY. WHEN I STARTED STITCH FIX, I WAS LOOKING AROUND AND SAYING HOW ARE PEOPLE GOING TO BUY CLOTHES TEN OR 15 YEARS FROM NOW, AND I DIDN'T SEE THAT SOLUTION IN BETTER STORES AND I DIDN'T SEE THAT SOLUTION IN SEARCHING THROUGH MILLIONS OF PAIRS OF JEANS ONLINE, AND THIS IDEA OF PERSONALIZATION, OF GETTING TO KNOW PEOPLE, GETTING TO KNOW PRODUCTS AND GENERATING REALLY GOOD ACTIONABLE RECOMMENDATIONS AT THE INTERSECTION OF THOSE TWO THINGS WAS SOMETHING THAT I FELT LIKE WAS THE FUTURE OF RETAIL AND SO WE'RE REALLY EXCITED TO TAKE THAT BUSINESS AND TO BE ABLE TO KIND OF SHARE THAT WITH A BROADER AUDIENCE NOW.
FORTT: AND FOR PEOPLE WHO AREN'T FAMILIAR WITH THE STITCH FIX MODEL, AND THERE ARE GOING TO BE FEWER NOW THAT YOU'RE PUBLIC, YOU CAN CHOOSE HOW OFTEN YOU GET, BASICALLY, A BOX OF CLOTHES THAT ARE CUSTOMIZED TO YOU, PARTIALLY THROUGH WHAT YOU'VE TOLD YOUR ALGORITHM, WHAT TYPES OF CLOTHES YOU LIKE, YOUR SIZES, ET CETERA, PARTIALLY THROUGH A STYLIST, WHO'S THEN PICKED STUFF OUT FOR YOU. THE FREQUENCY RANGES FROM EVERY TWO TO THREE WEEKS, TO EVERY COUPLE OF MONTHS, RIGHT? WHERE ARE PEOPLE MOST OFTEN CHOOSING TO BE IN THAT CONTINUUM, AND WHERE DO YOU EXPECT THEM TO BE?
LAKE: YEAH, WE SEE A LOT OF VARIATION IN THE WAYS THAT PEOPLE ENGAGE WITH STITCH FIX. SO YOU CAN GET SHIPMENTS ON A MONTHLY CADENCE. THAT'S NOT NECESSARILY A HEALTHY CADENCE FOR ALL PEOPLE TO SHOP. THAT'S A LOT OF CLOTHES. I LIKE SHOPPING THAT WAY BUT NOT EVERYBODY LIKES TO SHOP THAT WAY. YOU COULD GET THINGS ON A QUARTERLY CADENCE, YOU COULD ALSO GET THINGS ON A LA CARTE. I STYLE FIXES MYSELF AND I HAVE CLIENTS WHO WILL COME FOR SPECIAL OCCASIONS OR KIND OF SPECIFIC THINGS THEY ARE LOOKING FOR, AND THEN I HAVE OTHER CLIENTS THAT ARE MORE CONSISTENT. SO WE REALLY THINK ABOUT THE FREQUENCIES AS REALLY JUST MATCHING THE WAY PEOPLE ENGAGE AND MAKING IT MOST CONVENIENT FOR THEM.
FORTT: YOU STYLE THEM YOURSELF?
LAKE: I DO.
FORTT: FOR FRIENDS OR FOR RANDOM STRANGERS?
LAKE: FOR BOTH. IN FACT, WE HAVE SOME CLIENTS HERE TODAY, WHICH HAS BEEN VERY FUN. A CLIENT THAT I'VE BEEN STYLING FOR FOR YEARS AND SHE HAD NO IDEA I WAS STYLING HER FIXES FOR BETTER OR FOR WORSE AND SHE'S CELEBRATING WITH US TODAY, WHICH IS FUN.
FORTT: IS THAT IMPORTANT FOR YOU TO DO? DO YOU VIEW THAT AS A CORE ASPECT OF THIS HUMAN-BEING BEING INVOLVED AS A CORE ASPECT OF WHAT STITCH FIX DOES?
LAKE: ABSOLUTELY. WITH STITCH FIX WE USE DATA SCIENCE, A LOT OF DATA SCIENCE, BUT THERE'S AN IMPORTANT HUMAN LAYER OF STYLING ABOVE IT, SO WHEN I'M STYLING FIXES, I CAN SEE WHAT THE ALGORITHM IS RECOMMENDING, BUT IT'S STILL MY CHOICE OF WHAT I'M GOING TO CHOOSE AND WHAT I'M NOT GOING TO CHOOSE. AND THAT IS SO IMPORTANT IN BUILDING RELATIONSHIPS WITH OUR CLIENTS. AND MAKING SURE OUR CLIENTS FEEL HEARD. AND SO THE COMBINATION OF HOW THEY WORK TOGETHER IS REALLY SPECIAL, BUT THAT STYLIST ROLE IN PARTICULAR I THINK IS UNIQUE AS YOU LOOK TO OTHER MODELS.
FORTT: SOME IPO INVESTORS IT SEEMS ARE GETTING GUN SHY AFTER SNAP, AFTER BLUE APRON, THESE COMPANIES TRYING TO CONNECT THE REAL WORLD TO, YOU KNOW, TO TECHNOLOGY AND DATA. THOSE TWO HAVEN'T DONE SO WELL SINCE THEIR IPOs AND I THINK INVESTORS ARE TRYING TO SEPARATE HYPE FROM REALITY. SO EXPLAIN PERHAPS IN THE CONTEXT OF INVENTORY HOW YOU TACKLE THAT ISSUE. YOU'VE TALKED ABOUT HOW YOU HAD A BIG INVENTORY PROBLEM IN THE PAST, LEARNED FROM THAT, MOVED PAST IT. HOW ARE YOU HANDLING INVENTORY AND HOW ARE YOU HANDLING IT BETTER NOW?
LAKE: YEAH, I MEAN, THIS IS A BUSINESS ON A NEAR BILLION DOLLAR BASE. WE'VE BEEN CASH FLOW POSITIVE FOR YEARS AND WE'VE HAD CONSISTENT PROFITABILITY, AND SO THIS IS A BUSINESS THAT I THINK HAS PROVEN IN A LOT OF WAYS AND WE HAVE REALLY STRONG CONTRIBUTION MARGINS AND PROFITABILITY METRICS TO SHOW FOR IT. IN TERMS OF THE INVENTORY SIDE, ONE OF THE THINGS THAT WE'RE EXTRAORDINARILY GOOD AT IS TURNING INVENTORY AND MOVING INVENTORY. AND THE WAY WE USE DATA TO DRIVE THAT IS THAT WHEN PEOPLE ARE SIGNING UP AND THEIR LETTING US KNOW THEIR PREFERENCES, THAT HELPS US TO MAKE SURE WE HAVE ALL THE JEANS IN THE RIGHT SIZES, IN THE RIGHT INSEAMS, SO WE CAN ACTUALLY USE DATA TO REALLY POWER THE INVENTORY SIDE OF OUR BUSINESS. TO YOUR POINT, THAT IS ONE OF THE HARDER PARTS OF OUR BUSINESS TO DO. WHEN YOU SIGN UP AND YOU SAY I WANT A NEW PAIR OF KHAKIS AND NEED TO BE ABLE TO HAVE YOUR SIZE AND INSEAM, THAT'S ONE OF THE CHALLENGES IN OUR BUSINESS AND I THINK THAT'S, YOU KNOW, A BENEFIT THAT WE NOW HAVE WITH THIS VERY LARGE SCALE, IS THAT WE ARE ABLE TO SERVE MANY PEOPLE VERY WELL WITH A BROAD BASE OF INVENTORY.
FORTT: I THINK YOU SAID YOU'RE GOING TO HAVE TO START SPENDING MORE ON MARKETING FOR CUSTOMER ACQUISITION. WHAT'S THE MOST EFFICIENT WAY FOR YOU TO DO THAT? IS IT THROUGH THE GOOGLES AND FACEBOOKS? WE'VE JUST SEEN THEIR EARNINGS, THEY'VE BECOME A VERY KEY MARKETING CHANNEL, ESPECIALLY FOR DIGITAL BUSINESSES. ARE THERE OTHER WAYS THAT ARE BECOMING IMPORTANT TO YOU?
LAKE: ABSOLUTELY. DIVERSIFYING OUR MARKETING CHANNELS HAS BEEN A BIG INITIATIVE FOR US. TODAY – LAST YEAR WE SPENT ABOUT 7% OF OUR REVENUE ON MARKETING. THAT IS STILL VERY LOW RELATIVE TO OTHER E-COMMERCE PEERS. OTHER E-COMMERCE PEERS, YOU'LL SEE 13%, 15%, 17%, SO WE'VE BEEN PRETTY CONSERVATIVE ON THAT FRONT, BUT VERY EFFECTIVE. IN TERMS OF CHANNELS, SOCIAL, DIGITAL WORKS WELL, BUT WE'VE SEEN TV BE REALLY EFFECTIVE, AS WELL.
FORTT: WE LIKE TO HEAR THAT, OKAY.
LAKE: YEAH, IT IS. NO. WE'VE HAD THREE ROUNDS OF TV AND THEY'VE ALL BEEN VERY EFFECTIVE. SO WE HAVE A VERY BROAD MIX OF MARKETING CHANNELS THAT ARE EFFECTIVE FOR US AND THAT'S BEEN KIND OF AN IMPORTANT PART OF OUR STRATEGY, IS DIVERSIFYING THAT MIX.
FORTT: TALK TO ME ABOUT CULTURE. YOU'VE GOT A COMPANY THAT'S GOT DATA SCIENTISTS, YOU'VE GOT STYLISTS, YOU'VE GOT QUITE A DIVERSITY OF DIFFERENT TYPES OF WORKERS AND LIFE EXPERIENCES. WHAT KIND OF CULTURE ARE YOU TRYING TO DRIVE IN THE COMPANY AND DO YOU VIEW IT AS BEING DIFFERENT FROM PERHAPS WHAT SILICON VALLEY AND SAN FRANCISCO HAVE HAD IN THE PAST?
LAKE: I THINK OUR CULTURE IS VERY DIFFERENTIATED AND IT'S A BIG SOURCE OF OUR SUCCESS. THE DIVERSITY OF THOUGHT, THE DIVERSITY OF EXPERIENCES, HAVING DATA SCIENTISTS WORKING ALONGSIDE STYLISTS AND MERCHANTS, ALL OF THAT IS SO SPECIAL AND ONE OF THE THINGS I LOVE MOST ABOUT THIS BUSINESS AND MANY PEOPLE WHO WORK HERE DO. BUT I THINK EVEN IN THE ABSTRACT TALKING ABOUT HOW THE STYLISTS AND DATA SCIENCE WORK TOGETHER IN STYLING FIXES, FOR EXAMPLE, IS KIND OF SYMBOLIC OF THE WAY WE WORK TOGETHER AND PARTNER TOGETHER, SO I THINK WE'VE BEEN ABLE TO CREATE THIS AMAZING CULTURE THAT IS, I THINK, A BIG DRIVER OF SUCCESS IN OUR BUSINESS AND ONE I THINK ALL OF US HERE SHARE A LOT OF PRIDE IN.
FORTT: TALKING MORE BROADLY ABOUT CULTURE, THERE HAVE BEEN NEWS STORIES OUT. YOU WERE SEXUALLY HARASSED BY AN INVESTOR AS YOUR COMPANY WAS GETTING OFF THE GROUND. THERE'S A NONDISPARAGEMENT ABOUT THAT, BUT I WANT TO ASK ABOUT THE CONVERSATION THAT'S OPENED UP SINCE IN TECH AND SILICON VALLEY AND GOODNESS, NOW IN POLITICS, EVERYWHERE, ABOUT THESE ISSUES. AS YOU REFLECT ON YOUR EXPERIENCE WORKING PAST THAT, LEARNING FROM IT, WHERE DO YOU SEE THAT TECH IS NOW, FOUNDERS ARE NOW, AND WHERE DO WE NEED TO GET TO? HOW DO WE GET THERE?
LAKE: YEAH, I MEAN. MY PATH AS AN ENTREPRENEUR HAS NOT ALWAYS BEEN EASY AND I'VE LEARNED A LOT THROUGH THAT. MY HOPE IS THAT NOW THAT THERE'S SUCH A BROADER CONVERSATION ABOUT THE CHALLENGES OF MANY PEOPLE AND MANY INDUSTRIES ACROSS -- BEYOND TECH, MY HOPE IS THE CONVERSATION MOVES THINGS FORWARD. YOU KNOW, I THINK IN VENTURE CAPITAL AND IN TECH WE STILL HAVE A GENDER ISSUE. THERE'S STILL NOT ENOUGH WOMEN WHO ARE VENTURE CAPITALISTS, THERE'S STILL NOT ENOUGH WOMEN WHO ARE DECISION MAKERS AT THE TOP AND YOU KNOW, I HOPE THAT AT STITCH FIX WE CAN DEMONSTRATE KIND OF WHAT SUCCESS CAN LOOK LIKE WITH A REAL DIVERSE TEAM. BUT, YOU KNOW, I'M HOPEFUL THAT THERE'S CHANGE COMING AND CERTAINLY HAVING A LOT OF CONVERSATION ON THE TOPICS, I THINK, IS CREATING SOME MOMENTUM.
FORTT: WELL, QUITE A MILESTONE YOU'VE GOT HERE, THE STOCK UP FROM WHERE IT OPENED, BETTER THAN 14% RIGHT NOW. KATRINA LAKE, FOUNDER, CEO, STITCH FIX. THANK YOU FOR BEING WITH US.
LAKE: THANK YOU FOR HAVING ME.
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