Razor-and-blades pricing has long dominated eyewear retailing. Opticians provide cheap eye tests, recouping margin with a mark-up on spectacle sales. Warby Parker set out to disrupt that by selling trendy glasses online to US consumers who had first obtained prescriptions from bricks-and-mortar rivals.
The 11-year-old company is often held up as a model for running a retail business. But as it gains a stock market listing, it is pivoting its business plan towards the integrated model of the industry it was trying to shake up.
Warby Parker made its debut via a direct listing on Wednesday. The stock opened at $54.05 – more than a third higher than its reference price – to give it a market value of over $6bn. That is twice what it was worth in its last funding round 13 months ago and puts the lossmaking company on a valuation of 15 times last year’s revenue. EssilorLuxottica, the much larger eyewear conglomerate, is on a multiple of just 5 times.
Fans of the retailer argue the premium is reasonable given the company’s resilient performance during the pandemic. Revenue rose 6 per cent last year to almost $394m, compared with a 17 per cent decline at EssilorLuxottica. But the focus on top-line growth ignores the problems that Warby Parker — and other direct-to-consumer brands — have in reaching profitability.
Revenue growth has not come cheap for Warby Parker. The company’s marketing spend jumped to 19 per cent of sales in 2020 from 13 per cent the previous year.
Its cost base is unlikely to come down soon. Although Warby Parker started as an ecommerce business, it sees its future in physical stores. It turns out many people still prefer to shop for glasses in person — and do not mind remunerating their optician this way.
Two-fifths of last year’s revenue came from 142 retail stores. Plans to open more shops will add to its fixed costs. But the jump in the company’s valuation from last year implies it will become significantly more profitable. The two are hard to reconcile and make for uneasy reading.
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