Warby Parker’s Prescription for Disrupting “Four-Eyed” Fashion

How a company with $95 glasses changed the $65 billion-per-year eyewear industry — and gave the gift of sight to those who need it most.

Today, Warby Parker customers can buy a pair of customized and colorful prescription glasses for $95. Just four years ago, the average price of a pair of eyeglasses, with frames and lenses, was $253. Why should a pair of glasses cost more than an iPhone? Warby Parker’s four founders would argue, simply: they shouldn’t.

Warby Parker has effectively aligned its business and operating models, marrying people and products with purpose. Creating affordable yet stylish eyewear, Warby Parker focuses on performance and philanthropy while beating the competition in both cost and convenience. For each pair of glasses purchased, the company partners with nonprofit Vision Spring to provide glasses to a person in need in the developing world. In 2014, Warby Parker gave away its millionth pair of eyeglasses to people living on less than $4/day — and, in 2015, closed a Series D round of funding, valuing the retailer at $1.2 billion [i].

Business Model
Putting the customer first

Warby Parker is an eyewear company that sells glasses to consumers. The eyewear industry is dominated by Luxxotica, an Italian company that “owns” 80% of global eyewear. Luxxotica controls licenses for the most popular designer brands, including Prada, Burberry, and Michael Kors. These frames are often sold in Luxxotica-owned boutiques and stores like Sunglass Hut and Lenscrafters [ii].

In a category with limited innovation — yet artificially high margins — Warby Parker’s founders set out to digitally disintermediate Luxxotica, focusing on customers first. Warby Parker designs and sells eyewear that is:

Affordable
      ○ Glasses priced at less than ½ the cost of most designer frames — a price point unattainable for existing competition [iii]
Attractive
      ○ Wide range of colors, styles, and materials — unlike competitors
Accessible
      ○ Launched online first → very convenient, unlike competitors
      ○ Online store enabled more effective customer marketing and tracking vs. competition
      ○ Continued focus on technology: today, Warby Parker has a proprietary retail system called “Point of Everything

Early digital investment and excellent service proved to be cornerstones of Warby Parker’s unique approach. After launch, the company hit its first-year sales targets in just three weeks [iv]. The ‘buy a pair, give a pair’ program was also well-aligned with business objectives. Committing to the global community resonates with customers: Nielsen found that 46% of consumers are willing to pay more for products made by companies that give back [v]. Social good unlocks value not just for the world, but also Warby Parker’s core business.

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Warby Parker frames are $95, where an optical shop can often charge over $500 after baking licensing fees and operating profit into the retail price

Operating Model
Seeing the eyewear industry through a new lens

Warby Parker is a vertically-integrated “lifestyle brand offering value and service [vi]”. The company manages design, manufacturing, and sale of all its products. This approach affords maximum control and lower costs by avoiding licensing fees, royalties, and optical shop profit.

Eliminating unnecessary costs makes it possible for Warby Parker to invest in other areas, like service. The retailer developed a Home Try-On program for customers to pick five pairs and keep them for a trial period. Warby Parker also takes a personal approach to customer service that strengthens its brand in the process. Employees are empowered to act as Warby Parker brand stewards and have produced over 2,000 videos responding to customer questions. Cost savings re-invested in innovative services allow the company to drive sales, keep prices competitive, and create value for customers.

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One of Warby Parker’s NYC stores at 121 Greene St. in SoHo
  
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Storefronts are a lucrative part of the business – the brand plans to expand to 20 stores by the end of 2015

With vertical integration comes tighter distribution control. While its initial business was founded on the web, Warby Parker has recently moved to a hybrid e-commerce and brick-and-mortar model, with plans to expand to 20 stores by the end of 2015 [vii]. Warby Parker stores currently sell an average of $3,000/sq. ft. annually, outperforming Tiffany & Co., Best Buy, Ralph Lauren, and Tumi. Despite rapid initial growth from physical locations, Warby Parker continues to bolster its online presence to scale the in-store experience.

The future in-focus
Warby Parker’s business grew 500%+ in its first two years. The company’s valuation has more than doubled since December 2013 [viii]. By cutting out middlemen, expanding the distribution model, and staying customer-centric, Warby Parker is uniquely efficient and effective: controlling design, driving profitability, undercutting competitors on cost, and keeping prices low for customers. None of us need 20/20 vision to see that Warby Parker is here to stay.

Sources
i. Wall Street Journal http://on.wsj.com/1bYpZT0
ii. INC http://bit.ly/1HOMyV0
iii. TIME http://ti.me/1yPQD7w
iv. Business Insider http://read.bi/1Ovbzd2
v. Nielsen http://bit.ly/1HEPuYc
vi. Fast Company http://bit.ly/1vbb6F1
vii. Wall Street Journal http://on.wsj.com/1HUwFjv
viii. INC http://bit.ly/1ttt01v
xi. Quora http://bit.ly/1XGGfxN
x. Neil Blumenthal (via Quora) http://bit.ly/1lCq572

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11 thoughts on “Warby Parker’s Prescription for Disrupting “Four-Eyed” Fashion

  1. Enjoyed your post, Libby. I admire how Warby Parker took on powerful middleman Luxxotica. Warby’s definitely built up their lifestyle brand, and I’ll be curious to see how they broaden their portfolio. I do wonder whether the Warby Parker model can be as effectively executed in other industries — eg, Harry’s for men’s grooming, Casper for mattresses, Boll & Branch for bedsheets, etc. What has to be the minimum price point / differential for any given product that makes it ‘worth it’ for someone to become a loyal customer? How much share does any given middleman need to have for this model to take hold? For instance, with Luxxotica as a monopoly, it makes sense that prices are so superficially high — but I wonder what is the threshold of middlemen competitors at which point this model is no longer compelling?

    1. I think the barriers to entry are quite high in most consumer goods categories, especially since they typically lack defensible IP – and in most areas there are few things stopping other entrants from developing their own unique value proposition for a core competing product. My hypothesis is that people care first about price, second about style/attractiveness, and third some combination of company attributes including brand perception, word-of-mouth, and social commitments. So, a competitor could easily design a more attractive pair of glasses, find a lower-cost manufacturer/supplier in China, put up a website with some viral hooks, and be in business. I see Warby Parker’s strong brand equity as its core strength and competitive advantage in today’s market. I’m not a believer that people are buying from Warby Parker, for example, because of their commitment to social good.

      My sense is that the Warby Parker model can be repeatable as long as there are long-standing industries whose market leaders are failing to innovate and who haven’t yet pulled their businesses along to make the evaluation and buying processes more convenient (online). Casper is a good example of this. Why hasn’t anybody fixed the inconvenient, expensive, and cumbersome process of trying to get better sleep? Why is this industry so underserved by existing online options?

      There are some big risks associated with this model. Can you really disintermediate or defeat the entrenched market leader? That’s a big task to take on. The model also relies heavily on the ability to build a brand, which is very difficult. The industry structure itself seems to be the advantage that any of these companies has to exploit first and then figure out a way to offer convenience, ease of purchase, and superior products which most modern consumers have come to expect. It seems to me that the model remains compelling as long as new entrants have something to offer that solve existing/remaining problems, some kind of powerful unique brand value, and the structural advantage of categories that lend itself well to this type of innovation.

      1. Alice and Libby, such an interesting discussion above!

        I have often been thinking about how and whether this model (e.g. vertical integration) could be exportable to other industries.
        I recently came across this techcrunch article (i enclose the link below) that explains what conditions helped the brands you mentioned above to succeed (e.g. for Warby parker the presence of a player, luxottica, that if not a monopolist is however an oligopolist). I found it interesting.

        When i think about Warby Parker I think about a brand more than an e-commerce.

        I think that vertically integrated online players can have three advantages vs. pure traditional players : 1) price (i totally agree with it – by not having full offline ops they can have a cost advantage), 2) ability to exploit the internet to reach consumers in an innovative way – e.g. Warby parker being born as pure online I imagine has strong online marketing skills, 3) ability to find an innovative way to reach consumers both online but also offline.

        I keep believing that price is an important aspect and it allowed Warby Parker to get traction. However, also as I look at other sectors (e.g. Bonobos,…) I feel that the success of these online integrated players will have to rely always more also on innovative way to reach clients (e.g. guidebook for Bonobos, temporary stores,….) and on innovative marketing (e.g. Dollar Shave Club,…)

        I would love to continue this discussion also offline. Thanks for sharing it.

        Link to article I mentioned above:
        http://techcrunch.com/2015/11/16/wary-of-the-next-warby/?ncid=rss&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Techcrunch+%28TechCrunch%29&utm_content=FaceBook&sr_share=facebook#.0fjzb7:RlTV

  2. So glad you picked Warby — they are one of my all time favorite companies.

    I agree with you that customers care about fashion and price over social mission, at least when making the final purchase decision. The social mission element is a big plus post-purchase, but for most, its not what drives a purchase like this.

    One operating model element that Warby hasn’t been able to master yet is the doctor question. In the US, all eyeglasses require a current prescription, and a customer has to first visit their doctor before ordering WP glasses online. This means that the full-cost of ownership ends up being much higher than the $95. The brick and mortar stores allow WP to bring the optometrist into the purchase cycle. However, as Warby has expanded its retail footprint, it has only placed a optometrist in 1 of their ~20 retail stores, mostly due to the strict regulations they have to work with on a state-by-state basis.

    On the other side, nearly 100% of LUX’s retail locations (LensCrafters, Pearle Vision, Sears Optical, Oliver Peoples and Alain Mikli) have a doctor onsite, making the purchase far easier, and in some cases, bringing down the total cost when LUX offers a promotion for a free eye exam.

    The fourth largest optical retailer in the US (http://www.visionmonday.com/vm-reports/top-50-retailers/article/key-optical-players-ranked-by-us-sales-in-2014/), is a value player called National Vision (NVI). America’s Best is one of the biggest NVI brands, with over 400 retail locations. All of the America’s Best stores have an optometrist in-store, and customers can by 2-pairs of eye glasses (+ plus a free eye exam) for $69, far cheaper than the Warby Parker model. America’s Best sells both private label and fashion brands like Ray Ban and Fendi. They have mastered the value optical store operating model. NVI as had nearly $1Bn in sales last year, mostly driven from its retail outlets.

    I believe Warby is changing the nature of the optical industry, and to scale, I suspect they’ll need to figure out the doctor question as the expand their retail footprint.

    I’m rooting for PW, because as they grow VisionSpring grows. Full disclaimer: I wrote my TOM challenge on VisionSpring, so greatly appreciate all that WP does to make the organization have the funding to reach more people. I believe giving someone the gift of sight is a powerful and noble endeavor.

    1. Gah, can’t edit comments to fix typos. *WP = Warby Parker

    2. I agree that the next part of truly mastering this model is figuring out how to remove the inconvenience – and added expense – of having to go elsewhere for an eye exam. I met someone who founded a pop-up dental exam company. His team sets up two hygienists in a conference room inside an office and they can take back-to-back appointments. The part of the exam where the dentist needs to be present for the exam is completed via a proprietary software using a pen-like camera that the hygienist can put into a patient’s mouth. Could this remote exam model work for WP?

      For WP, technology could become the answer to the question about exams: are there ways to conduct legit basic eye examinations with licensed doctors remotely via some kind of software? Mini mobile phone peripherals exist today for conducting eye exams on the go, but they are still costly. WP’s founders have said they are optimistic about the opportunity for technology to revolutionize the way that we get our eyes examined and I tend to agree that things will trend in this direction – and hopefully WP can be at the forefront so that VisionSpring can indeed continue to grow!

      Your point about America’s Best is spot-on. People who are mostly focused on value could also go to one of Wal-Mart’s Optical Centers or Costco Optical for an eye exam and low-cost frames/lenses, too (Consumer Reports rates America’s Best, Wal-Mart, Sam’s Club, and Costco as a consumers’ best bet for low eyeglass prices). I think that WP’s fashion-forward design, customer service, and the word-of-mouth culture that they’ve created certainly sets it apart. If we’re talking about true scale, I do wonder if value trumps design for the vast majority of consumers – my hypothesis is that it probably does. Since WP keeps design in-house but manufactures at a low cost in China, I wonder if there is a way for them to consider offering an even lower cost baseline frame that is still stylish yet makes up for the margin cut in anticipated volume gains to more directly compete in the value space.

      1. Even though there’s lots of innovation for on-the-go vision testings (http://mobile.visionmonday.com/article/vision-testing-on-the-go/), I think one of the biggest barriers is regulation. I believe lots of states have requirements that block these technologies today.

        Some of the underlying assumptions for that regulation reminds me of this Chris Sacca analogy: https://twitter.com/sacca/status/673219805722226688

        Also, really neat re: pop-up dental clinic. My dad is a dentist, and I’m definitely going to share that with him.

        Thanks for sparking this discussion 🙂

  3. Interesting post and discussion!! W-P definitely seems to be on track for a major industry disruption. This industry was so ripe for a clever new entrant I wonder how they managed to stay under the radar screen for so long. I am still kind of amazed that W-B can make their economics really work. I am not sure of the total Luxxottica cost structure, but the stores must bear a significant part of the burden. As we go from offline vs. online towards hybrid models across much of the retail sectors, I think we may be able to see a lot more of this kind of thing happening.

    1. Would love to see WP take this one step further and simplify the process/inconvenience/cost of getting an eye exam through software or mobile peripherals to be used in their stores. I think the hybrid model will emerge as a way to force price makers to make formerly costly products better and cheaper by allowing others to break into tight-knit industries (e.g., mattresses + Casper, luggage + AWAY).

      1. & thanks for reading ツ

  4. Such an innovative company, and excellent fodder for discussion above, too.

    Agree with your point that folks don’t buy its glasses for the social philanthropy aspect – to that point, I recall reading an article last year about potential challenges that the company is facing in terms of its nonprofit partners keeping up with the growth that WP has experienced. It is a slightly different growth question than that faced by most startups, but I’d be curious to see how it chooses to scale its distribution partners in developing countries.

    The other question I find myself asking – and this extends beyond WP to many companies with a philanthropic aspect to their business – is whether WP should focus on passing on its savings to its customers, rather than channeling it to its nonprofit partners. Particularly as it thinks about potentially going public, should its customers have the right to decide how to allocate that value? Personally, I think it comes down to a question of competitive advantage, and the fact that WP is uniquely positioned to generate the “most” social good through its buy-one-give-one program, but I do see some merit in the devil’s advocate argument that its competitive advantage is ultimately in its for-profit side.

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