warby-parker-business-model

How Does Warby Parker Make Money? Warby Parker Business Model In A Nutshell

Warby Parker is a prescription and sunglasses retail company, which focuses on vertical integration to enhance the customer experience by owning the optical laboratories where lenses are developed, and by owning both physical and online stores to enable customers to choose from a variety of products. Warby Parker leverages programs like the Home-Try-On program and the “Buy a Pair, Give a Pair” to lower up long-term customer acquisition costs, incentivize recurring purchases and referrals from existing customers.

Origin Story

Warby Parker is an American online prescription glasses and sunglasses retailer. The company was founded in 2010 by Jeffrey Raider, Andrew Hunt, Neil Blumenthal, and David Gilboa. 

The idea for Warby Parker came after one of the founders lost his glasses on a backpacking trip. The cost of replacing the glasses was so high that the individual concerned spent a painstaking first semester of grad school without them. 

While studying for their MBAs in 2008, the four friends then began to wonder why eyeglasses were not sold online. Blumenthal, who had previously run a non-profit to sell eyewear in the developing world, emailed the other three in the middle of the night and suggested they start their own company. This, he argued, would provide much-needed competition in the industry, until that point dominated by a single company who kept prices artificially high.

Warby Parker was launched on February 15, 2010, after the founders received a $2,500 seed investment from a new business grants program at the Wharton School of the University of Pennsylvania. The company was subsequently flooded with orders after GQ dubbed it “the Netflix of eyewear”, resulting in Warby Parker meeting its first-year sales target in under three weeks. 

The first physical store was opened in 2013 in New York City, with a subsequent store opened in an old school bus. In 2016, Warby Parker announced plans to open its own optical lab and manufacturing facility to bypass the middleman.

Ultimately, the company caused a momentous shift in the eyewear industry. By designing glasses in-house and engaging directly with consumers, the company provides trendy and high-quality eyewear at a fraction of the going price.

As explained in its financial prospectus:

The prescription glasses opportunity

The corrective lenses market presents various underlying advantages, as it presents itself as more robust to economic cycles, and a market-driven by a medical condition that requires continuous support. As Warby Parker highlights in its financial prospectus it presents:

  • Consistent replenishment cycle: where contact lenses are replaced daily, weekly, and monthly, thus creating the opportunity for a recurring business that can be sustained by repeat purchases.
  • Increasing screen time usage: with the use of more and more screens in our daily lives, new prescription products like blue-light-filtering, and light-responsive lenses have become a key element driving the business.
  • E-commerce penetration still nascent: the eyewear industry has been one of the slowest in adopting e-commerce, thus this created a big opportunity for Warber Paker, which – together with retail stores – focuses on online retail.

Warby Parker Mission, Vision & Core Values

Warby Parker’s mission is “to inspire and impact the world with vision, purpose, and style (without charging a premium for it).”

While its vision is “to provide vision for all.”

And its core values revolve around fun, quickness, originality, and focus on customer experience (through programs like Home-Try on, and its unique retail stores’ design).

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Warby Parker “Buy a Pair, Give a Pair” model

As highlighted in its financial prospectus:

We started Warby Parker 11 years ago to solve our own problems as frustrated consumers and to make a positive impact. We aspired to demonstrate that a business could scale, be profitable, and do good in the world—without charging a premium for it. Since our founding in 2010, we have pioneered ideas, designed products, and developed technologies that help people see. We offer everything our customers need for happier eyes at a price that leaves them with money in their pocket, from designer-quality glasses (starting at $95, including prescription lenses) and contacts, to eye exams and vision tests—and they can meet us online, at our retail stores, or even at home. Wherever and whenever they need it, we’re there to make exceptional vision care simple and accessible. Delightful, too.

Similar to the TOMS’ one for one model, Warby Parker uses a “Buy a Pair, Give a Pair” model, which aim is to help the company scales up its vision. As further highlighted in its financial prospectus:

We also believe that everyone has the right to see. Glasses enable people to learn, work, and navigate the world with more security and dignity, but 2.5 billion people around the world who need them do not have access. To help address this problem, we partner with nonprofit organizations like VisionSpring to ensure that for every pair of glasses sold, a pair is distributed to someone in need. VisionSpring estimates that, on average, a pair of glasses improves personal productivity by 35% and increases monthly income by up to 20%. Through our Buy a Pair, Give a Pair program, we have helped distribute over eight million pairs of glasses to people in need since inception, increasing earning potential for low-income households by more than an estimated $1 billion.

Scaling Vertically: Integrating Warby Parker supply chain

One thing that the Luxottica case teaches us is how powerful a vertically integrated strategy (where you control most of the steps from manufacturing to distribution) thus controlling the quality of the product (from sourcing to manufacturing) and the distribution process, thus the customer experience.

Vertical integration is a very expensive business strategy, and it might take years and years to build up. Yet once controlled the supply chain vertically, scaled-up companies are able to build up strong moats, and perhaps also become monopolies in their markets (this is not a discussion of whether that’s fair or not, yet that’s what happens when companies scale vertically).

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How Warby Parker is scaling up its operations, and integrating them vertically over the years. From building its supply chain gradually. Warby Parker is integrating its supply chain moving in both directions (up in the supply chain with the optical laboratory – what they call “fulfillment laboratories” – for product development and by having third-party agreements with a few manufacturing partners). And on the other side, by opening stores, via its enhanced online presence, and through programs like Home-Try on, virtual try-on, and other services) – Image Source: Financial Prospectus.

Warby Parker is a relatively young company, and therefore it’s still in the process of achieving vertical integration. In fact, the Luxottica business model shows what a complete process of vertical integration looks like. Instead, Warby Parker integrated supply chain starts from owning optical laboratories for product development and partnering up with a few key manufacturers (predominantly in the U.S., China, Italy, Vietnam, and Japan). More precisely the supply chain is made of a large network of 30+ frame factories, lens, distribution centers, and optical labs (beyond the owned/in-house optical labs in Las Vegas).

Here the product development part with built-in customers feedbacks plays a key role, as the funny example of The Birth of Spinnies shows:

As the company highlights components are shipped directly from contract manufacturers to optical laboratories in the United States or to third-party optical laboratories in the United States and China, where lenses are cut and mounted into frames. These laboratories process most of the glasses ordered by our customers.

Once produced the products are shipped through third-party carriers either to retail stores or direct to customers.

Thus, Warby Parker uses a direct-to-consumers approach both via its physical and digital stores and through various incentives and programs.

This is how the company achieves so far an integrated experience.

Understanding Warby Parker’s business model

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The various stakeholders, and how those are supported by Warby Parker’s business model – Image Source: Warby Parker Financial Prospectus.

Warby Parker’s business model starts by offering customers a one-stop solution for vision, which offers prescriptions that the company defines as “high-quality” and “good-looking” and that comes at a low price ($95 for a pair of prescription glasses that include lenses). How does Warby Parker keep its quality high, nonetheless its low prices? The company claims an integrated supply chain network, where frames are designed in its headquarter (in New York), where also raw materials are sourced, and manufacturing processes are reviewed.

From there distribution happens through its physical and digital stores.

Understanding Warby Parker’s unit economics

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Warby Parker’s economics. From its COGS primarily made of running the sourcing, optical laboratories, and store rents. To its acquisition costs primarily made of media costs, and of the Home Try-On program – Image Source: Warby Parker Financial Prospectus.

Warby Parker’s market entry strategy

As we saw, while on the one hand, Warby Parker focuses on product development, raw materials sourcing, and monitoring of high-performance manufacturing processes; on the other spectrum Warby Parker leverages the Home Try-On program to enhance its customer experience.

Indeed, while the Home Try-On program does increase customer acquisition costs in the short term, it contributes to substantially lower it in the long run, as it works both as a retention strategy and an incentive to repeat purchases, and referrals from existing customers.

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The Home Try-On program offered by Warby Parker is a key element of its customer service experience.

You can choose among 5 frames to test out for 5 days to see what fits best.

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Source: warbyparker.com/home-try-on

When you’re a new player, in a market dominated by a few, you need to lower the switching cost for existing customers.

How to do that? Either by selling a much much better product (the rule is the 10X improvement on existing products), or by offering a much much lower price, or yet by offering a much much better experience.

Warby Parker entered the market in 2010 by offering high-quality, “uniquely designed” glasses for a reasonable price, and with the Home Try-On program to further reduce the friction from existing customers. As Warby Parker recounts, back in February 2010, nonetheless the very low penetration of e-commerce in the eyewear industry, the company reached its first-year sales target in three weeks, selling out its top 15 styles in four weeks, and by building a waitlist of thousands of customers.

Therefore the Home Try-On program which turned out to work extremely well in Warby Parker’s case is a tool that achieves multiple purposes, such as improved brand awareness, customer experience, and satisfaction, improved conversion rate, and while it might increase customer acquisition costs in the short term it does substantially lowers them up in the long run.

Warby Parker distribution strategy

The distribution process starts with the design and custom selection of materials in Warby Parker’s headquarters, while glasses are sold direct to the consumer, thus cutting the middleman and the cost associated with that additional distribution step. This also helps keep the glasses’ lower price.

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How the distribution mix changed since 2018. To notice how the pandemic has accelerated the e-commerce segment, while it slowed down the retail one. And the Home-Try on the program while increasing short-term customer acquisition costs, improved substantially e-commerce sales. Post-pandemic we’ll see a re-balance between e-commerce and retail, a- Image Source: Warby Parker financial prospectus.

Warby Parker’s distribution strategy is “customer-first and channel-agnostic” thus using the interplay between online and offline to lead conversions. In fact, the company uses both physical and online presence either to incentivize customers to choose at one of its stores then purchase online or vice-versa. Therefore, leveraging the showrooming and webrooming experiences rather than being intimidated by them.

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Showrooming is a pattern where consumers browse on a brick-and-mortar store but they finalize the purchase online. Webrooming is the reverse process. Consumers browse the product online, but they finalize the purchase in the physical store.

The interplay between physical and digital is also enhanced via its Virtual Vision Test.

Warby Parker in numbers

For a bit of context, as of 2020, Warby Parker revenues were generated as it follows:

  • 95% of its revenues from the sale of glasses (comprising both prescription and non-prescription glasses products for optical and sun). Glasses can be brokend down based on lens type and by materials used.
  • 2% from contacts.
  • 1% from eye exams.
  • 2% from eyewear accessories.
Warby Parker product mix
The breakdown of revenues in 2020 saw the glasses products at 95% of its total revenues. These glasses revenues can be broken down based on lens types (single-vision vs. progressives, and Non-RX) and materials.
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Warby Parker Key Metrics from its Financial Prospectus
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Warby Parker’s customer base growth over the years – Image Credit: Warby Parker financial prospectus.
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Warby Parker’s store count growth over the years – Image Credit: Warby Parker financial prospectus.

Warby Parker revenue generation

As Warby Parker explains in its financial prospectus:

We generate revenue through selling our wide array of prescription and non-prescription eyewear, including glasses, sunglasses, and contact lenses. We also generate revenue from providing eye exams and vision tests, and selling eyewear accessories. We provide access to convenient and accessible vision services for primary vision care needs including in-person exams at 91 of our retail stores as of June 30, 2021 as well as innovative telehealth services through our Virtual Vision Test mobile app, if available, for those who choose the online experience. For the year ended December 31, 2020, we generated 95% of net revenue from the sale of glasses, 2% of net revenue from the sale of contacts, 1% of net revenue from eye exams, and the remaining 2% of net revenue primarily from the sale of eyewear accessories.

Warby Parker makes most of its money through the sale of eyeglasses, sunglasses, contact lenses, and monocles. Consumers can take a personalized test to discover a list of recommended products or styles. 

Alternatively, they pick five different frames themselves to try at home and then purchase the pair that suits them best. During this process, the company does not charge the consumer shipping or return fees.

As mentioned earlier, Warby Parker operates its own manufacturing facility. This enables it to avoid retail markup and maximize profits while selling more affordable eyewear to consumers. Approximately 60% of total revenue comes from online store sales, with the remainder coming from sales in physical stores.

Eye exams

Warby Parker also offers comprehensive eye examinations in most of their North American stores.

For an eye exam that includes a contact lens fitting, prices started at $75. Optometrists may charge as much as $120 for an exam covering glasses and contact lenses. 

Scout by Warby Parker

Scout by Warby Parker is a comfortable, breathable, and affordable daily contact lens plan.

Consumers who wish to try the service are charged $5 for a trial pack that includes six days’ worth of contact lenses. 

Those who wish to purchase more are charged $110 for a three-month supply.

Accessories

The company also sells a range of eyewear accessories, including carry cases, travel cases, pouches, cleaning kits, anti-fog spray, and chains.

Key Takeaways

  • Warby Parker is an American online prescription glasses and sunglasses retailer. The idea for the company came after four college students noted that the cost of replacing glasses was prohibitively expensive.
  • Warby Parker derives most of its revenue from the sale of sunglasses, eyeglasses, contact lenses, and monocles. Approximately 60% of total revenue comes from online sales, with the remainder coming from brick-and-mortar stores.
  • Warby Parker sells comprehensive eye exams in its stores and a range of eyewear accessories. The company also sells contact lenses in bulk for those desiring a regular supply.

Read Next: Luxottica Business Model, Costco Business Model, Walmart Business Model, TOMS Business Model, Amazon Business Model.

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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"