Warby Parker is about to go public via a direct listing. Their S1 is out (prospectus) and below are some of the key insights on their business. The business is very impressive, and there is a lot to learn from Warby about omni-channel and ecommerce sales.
It’s been an 11 year journey. “When we launched the business in February of 2010, less than 2.5% of glasses were sold online — yet we believed that if we offered high-quality, uniquely designed glasses for a reasonable price point, with mechanisms to try them on like our Home Try-On program, and outstanding customer service, people would be willing to buy eyewear online for the first time. We reached our first-year sales targets in three weeks, sold out of our top 15 styles in four weeks, and built a waitlist of thousands of customers for our first-of-its-kind Home Try-On. Those first few months were chaotic to say the least, but we learned a lot.” Interestingly, Warby made the decision to go omnichannel early-on, opening their first store 3 years after their founding in April 2013. An app didn’t come out until May 2016.
More than half of revenue is in-store. “For the year ended December 31, 2020, we generated 60% of net revenue from e-commerce and the remaining 40% of net revenue from our retail stores. For the six months ended June 30, 2021, we generated 50% of net revenue from e-commerce and the remaining 50% of net revenue from our retail stores. Prior to the COVID-19 pandemic, our channel mix for the year ended December 31, 2019 from our retail stores and e-commerce was 65% and 35%, respectively. Customers can purchase our items in one of our more than 145 retail stores.”
Stores are the key to growth. “In 2019, we opened 32 new retail stores between December 31, 2018 and December 31, 2019, and we closed 1 retail store over the same time period. In 2020, we opened fewer retail stores than in years prior due to the COVID-19 pandemic-related operating challenges, including extended retail store closures and heightened safety measures. In total, we opened 10 new retail stores between December 31, 2019 and December 31, 2020, and we relocated two retail stores and closed three retail stores over the same time period. In the six months ended June 30, 2021, we opened 19 new retail stores, and we relocated one retail store over the same time period. As of June 30, 2021, 91 out of our 145 retail stores offered in-person eye exams.”
The customer could come from anywhere. “we find that there is significant interplay across online and offline channels — browsing online might lead to a visit in one of our more than 145 stores and end with a purchase via our e-commerce app. On average, we have observed total market sales increase over 250% in the first year after opening the first retail store in that market. During the first year of opening, e-commerce sales growth slows as the market rebalances between online and store sales. After this initial period, we see e-commerce growth rates normalize to the same level as our purely e-commerce markets that have no store presence. For example, our total sales in Atlanta grew over 295% in the year following our first store opening in September 2014, while e-commerce sales declined by 3% over the same period. In the following two years, e-commerce sales growth normalized to 32% and 33%, respectively. As of June 30, 2021, we now have three stores in the Atlanta market.”
Retention is perfect. “On average, for customers acquired between 2015 and 2019, we observed approximately 50% Sales Retention Rate within 24 months of their first purchase and a nearly 100% Sales Retention Rate over 48 months. We have continued to grow our Active Customers and Orders and had 1.81 million and 2.14 million, respectively, for the year ended December 31, 2020.”
Best in class store performance. “Our retail stores are highly productive and we have historically targeted, and continue to target, Four-Wall Margins of 35% and Average Sales Per Square Foot of $2,900. We plan to open over 30 to 35 new retail stores in 2021 and will seek to continue this pace of rollout into the foreseeable future.”
Very strong contribution margins. “Our Average Contribution Per Customer for the years ended December 31, 2018, 2019, and 2020 was $48, $54, and $45, respectively, reflecting Contribution Margins of 25%, 26%, and 21%, respectively. In 2020, the decline in Average Contribution Per Customer was impacted by the COVID-19 pandemic, which led to lower overall demand and slower growth in our Active Customers relative to 2018 and 2019. The decrease in Contribution Margin was also driven by an increase in Customer Acquisition Cost, which increased 49% to $40 per customer in 2020 compared to $27 per customer in 2019, while the increase in our Average Revenue Per Customer was 5%, from $208 in 2019 to $218 in 2020 and 16% since 2018 from $188. The 2020 increase in Customer Acquisition Cost was driven by deliberate investment in media spend; we wanted to broaden awareness that our business could support customers throughout the pandemic by offering critical products and services to help people see through our e-commerce channel and telehealth offerings.”
But EBITDA margins are tight. “For the year ended December 31, 2020, adjusted EBITDA and adjusted EBITDA margin were $7.7 million and 1.9%, respectively, and for the year ended December 31, 2019, adjusted EBITDA and adjusted EBITDA margin were $21.9 million and 5.9%, respectively.” Notably the company has not been profitable for the past three years: “For the years ended December 31, 2018 (unaudited), 2019, and 2020 we generated net (loss) income of $(22.9) million, $0 million, and $(55.9) million, respectively.”
New products drive order size. “Our increase in AOV is driven by our ability to introduce and scale new products or service offerings to our customers. From 2018 to 2019, AOV increased by 11% from $158 to $176 primarily driven by a higher unit mix of progressive lens product as well as the scaling of additional lens offerings such as blue-light-filtering lenses, which were launched as an offering in November 2018, and light-responsive lenses. From 2019 to 2020, AOV increased by 5% from $176 to $184 primarily driven by moderately higher unit mix of progressive lens product and continued scaling of additional lens offerings, most notably blue-light-filtering lenses and light-responsive lenses.”
Vertical integration with outsourced manufacturing. “We design and sell glasses under our own brand name. Our integrated supply chain consists of owned optical and fulfillment laboratories as well as third-party manufacturing and laboratory partnerships that we have built over the years and gives us control over product quality and fulfillment speed.”
They have 2 CEO’s. “Our mission, commitment to our core values, and focus on innovation are driven by our Co-Founders and Co-Chief Executive Officers, Neil and Dave. Having met as classmates in business school, Neil and Dave have scaled Warby Parker from an idea to a growing, impact-driven brand.”
$500mm+ of capital raised. $633mm of total capital has been raised when including additional paid-in capital. $314mm of cash sits on the books so net investment is $319mm. There is no debt.
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