Why Warby Parker’s Most Visionary Decision Was to Open Physical Stores
Their initial business model was innovative but broken.
It seems obvious why Warby Parker is successful: they sell prescription glasses, including lenses, for 95 dollars.
Ask anyone you know with glasses how much they paid for theirs. If they’re American, they’ll probably give you a number between $300 and $700.
Warby Parker sells their glasses for a third of regular price because they have lower costs than traditional eyewear retailers. Their glasses don’t have luxury brand names like Dior or Hugo Boss. And they sell their glasses online instead of through boutiques.
This simple business model drove Warby Parker to its 2015 valuation of $1.2 billion, when Fast Company named it ‘the world’s most innovative company’.
So why is it that in the last 10 years they started opening more and more physical retail locations? Doesn’t this negate their advantage?
The Fairy Tale Launch of Warby Parker
If you’re not from the US or Canada, you may not have heard of Warby Parker.
But you should. Their story is similar to that of Google, Airbnb, and Facebook: A couple of students come up with a brilliant idea, business takes off immediately, and they end up disrupting an entire industry.
Except — Warby Parker isn’t a technology company. They sell glasses.
Warby Parker was launched by 4 students at Wharton Business School. It started when one of them lost his sunglasses, and wondered why the replacement was more expensive than his iPhone. Glasses are made from plastic and polished glass, using technology that has been around for hundreds of years.
There are 2 reasons for these high prices:
- The eyewear industry is dominated by the company Luxottica, which makes and distributes glasses and sunglasses on behalf of all major luxury brands. Luxottica produces their glasses in the same Chinese factories as Warby Parker, but they charge a huge markup.
- Glasses are sold in mainstreet boutiques, often at prime locations, which adds another big markup.
Aided by a $2,500 seed investment from Wharton’s Venture Innovation Lab, Warby Parker was founded in 2010. The company’s success started when later that year they were featured in Vogue, and within 2 years they grew to 100 employees.
Warby Parker isn’t just innovative because of its Direct-To-Consumer (DTC) business model. They also found a clever way to overcome people’s reluctance to buy glasses remotely.
With their ‘Home Try-On’, you can select up to 5 frames from their website, which are then sent to you by mail. All you have to do is try them on, mark the one you like, send the box back, and you will receive your glasses a week later.
All of this is included within the $95 price.
If that isn’t enough value, they also have a charity program: for each pair of glasses they sell, they donate another pair to the nonprofit organization VisionSpring.
Worried About ‘4 Guys Like Us’
In a 2015 interview with NBC’s USA Today, co-CEO Neil Blumenthal was asked how he saw Warby Parker’s future.
He responded that he wasn’t concerned about Luxottica and traditional boutiques. He was worried about ‘4 guys like us’ — startups that use the same business models to keep costs low, and that would eat away at Warby Parker’s market share.
It turns out Blumenthal was right to be concerned. There are now several direct-to-consumer retailers, including Liingo Eyewear, Eyebuydirect.com, and Zenni Optical. They sell glasses for similar prices, and most offer home try-on.
Yet that competition doesn’t seem to hurt Warby Parker.
Warby Parker probably still has some cost advantages. Following the Economies of Scale principle, Warby Parker can produce their glasses cheaper than small suppliers. So if they wanted to they could probably compete on price.
But reducing prices would be a mistake:
- Price competition will hurt profits of all players.
- Consumers associate low prices with low quality, which is something Warby Parker should avoid.
- Over time, it could force Warby Parker to cut on service, and to drop their charity program, losing the connection it has with its customers.
Warby Parker rightfully didn’t reduce prices. They chose to improve customer experience instead.
Opening physical stores to reach new customers
Warby Parker opened its first physical locations in 2013, near its office in New York, and quickly opened several others in major US cities.
10 years later, they now have over 200 stores across the US and Canada. Co-CEO Blumenthal has said that he sees physical stores as the company’s main growth driver, and that they may ultimately end up with about 900 stores.
This aggressive expansion paid off. In 2021 Warby Parker went public on the New York Stock Exchange, and it is currently valued at $1.64 billion.
Fixing a Flawed Business Model
Warby Parker was ‘the world’s most innovative company’ because it disrupted an industry that had been stagnant for decades.
Until they came along, everyone just accepted that a pair of glasses would set you back $300. Warby Parker’s Direct-to-Consumer model, Home Try-On, and ‘Buy a Pair, Give a Pair’, showed consumers that there was an alternative.
But it turned out that most consumers are not ready to buy their glasses online. You wear glasses on your face, so they are the most visible part of your appearance. Low prices are relevant, but not as important as fit and style. Home Try-On is at best an imperfect solution.
Warby Parker’s decision to open physical stores fixed the problem they had with their business model.
They still don’t have to worry about Luxottica and traditional boutiques because they still have a massive cost advantage.
And now, their physical distribution network protects them from Direct-To-Consumer startups.
I should probably buy shares in Warby Parker. But I just spent $900 on a pair of sunglasses to replace the ones I broke earlier this month. They are branded ‘Tom Ford’, but made by Luxottica.
I wonder when Warby Parker plans to come to Switzerland.
I am a university professor and researcher, living in Geneva, Switzerland. I have worked for Procter Gamble and BMW, and I have a Ph.D. in Marketing. I write about marketing, entrepreneurship, and business school teaching.
