By Douglas MacMillan
Warby Parker has made a name for itself by selling affordable,
hipster-chic eyeglasses through a website, avoiding costly store
expenses and licensing fees.
While that business has thrived, the startup's promising next
act is taking shape in a chain of storefronts dotting trendy retail
neighborhoods from Boston's Newbury Street to Abbot Kinney
Boulevard in Los Angeles.
Warby Parker's eight brick-and-mortar stores are now
collectively turning a profit, says Dave Gilboa, the company's
co-founder and co-chief executive. The stores sell an average of
$3,000 a square foot annually, higher than most retailers not named
Apple Inc.
It is quite a feat for a one-off experiment that began in April
2012, with Warby Parker's first physical retail showroom in
Manhattan's SoHo district, where the company is based. Later this
month, Warby Parker plans to open its first San Francisco and
Chicago stores.
"We quickly realized that while we were seeing all the benefits
we expected from branding and marketing---the 'halo' effect of
having a store open---stores could be a meaningful driver of sales
and profitability, which was really unexpected," Mr. Gilboa
says.
Many e-commerce players have tested the waters of physical
retail, but most of these efforts are still experiments.
RentTheRunway has three shops where women can pick up high-end
fashion to rent, and it plans to open its fourth, in Washington,
D.C., this month. Amazon.com Inc. is expected to open its first
brick-and-mortar location in New York in time for the holidays.
New York-based men's apparel retailer Bonobos aims to have 40
outlets by 2016, up from 10 at the end of 2011. The stores have
limited inventory for sale and are designed primarily to help
customers try on clothes so they can order them from the
website.
Mr. Gilboa says the first stores it opened in 2012 have already
generated enough cash to cover the initial construction costs, rent
and staff salaries incurred over the nine months it usually takes
for a store to open.
A payback period of two years or less is about average for
retail shops in popular locations so it's a good sign that the
stores will eventually be sustainable, says Anne Zybowski, vice
president of retail insights at Kantar Retail. "When they are able
to hit that hurdle and they are able to overcome those costs in two
years, as long as they are able to at least maintain that sales
volume, it definitely means that they've got a winning model," Ms.
Zybowski says.
In moving offline, Warby and others face larger overheard costs
and new challenges, such as hiring and training a sales staff. Mr.
Gilboa confronted another risk when it came time to sign a 10-year
lease on his company's first New York store. At the time, his
company was just three years old. "It was scary in a lot of ways,"
he says.
At the same time, the stores do help cut down on shipping costs.
Warby Parker sends customers as many as five frames to try on at a
time at no cost. The company also donates one pair to charity for
each pair it sells online or in stores.
Mr. Gilboa declines to say how much revenue the company
generates, whether the overall business is profitable, or what
portion is coming from brick-and-mortar sales. He still expects
e-commerce to always make up the majority of revenue.
Since it's a private company, there is no way to verify Warby
Parker's estimate of its sales per square foot. But compared with
the top 168 publicly traded retailers tracked by New York-based
research analyst RetailSails, that would be second only to Apple,
which averaged $4,568 a square foot at the end of last year. Luxury
retailers Tiffany & Co. and Coach Inc. make just below
$3,000.
Unlike those retailers, Warby sells most of its products for
less than $100. It says its average store is 1,613 square feet.
Back-of-the-napkin math would suggest annual store sales of
nearly $50 million if 10 locations were running for a full year at
an average of $3,000 a square foot. As for the overall business,
Warby Parker said in June that it had donated its one-millionth
pair of glasses, suggesting it had at least $100 million in sales
in its four-year history, although a company spokeswoman cautions
that milestone numbers like this "don't necessarily track with
revenue."
One advantage of brick-and-mortar stores is the potential for
more personalized customer service. "Consumers want to be talked to
in a personal way," says Bruce Cohen, senior partner at retail
consultant Kurt Salmon. "Once you get a good retail Sherpa---your
curator of good taste and fashion that knows you---you become
incredibly loyal."
Warby learned this early on. Soon after Mr. Gilboa and
co-founder Neil Blumenthal launched the site in 2010, while
students at the University of Pennsylvania's Wharton School of
Business, they got calls from customers who wanted to try on the
frames. The two invited the customers into Mr. Blumenthal's
apartment, where they laid out glasses on a dining-room table.
"They loved being able to touch and feel the product," Mr.
Gilboa says. "That was in some ways our first foray into
brick-and-mortar retailing."
Since then, Warby Parker has raised more than $115 million from
investors including Tiger Global, General Catalyst Partners and
Spark Capital as well as credit-card company American Express Co.
The company was valued at $500 million in its most recent round of
funding in December 2013, according to a report in Fortune. A
spokeswoman for Warby Parker declined to comment on the company's
valuation.
Its staff of nearly 400 includes executives poached from retail
leaders like Nike Inc. Mickey Drexler, the CEO of J. Crew and a
board member at Apple, joined Warby's board last year.
The startup's new store in San Francisco's Hayes Valley
neighborhood---set to open the week of Thanksgiving---is decidedly
low tech. The 2,112-square-foot shop features chevron wood floors,
original murals painted by local artists, banquette seating and
magazine racks boasting the latest issues of "The Paris Review" and
"Lapham's Quarterly."
Customers can try on new Warby Parker frames, including a
limited-edition line of "Keene" sunglasses that will be offered
only at that location. A squad of salespeople called "advisors"
will roam the showroom in designer French worker jackets and
fine-tune spectacles at a "reference desk" that is made, like
everything in the store, from sustainable materials.
Write to Douglas MacMillan at douglas.macmillan@wsj.com
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