Has Warby Parker reinvented its business model?

Discussion
Photo: Warby Parker
Mar 24, 2022

Warby Parker, one of retail’s most-lauded digital startups, now sees room to open over 900 stores in the U.S. Management sees the stores as critical to supporting its newer growth opportunities.

The eyeglass retailer opened a record 35 stores in 2021 to end the year with 161. Forty are planned for 2022.

Growth opportunities include progressive lenses, which account for 20 percent of Warby’s mix versus 45 percent of all prescription glasses sold in the U.S. Progressive glasses start at $295, Warby’s highest price point and highest margin.

“Progressives purchases tend to skew more toward bricks and mortar given the complex nature of the prescription and the older customer demographic,” said Dave Gilboa, co-CEO, last week on Warby’s fourth quarter call. Buyers of progressive lenses tend to be 45 years or older.

Has Warby Parker reinvented its business model?
Photo: Warby Parker

Stores also enable eye exams, which accounted for less than two percent of Warby’s sales in 2021 compared to 10-to-15 percent at a typical optical retailer. Neil Blumenthal, co-CEO, said exams also “give us greater control over the customer experience.”

Finally, in-store exams support sales of contact lenses, which doubled in 2021 to four percent of Warby’s sales versus 15-to-20 percent at a typical optical retailer. Industrywide, 70 percent of consumers buy glasses and contacts in the same location where they have an eye exam.

The 37 percent revenue growth in 2021 reflects Warby’s original business model’s core tenets. Warby avoids wholesale markups by producing its own lenses, keeping single-vision prescription glasses at $95 — the same price Warby charged when founded in 2010. (Progressives sell well below the $800 to $1,000 typically paid.)

Stores, accounting for 54 percent of sales in 2021, target four-wall margins of 35 percent and paybacks in under 20 months. New stores entering markets expand the entire market by over 250 percent on average in the first year. Other differentials include omnichannel capabilities, including online vision testing, and its “Buy a Pair, Give a Pair” program.

The 900-store potential determined by a third-party commissioned study last year “is still a fraction of the 41,000 optical shops that exist today,” said Mr. Blumenthal. “As we continue to expand our product and service offering, we believe this will also expand our store footprint opportunity.”

DISCUSSION QUESTIONS: Was Warby Parker always destined to open an extensive chain of stores or has the expansion into progressive lenses, contacts and eye exams created more urgency around store openings? Do you see more opportunities than risks in its ramped-up expansion across offerings and with physical stores?

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Braintrust
"Warby Parker opened, lived, learned, and is evolving accordingly."
"I believe Warby Parker was destined to be a unified commerce retailer."
"If you opened a Warby right next to ANY LensCrafters, you’d do well. Prices for glasses are so much lower and the frames so much cooler it’s not even close."

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31 Comments on "Has Warby Parker reinvented its business model?"


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Melissa Minkow
BrainTrust

These stores are definitely deviating from the original elements and target market that made Warby’s model successful. I don’t think these moves were always the fate of the retailer, but I like that they’re continuing to evolve and pursue more of the market. The risk of course is that these plays are towards much smaller areas of the business currently, versus sticking with what’s tried and true for them. If this proves to be successful, we’ll likely see other early mover DTC brands expand in similar ways.

edeanbutler
Guest

What do you believe is “tried and true” for Warby Parker. To me, “tried and true” implies doing something that is profitable. I do not think Warby Parker has ever done anything truly profitable, have they?

Bob Amster
BrainTrust

Warby Parker’s expansion into more brick-and-mortar is a direct result of realizing that, while much of the sales volume of straight prescription glasses could be done simply online, some of the opportunities for expanding Warby’s offerings require, or are more easily accomplished, in a physical store. Not surprising. Warby Parker opened, lived, learned, and is evolving accordingly.

Richard Hernandez
BrainTrust
Richard Hernandez
Merchant Director
8 months 8 days ago

I have always loved Warby Parker and what they stand for. I definitely can understand the move into progressives and eye exams – it is a natural evolution to become a one-stop shop in regards to optical needs. I will say one one thing I like is that there is one on every corner and I hope they don’t become a boring routine retail store and continue to be a unique and cool retail experience (the school bus store was the coolest so far :-)).

Brad Halverson
Guest

Loved the school bus. Out on a sunny Seattle day several years ago with my family, I stopped everyone so I could go in and explore. While the selection wasn’t huge, they helped me link my chosen favorites to online when I got home. Seamless CX. But most impressive was how that bus stood out on a busy street corner.

Jeff Sward
BrainTrust

The founders may never have imagined this level of brick-and-mortar retail when they founded the business. But it looks like they have been great students of the dynamics of the evolving market. This article is a perfect example of the advantages and pluses that physical retail adds to e-commerce. Truly a 1+1=3 scenario.

Steve Dennis
BrainTrust

In theory, but their recent results don’t suggest their store strategy is working at the scale they need.

Jeff Sward
BrainTrust

Have to agree. Had no idea about the $500 million raise as I wrote that. I was totally seduced by all the product extensions. As I guess many are….

Ray Riley
BrainTrust

Warby has raised over $500 million in the past 12 years to reach $250 million in revenue, and a loss last quarter of $45 million.

Its business model is under pressure to demonstrate profitability, and they clearly view stores as a vehicle to drive that initiative. Pricing and product (i.e. moving towards progressive lenses) is only one piece of that strategy as this cache of brands (e.g. Allbirds) are all having to settle into the reality of being a traditional retailer that has exhausted private capital.

Jeff Sward
BrainTrust

OK…wait a minute. I have to confess that I did not know about the $500 million raise over the past 12 years. That number never hit my radar. The $45 million loss was bad enough. My love affair with WP just suffered a little dent.

Dave Wendland
BrainTrust

Warby Parker’s brick-and-mortar strategy appears to be launched on solid footing. Combining traditional eye glass products with “services” and “extended optical solutions” appears to have resonance with consumers and staying power within the ecosystem. I’m a fan who sees Warby Parker’s future as quite impressive.

DeAnn Campbell
BrainTrust

Stores may not have been part of Warby Parker’s original start-up plan, but they have always been destined for an inevitable expansion into brick-and-mortar. There are very few direct-to-consumer products that wouldn’t benefit significantly from having a brick-and-mortar presence, but anything to do with apparel or eyewear are amplified by the high touch nature of the customer journey. Warby Parker did a good job getting people to make a purchase by letting them order five pairs to choose from, but the shipping costs this generated did nothing to help Warby Parker’s profit margins. By opening stores, even smaller formats, they will be able to tighten up their profit margins, expand their range of products and services and better retain their customer base.

Gene Detroyer
BrainTrust

I am embarrassed to say that I was not aware that Warby Parker was initially and largely an online retailer. Until they first appeared on RetailWire, the only Warby I was aware of was the brick-and-mortar stores. They had to have been around Manhattan for almost 10 years. I saw it as a new competitor of LensCrafters stores and a good one.

That being said, I believe the planned expansion makes sense. Glasses strikes me as one of the categories where I would rather go in a store than order online.

David Naumann
BrainTrust

Given their track record of an average store opening payback in 20 months and the growth opportunity, an aggressive store expansion seems like a smart strategy for Warby Parker. Warby Parker’s business model and loyal customer base will help them steal market share from other brands. Warby Parker’s focus on growth and customer satisfaction position them for a bright future.

Steve Dennis
BrainTrust

I’m pretty skeptical that their stores are currently paying back in 20 months. I think their first tranche of stores may have achieved this, but their results during the past year seem so suggest many of their comping stores are a drag on profits. Either that or their marketing spending is totally out of control. Maybe both.

David Spear
BrainTrust

As a buyer of several pairs of Warby Parker frames, I’m excited about their new store openings. I’ll visit their store to view new frames, check out their prices for lenses and look at their contact inventory – all of which points to an ideal customer that the article stats highlight. Were they destined to open stores? Clearly, their digital success has led them to physical, but their move into other parts of the optical offerings strongly reinforces the strategic decision to open physical stores. As they roll out more stores, senior leadership needs to keep a watchful eye on key profitability trends.

Brian Delp
BrainTrust
8 months 8 days ago

It may not have been their original plan, however it’s the natural progression for DTC companies as they continue to learn the importance of stores. As a Warby Parker customer, I see a lot of potential and more opportunity than risk. They have a leg up on the competition with the digital side and, as long as they keep that DNA through the physical side, it should be a success. One alternate idea is possibly partnering with a key retailer that aligns with their brand, like a concept to challenge Walmart Vision Center or Macy’s Sunglass Hut partnership.

Mohamed Amer, PhD
BrainTrust

In addition to their core model of eliminating the middle man, one of Warby Parker’s strategic tenets is to own the customer experience. The expansion of in-store eye exams helps increase the sale of progressive and contact lenses while increasing the customer touchpoints. Warby Parker is capturing more of the upstream services and controlling the execution in their stores. A 900 store chain does not seem unreasonable.

Neil Saunders
BrainTrust

Warby Parker is a fantastic business, but it desperately needs to deepen its penetration in the eye-care market to boost profitability. This is why it is pushing so hard into eye-exams, more complex prescriptions, and subscription services like contact lenses. Many of these things need to be delivered via stores, hence the raft of new openings. There is an opportunity here, but Warby Parker also needs to look at things like same-day lenses to compete effectively with incumbent players.

David Slavick
BrainTrust

Having managed the advertising account for Cole National for many years (licensed operators of optical in JCP, Sears, etc.) this category is over-penetrated. Is Zappos going to open up physical stores? What is different about a Warby Parker physical store vs. LensCrafters? The peepers I have on today are from WP and I love them. Being able to save close to $600 on a pair vs. getting ripped off by my upscale suburban eye doctor selling the same fashion/style as WP is a win for the savvy consumer all day long. I guess they felt like the ceiling was met and a move to physical store was the only way to fuel growth. Good luck — I’ll still select, try on and buy via the online channel.

Gary Sankary
BrainTrust

We know that companies who are able to engage customers across multiple channels enjoy higher loyalty and increased lifetime value from their customers. This is a smart move for them. It will allow them to capture more market share as many customers (myself included) typically get their glasses in the same place where they have their exams. It’s a lot easier to follow the optometrist to their fitting area than to just take a prescription and go somewhere else. This gives Warby Parker the opportunity to be a true unified commerce retailer and provide customers with all of the services they want, exams, onsite shopping and the digital experience that built their company to begin with.

Lee Peterson
BrainTrust

If you opened a Warby right next to ANY LensCrafters, you’d do well. Prices for glasses are so much lower and the frames so much cooler it’s not even close. Where this gets dodgy and where I would have to question the 900-store strategy is as follows: we have a saying; the higher the number of stores you say you’re opening, the higher the degree of BS.

Take it slow, Warby, 900 is a LOT. First question — how are we going to get 2,000 people to work with lens creation?.

Trevor Sumner
BrainTrust

While the theme of this post is dead on, it’s a little late to the party. Warby Parker has been selling more in-store than online even when it had just 50 stores. As it scaled over 100, stores became an even greater part of the strategy. During the pandemic, it shifted back closer to 50/50 and now that we are seeing post-pandemic behaviors, expecting stores to have a bigger impact and scale much faster than online. Of course, that doesn’t even take into account the stores’ impact on online sales. With the halo effect, stores impact the vast majority of sales and brand impact. And that is in fact nothing new, as most DTCs have realized.

Lucille DeHart
BrainTrust

I believe Warby Parker was destined to be a unified commerce retailer. The original concept of trying five pairs at home was genius, but limited. Even from their early days, they used their corporate offices as both a showroom and a store. The consumer response to physical engagement with the product and the brand drove the brick-and-mortar development. I see the additional product offerings and the footprint expansion driving continued growth for this brand. I also think sight is recession proof, so I am very optimistic about and for WP. I also own at least six pairs of their glasses!

Patricia Vekich Waldron
Staff

The cost structure, especially customer acquisition, shipping and returns, makes being a DTC-only brand unsustainable. Especially in Warby Parker’s case when their offer is fashion but based on eye health, which I believe is best done in person.