Great post Madan! Warby Parker (here after WP) is certainly making Sec J look better every day!
While WP has experienced incredible growth, very quickly, I am concerned about two things as they get closer to steady state and their VC funding tapers off…
The first is whether the business model is actually profitable at this point? While their sales growth is excellent, given the free shipping, free donated product, free try-on components, the company has eaten into it’s own earnings at every gate. While it has stayed very quite about its true profitability there are some loud rumbles in the market that without VC subsidisation they may not be able to make the math work. They are making a big bet that the corporate-social responsibility pillar of their business will drive greater sales, and ultimately allow them to reach a scale where they can be sustainable offering this full service. We will have to wait and see!
The second, is the competitive landscape. There are a few different versions of WP popping up, for example Rivet and Sway and Classic Specs, all offering copy-cat business models. In the immediate term these are unlikely to be a huge threat given the momentum behind WP, however recent Chinese competitor, Made Eyewear is shaping up as a legitimate concern. Made Eyewear is offering all the same services as WP, plus their try-on selection can be made with prescription and their ability to service complex prescriptions is greater than WP. This is because Made Eyewear is coming from established factories in China owned by a family with deep experience in the industry, and the equipment, scale and expertise to produce more products at lower costs. Only time will tell whether this is a real, sustained threat to WP, at this stage it looks to be serious in WP global expansion plans due to Made Eyewears better positioning to service Asia Pacific region, but perhaps not the US.
Great post Mark. I have been completely taken aback by how prevalent the Patagonia vest is here at HBS…rivalled only by the H sweater. I totally agree this business model is perfectly aligned with a growing base of consumers demanding more social-corporate responsibility before they open their wallets. I wanted to add that Patagonia ‘s focus on ethical practices is spreading across the industry and driving competitors to lift their game when it comes to what and how they produce their products. In 2014 there was the infamous Northface vs. Patagonia Down Smackdown. Northface, previously relatively silent on these topics, announced it would begin selling down (the feathers in its jackets) that complies with its Responsible Down Standard (RDS), which it describes as “the broadest and most comprehensive approach to animal welfare available in the down supply chain”. Patagonia responded by challenging Northface that it did not have the highest assurance of animal-welfare. After a very public debate on this topic, Four Paws, an independent animal-welfare group came down on the side of Patagonia.
The fact that this topic is being publicly debated, that these companies are now competing on ‘Who’s Down is most traceable’? shows a huge shift in their conversation with consumers, the focus of their future strategies and the growth of social-corporate responsibility. Patagonia is well positioned to lead this charge.
I think we can all agree that Uber has done an incredible job in disrupting a previously stagnant industry that had been riding the coat tails of protectionist regulation in taxi services for too long! How they gained funding, launched and scaled an inherently illegal business model across the world is quite incredible.
Building on Amy’s comment around human capital I too have some concerns around how sustainable the current price cutting strategy is. Over the last few months Uber has engaged in a price war with emerging competitor, Lyft. In order to compete they have been scaling up the earnings drivers must pay to Uber, in some instances going from 5% to 25% per ride (San Francisco). To quell drivers outrage they offered a small additional wage per ride, however this is far short of the lost earnings. This is a concern for two main reasons:
1) In many cities Uber is already using its mass of VC funding to subsidise rides to build user-ship and therefore penetration. Once it ceases to do this, and reaches the cap on how much of drivers earning it can yield it will need to raise prices. Will this drive down the benefits of Uber and return many to the more traditional industry model?
2) How much is too much when it comes to what drivers will accept from Uber? A material reduction in compensation for driving with Uber, in addition to the current insurance and legal issues facing Uber and its drivers, has the potential to drive down driver numbers, a big issue for a business built on strong geographical penetration.