How Warby Parker Disrupted Then Adopted Brick-And-Mortar Retail | WSJ The Economics Of — Transcript

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1. 0:02Warby Parker makes popular glasses.
2. 0:05It also has a popular business model brand selling
3. 0:09mattresses,
4. 0:10luggage,
5. 0:10shoes at leisure scrubs,
6. 0:12razors,
7. 0:13strollers,
8. 0:13cookware,
9. 0:14bedding,
10. 0:14even hair color have all been called.
11. 0:17The Warby parker of what it means to be.
12. 0:20The Warby parker of is basically to be an online
13. 0:24disrupter of a well established pre existing
14. 0:29category.
15. 0:29The relatively cheap to start Warby parker like businesses can be expensive to market and
16. 0:34many have failed.
17. 0:36Warby Parker however,
18. 0:37has filed to go public high where Warby Parker,
19. 0:41an eyewear company that offers high quality glasses starting at $95.
20. 0:44So as the now 10 year old glasses maker prepares for its stock market debut,
21. 0:49let's look at how the business works.
22. 0:51It's a bit different than originally envisioned.
23. 0:54This is the economics of Warby Parker.
24. 0:58Warby Parker launched in 2010.
25. 1:00Quickly generating buzz with placements in GQ and vogue and gaining popularity with its
26. 1:05unique home try on offer.
27. 1:07I ordered five free pair of frames
28. 1:12from Warby Parker and we're going to try them on.
29. 1:14It took what was usually a in store retail
30. 1:19only uh,
31. 1:21experience and made it possible for customers to
32. 1:26get a miniature version of that from the comfort of their homes.
33. 1:30These are,
34. 1:31I don't like these.
35. 1:32Also got sunglasses.
36. 1:34Oh,
37. 1:35Hey,
38. 1:36you drive a sports car.
39. 1:38The offer to try five frames for free was essential for the brand when it launched as less than
40. 1:421% of all glasses purchases were happening online back then,
41. 1:46it's now about 8%.
42. 1:49So it's not necessarily about making a sale in the moment.
43. 1:53It's about whenever the customer decides that now is the time to
44. 1:58purchase glasses,
45. 1:59they will feel good about Warby Parker and their experience with Warby
46. 2:03Parker the real selling point and the founders initial focus was the price.
47. 2:08The point was to give the consumer a product that
48. 2:13felt like a designer frame but did not cost
49. 2:18what people expect designer frames to cost.
50. 2:21Since its launch,
51. 2:22Warby Parker has sold prescription frames starting at $95,
52. 2:25how they do this is in part explained by what they don't pay for,
53. 2:29including licensing fees associated with producing brand name eyewear and costs for placement in
54. 2:34major retailers.
55. 2:36Instead,
56. 2:37they streamline their process by having in house designers,
57. 2:41they work directly with manufacturers for both the
58. 2:45manufacturing of the materials and the building and assembling of the glasses themselves
59. 2:50and all of that streamlining helps to cut
60. 2:54costs.
61. 2:55They can essentially pass along those cost savings to their consumers or as
62. 3:00the cliche goes,
63. 3:01they cut out the middleman.
64. 3:03But as many similar brands have discovered that's not enough to make the company profitable.
65. 3:08One of the biggest challenges for direct to consumer business is
66. 3:13getting eyeballs,
67. 3:14getting customers you're really reliant on digital marketing
68. 3:19and word of mouth and that costs money In 2020.
69. 3:24When many shoppers shifted online,
70. 3:25Warby Parker spent an average of $40 per customer on a mix of advertising and home
71. 3:30try ons To pay for its expenses over the years,
72. 3:33Warby Parker has raised $572 million
73. 3:36$3
74. 3:42billion,
75. 3:43but it was money from a 2013 round that funded an experiment for Warby Parker that is
76. 3:47now key to the company's profitability.
77. 3:50Physical retail,
78. 3:52There's nothing quite like walking to a physical space,
79. 3:55looking around and feeling the essence of a brand.
80. 3:57Warby Parker's first store was here in Manhattan Soho neighborhood.
81. 4:01It now has more than 140 retail locations in cities and malls across the
82. 4:06us.
83. 4:07The company says in store sales averaged $2,900 per square foot
84. 4:12annually.
85. 4:13They're not really concerned about overall profitability of the store
86. 4:17locations themselves because they really see them as part of this
87. 4:22customer relationship.
88. 4:24For Warby Parker,
89. 4:25a sale online is as good as a sale in store,
90. 4:27but it's worth noting that sales are now split evenly between the two,
91. 4:32which marks a shift for what was originally an online only brand even
92. 4:37though they have come in as a disruptor they have with
93. 4:41their retail locations somewhat recreated
94. 4:46the traditional purchasing process for
95. 4:50customers.
96. 4:51The stores helped the company's bottom line,
97. 4:53not just by generating sales but also by stoking interest.
98. 4:57Think of each store like a street level billboard for the brand.
99. 5:00You have actual discovery ability,
100. 5:03which is something that direct to consumer businesses online can struggle with.
101. 5:07You have foot traffic and that's a way to start a
102. 5:12customer relationship by the end of this year,
103. 5:15Warby Parker plans to have opened over 30 new stores and continue at that pace in years to
104. 5:19come to identify new locations.
105. 5:22The company leverages online data,
106. 5:24it knows where people are buying and that allows the company to make informed decisions on where it may
107. 5:29pick up new customers or drive people who have maybe heard of the brand to check it out.
108. 5:33So there is kind of this virtuous cycle that
109. 5:38is created where a customer can find Warby Parker
110. 5:43online or by walking past the store and as
111. 5:48long as they complete a purchase at some point in the future,
112. 5:51the company really isn't too fussed about where they do it.
113. 5:56That's really Warby Parker's secret sauce creating a model where the online and
114. 6:01in store experiences work together to drive sales.
115. 6:06The next question,
116. 6:07can Warby Parker drive investors?
117. 6:10The company confidentially filed to go public in june and now says it plans to do so via
118. 6:14direct listing,
119. 6:15an alternative to the traditional IPO for companies that don't need to raise money.
120. 6:20In a recent video to investors.
121. 6:22Warby Parker's co ceo said it was our goal from day one to demonstrate that a business
122. 6:27could scale be profitable and do good in the world without charging a premium for it.
123. 6:32It's paperwork filed to the Securities and Exchange Commission offers some clarity.
124. 6:36The company's orders have increased slightly over each of the last three years,
125. 6:40but Warby Parker still isn't profitable Last year,
126. 6:44the company brought in $394 million
127. 6:4656 million.
128. 6:51How the old way on its future shares remains to be seen.
129. 6:54Casper Sleep,
130. 6:57a direct to consumer mattress company went public last year.
131. 7:00Since its debut,
132. 7:01shares are down roughly 50%.
133. 7:04If Warby Parker's listing can avoid the same fate,
134. 7:07other,
135. 7:08Warby Parker of brands will likely be taking notes.