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Warby Parker: Disruption on the back of a revolutionary vision, mission and culture

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Prior to 2010, a basic designer pair of eyeglasses probably set you back at least $200-$300. The optical industry was dominated by Luxottica, which enjoyed near monopoly status in the market with over 80% market share and was able to charge exorbitant prices to consumers.

Enter Warby Parker and a revolutionary concept that totally disrupted the optical industry – an all stakeholder-centric business model built on the premise of customer value creation and value sharing. Warby Parker offered stylish designer eyeglasses at an affordable price, while championing socially conscious business. Warby Parker hit its initial annual sales goal within three weeks of launching its website.1

A differentiated customer value proposition

At its core, Warby Parker offers significant economic and functional value to the consumer by selling all eyeglasses at a flat $95 (lens + frame) per pair price. Traditional eyeglass designers typically charge separately for frames and lenses, and costs exponentially rise with eye conditions such as astigmatism and keratoconus.

Providing consistent and high quality customer service is central to Warby Parker’s value proposition model. The company aims to provide an “easy and fun” buying experience.2 At inception, Warby Parker was a pioneer in utilizing e-commerce to sell eyeglasses but has since expanded by selling through 25 company-owned storefronts located in trendy, high-end locations across the US.2

Warby Parker’s brand is pervasive, creating a hip, cool factor. Their intention is to appeal to millennials and ‘break into the world of health and fashion’.3 In fact, the company has been acclaimed by Esquire4, GQ5 and Vogue6, amongst other fashion magazines. Underpinning all this is a company that promotes socially conscious business through its ‘buy a pair, give a pair’ model. For every pair sold, Warby Parker, in partnership with VisionSpring (nonprofit), distributes another pair in developing countries. Warby Parker is a registered B-Corp. (for-profit company that meets rigorous social standards, maintains transparency and accountability) with a carbon-neutral production and distribution footprint.2

Simplistic business model

1

Source: http://bmtoolbox.net/companies-and-stories/warby_parker/

Robust delivery of value

Warby Parker’s operating model is closely aligned with its business model and the strength of its operating model is central to its ability to deliver low cost, high quality, fashion forward eyeglasses with a strong social element.

This is achieved by disciplined supply chain management. Warby Parker bypasses the traditional model by being vertically integrated, enabling them to have direct control over costs. They procure high quality materials directly from overseas (Japan and Italy)2, design and produce all eyeglasses in-house and sell directly to the customer (online or through company-owned stores). Comparatively, the traditional supply chain model involves companies such as Luxottica selling production rights to other companies who then design, manufacture and sell eyeglasses to optical shops. Optical shops then add additional mark-ups before selling to the end consumer.2 Consequently, Warby Parker saves significant costs on licensing fees and retail mark-ups, and pass these savings onto consumers.

Value chain comparison between Warby Parker and traditional industry competitors

2

Source: Warby Parker (http://demandcaster.com/2014/03/warby-parker-aligns-business-objectives-with-supply-chain-management-process-to-drive-growth/)

 

As part of its customer offering to provide an ‘easy and fun’ buying process, the company’s ‘Home-Try-On’ program allows customers a free 5-day trial period where they can order five frames online, and try them at home before deciding their preference. Customers can also try on frames virtually by uploading a photo onto Warby Parker’s website and choosing their frames of preference.

Warby Parker also sells through company-owned storefronts where they provide additional in-store services such as eye tests. Physical stores have aided in enriching personalized customer service and increased brand resonance. In-store, each customer, shepherded by a dedicated salesperson, is able to try as many pairs as they want. Additionally, store design and layout, featuring open space, ‘chevron wood floors, original murals paintings, banquette seating and magazine racks’7, is focused on providing a fun experience that will create a buzz and encourage a social atmosphere. Such has been the success of the company-owned stores that estimates show that Warby Parker are amongst the leading retailers in average sales per sq ft.7

$ per sq.ft comparison

3

Typical Warby Parker store layout

4

Source: Wall Street Journal, November 17, 2014 and Warby Parker website

Effective human capital investment is critical to maintaining robust customer service. Warby Parker invests heavily in training and encourages creativity through a ‘fun, open and growth-driven culture.’ In addition to onboarding training, the company conducts monthly informal feedback sessions and 3600 reviews to ensure accountability and enhance personal and professional growth.2 The company actually fired one of it’s first employees because he wasn’t friendly enough in emails to customers.3

Warby Parker continues to invest in process improvement and innovation. In 2014, they launched a proprietary retail point-of-sale system called Point of Everything that enabled payment processing, eye-test management and inventory control, amongst others, all through the use of iPad minis.2 This technology greatly improved speed of customer service and internal company recording system.

Warby Parker has been able to build a revolutionary business model, disrupting the entire optical industry on the back of a creative, well-aligned and innovative operating model. While competitors ponder the next step, Warby Parker continues to break into unchartered territories.

Sources:

1 http://blog.hubspot.com/marketing/warby-parker-business-lessons

2 Warby Parker website (https://www.warbyparker.com)

3 http://blog.hubspot.com/marketing/warby-parker-business-lessons

4 http://www.esquire.com/style/a13780/warby-parker-prescription-shades-042012/

5 http://www.gq.com/story/exclusive-first-look-warby-parkers-hayworth-collection

6 http://www.vogue.com/871222/vd-in-focus-warby-parker-eyewear/#1

7 http://www.wsj.com/articles/warby-parker-adds-storefronts-to-its-sales-strategy-1416251866

http://mashable.com/2014/06/16/unique-business-models/#mzWGQ8jNcSqR

http://www.inc.com/kimberly-weisul/how-warby-parker-took-the-risk-out-of-its-business.html

http://www.fastcompany.`com/3041334/most-innovative-companies-2015/warby-parker-sees-the-future-of-retail

http://blogs.wsj.com/digits/2015/04/30/eyeglass-retailer-warby-parker-valued-at-1-2-billion/

http://www.newyorker.com/magazine/2014/08/04/companies-benefits

http://www.psfk.com/2013/05/warby-parker-retail-store.html

http://imweek.org/warby-parker-sees-success-with-trendy-eyewear/

9 thoughts on “Warby Parker: Disruption on the back of a revolutionary vision, mission and culture

  1. This is fascinating post, Madam! Despite wearing glasses myself, I had never heard of Warby Parker before coming to HBS. They have a very interesting business model and a strong supporting operating model. To be honest, I was very impressed to know they sent frames to customers before charging anything. In a country like Brazil this would probably lead to lots of “lost” frames.

    A few questions:
    (a) Do you know how they build their brand? It seems they have achieved success pretty early in their history…
    (b) Do you believe their operating model is applicable to other consumer categories?

    Thanks a lot!
    Francisco

    1. Thank you Francisco – their model is indeed unique and has been very successful thus far. In terms of your queries, Warby Parker did indeed achieve success soon after launching. As mentioned above, upon launch, they achieved their annual sales goal within 3 weeks. In fact, the founders spent over a year and half creating and refining the brand, core values, strategies and the eventual product before launch. As they wanted to break into the ‘health and fashion’ wrld, the company met with over 40 top fashion PR and consulting firms in order to get buy-in, refine strategy and achieve a level of market testing. This was extremely crucial and eventually enabled them to be acclaimed by consumer periodicals such as Vogue, GQ, Esquire etc. Additionally, they used experts in the field to ensure they got the initial pricing right. Initially, they were planning on launching at a $45 price point, but after in-depth evaluation with a Wharton professor, they decided on a $95 to ensure they don’t come off as a discount brand. Employee recruitment and brand training was core at Warby Parker and the company spent significant time in ensuring every employee stuck to the company’s mission, which is crucial to their product offering and at the birth of a brand. The company also invested deeply in customer service. At an early point during launch, the company was surprised by demand and ran out of inventory. This had the potential to have a negative customer reaction, but the founders made it a priority to inform of the delay to every customer who had placed an order and be transparent with the issue. This transparency and honesty was critical in gaining consumer trust.
      The Warby Parker model is applicable to other consumer categories and there have been instances where companies have introduced lower cost alternatives in a mature industry with varying degrees of success. The key to this model is having a strong control of the supply chain and ability to be flexible and nimble in operations. A big part of Warby Parker’s low cost advantage comes from the ability to source products directly from suppliers. However, a downside to this will be potential quality problems and also the ability of a couple of suppliers to meet demand if it skyrockets. HI believe the other aspects of the operating model, in terms of human capital investment and infrastructure can be replicated in other industries.

  2. 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.

    1. Thank you for your comments. I totally agree with both the points you raised – these are issues faced by most successful start-ups as they move from the initial introduction, through growth and eventually to maturity. To your point on profitability, it is true that the company is making little or no profit at the moment and is currently focused on sales growth. Several other successful companies such as Uber and Amazon, among others, endured several years of negative earnings, before starting to turn profitable. Additionally, as you mentioned, the founders created Warby Parker around a social mission as well and is an important consideration when we analyze true profitability objectives. In saying all this, the issue of profitability is definitely real for Warby Parker and the company will need to further explore ways to cut costs (may be through pressing suppliers) in order to achieve positive margins.
      I do also believe there is still significant growth trajectory to be had for Warby Parker. While they currently have a footprint in a few states in the US, there is room for further penetration in the US market, as well as the possibility for international expansion further along the way.
      In terms of competition, It is not entirely surprising to see companies with a similar model pop-up. This has been the case in several other industries as well where imitations of successful companies have come up. Competition is currently not a huge threat for the Warby Parker but this can quickly change and it is necessary for the company to continuously innovate and maintain its trendy, hip status among consumers. Crucially, for Warby Parker, they have a strong brand name in the market and there is a strong brand association among customers with Warby Parker.

  3. Thank you for the post, Madan.

    I had a few questions about Warby Parker’s operational model, which worries me.

    1. The head of Production at WP never worked directly with manufacturers- he only worked on the brand side and outsourced manufacturing. His leadership in Production for WP seems to limit the success of WP to expand. How will they be able to expand when their leadership is lacking practical skills?
    2. How do they keep vendors happy without confirming capacities with them?

    Thank you!

    1. Thanks for your comments Raysana. You bring up a couple of great points and definitely potential areas of issues for the company.

      a. While having practical leadership experience is often crucial, I do think that it is not impossible for the company to succeed long term with the current Head of Production. Only time will tell but there have been several cases at both startups and large manufacturing and consumer facing companies where certain executives have been positioned in areas where they have previously not had tangible experience but have still proven to be a success. Critically, for this job, having an executive with strong interpersonal and communication skills is critical and it is entirely possible to learn on the job and be successful. From my interaction with one of my friend’s in the corporate strategy team of Warby Parker, it is clear that the company is extremely meticulous in its hiring decisions and potential employees are carefully vetted to ensure that they fit the culture and dynamics of the organization. I believe that at an early stage, having employees with strong track record in previous jobs and being fully immersed in the company’s culture is as critical or more critical that specific operational experience. A lack of experience in a certain job can be complemented by having other individuals within his team with more hands-on experience.
      b. Regarding vendors, Warby Parker provides relatively limited information on the number of vendors they have and the location. Although I am afraid I do not know specific details of their contracts with vendors, Warby Parker procures from overseas and I believe they have partnered various vendors to ensure they are able to meet demand. Although the company is still in the growth stage, the past 5 years would have enabled them to have historic demand data and estimate growth as new stores open. Consequently, they probably baseline commitments with vendors with the option for increased supply in periods of unforseen demand.

  4. Madan-

    I thought this was a really well written and laid out. The operating model seems to deliver remarkable value to the consumer, but in a way, it almost seems too good to be true. All of the value that is being created has to cost WB a significant amount, and at the low cost in which it sells its products, I wonder if they are profitable, and if not, how they intend to get there.

    It certainly is remarkable what they have been able to do so far in a market that is dominated by one large player.

    1. Thanks for your comments Kevin. Warby Parker has indeed been a success story and have experienced tremendous year-on-year growth thus far. As per my comments to Purple Haze above and to your point on profitability, Warby Parker is making little or no profit at the moment and is currently focused on sales growth. This has been the case at other successful startups such as Uber and Amazon, among others, endured several years of negative earnings, before starting to turn profitable. Warby Parker is also created around a social mission as well and is an important consideration when we analyze true profitability objectives. In saying all this, the issue of profitability is definitely real for Warby Parker and the company will need to further explore ways to cut costs (may be through pressing suppliers) in order to achieve positive margins.

  5. Thanks for your comments Raysana. You bring up a couple of great points and definitely potential areas of issues for the company.

    a. While having practical leadership experience is often crucial, I do think that it is not impossible for the company to succeed long term with the current Head of Production. Only time will tell but there have been several cases at both startups and large manufacturing and consumer facing companies where certain executives have been positioned in areas where they have previously not had tangible experience but have still proven to be a success. Critically, for this job, having an executive with strong interpersonal and communication skills is critical and it is entirely possible to learn on the job and be successful. From my interaction with one of my friend’s in the corporate strategy team of Warby Parker, it is clear that the company is extremely meticulous in its hiring decisions and potential employees are carefully vetted to ensure that they fit the culture and dynamics of the organization. I believe that at an early stage, having employees with strong track record in previous jobs and being fully immersed in the company’s culture is as critical or more critical that specific operational experience. A lack of experience in a certain job can be complemented by having other individuals within his team with more hands-on experience.
    b. Regarding vendors, Warby Parker provides relatively limited information on the number of vendors they have and the location. Although I am afraid I do not know specific details of their contracts with vendors, Warby Parker procures from overseas and I believe they have partnered various vendors to ensure they are able to meet demand. Although the company is still in the growth stage, the past 5 years would have enabled them to have historic demand data and estimate growth as new stores open. Consequently, they probably baseline commitments with vendors with the option for increased supply in periods of unforseen demand.

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