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During tough times, it can be tempting for a business to change course as it seeks to navigate a changed environment. But beware: Veering from a strategy during a temporary disruption may cause one to lose focus on the long-term goal.
This balance is in view for many DTC and ecommerce businesses that rose over the last decade in an environment where demand is softening amid rising costs of food and gas. So far, however, there's a resolve coming through to stick to plans that have resulted in growth to date.
Warby Parker is among those doubling down on an existing strategy that is working. In this case, it's an example of a digitally-native brand growing in physical retail.
The eyewear brand was at the vanguard of the direct-to-consumer movement of the last decade, which emphasized activating sales in online channels to cut out middlemen and offer a lower price, while providing a great customer experience with perks like free home try-ons of multiple pairs of glasses.
But going direct didn't mean digital-only. Warby opened its first physical store in 2013. The move was a shock to some at the time, but the response proved to the company that it could be a growth engine in the following years.
Fast-forward to today, and Warby Parker is a public company with more than 160 stores.
“We continue to believe that it makes sense to open up stores and it's a good use of capital,” co-CEO Neil Blumenthal told analysts on the company’s second quarter earnings call.
In the current moment, Warby faces a difficult environment. On the earnings call, Co-CEO Dave Gilboa talked about an observable “deterioration in retail productivity,” as well as a dip in demand for eyewear. The company also had to lay off 63 employees, which accounted for 15% of its corporate workforce. It is not alone among DTC and ecommerce companies in making these moves, as a combination of inflation, economic headwinds, market conditions paint a cloudy outlook. Nevertheless, the company grew net revenue 13.7% in Q2, and grew active customers by 8.7%.
It helps to explain why Warby Parker is standing by its previously-announced commitment to open 40 stores this year. By the end of 2022, it will have opened 75 stores over a two-year span, bringing its total to more than 200.
The company was a pioneer in taking the direct model to brick-and-mortar nearly a decade ago. Now other DTC darlings like Glossier, Allbirds and Brilliant Earth are leveraging in-person experiences as a way to scale.
Here’s a look at why Warby Parker believes in stores. At a time when DTC is getting harder, it may offer a look at an avenue to consider for growth.
Free marketingIn a Warby Parker store. (Photo by Phil Roeder | Flickr)
A store’s primary function is to facilitate sales. But for a company that started online, brick-and-mortar locations also serve as the physical manifestation of the brand. Blumenthal said the stores serve as “billboards” for the company. They're a place to literally see yourself in their latest glasses. When a person walks by a storefront, they're also reminded of Warby Parker, or could be introduced to them for the first time. This increases the likelihood they will think of the brand when they need glasses.
With this built-in awareness engine, Warby Parker doesn’t have to spend as much on marketing related to stores as it does with ecommerce. In fact, with the return to more in-person shopping, Warby is paring marketing spend back to 2019 levels for the rest of the year. In the first half of the year, marketing spend was 17% of revenue. The company expects it to be closer to 12-13% in the second half, meaning it will reduce spend by about $12 million.
It shows how stores can be used as a strategy to effectively lower customer acquisition costs.
A bigger vision
Warby Parker started with glasses, but the co-CEOs are driving expansion into more areas of the eyewear market, and even health. As part of this shift toward being a destination for “holistic vision care,” Warby Parker is staffing stores with optometrists who provide eye exams. It now has eye doctors in 87 stores, an increase of 40 over the last year. The company expects to have them in more than 150 stores by the end of the year.
While Warby is investing in telehealth, too, the old-fashioned optometrist visit remains in line with what many consumers recognize in an eye exam. For Warby, it is a means to attract shoppers into stores. Once they have received an eye exam, they are also more likely to buy a new pair of glasses or contacts.
The bottom line
For Warby Parker, opening stores is capital efficient. New stores are expected to pay back the cost of standing them up within 20 months. The 141 stores that have been open for a year or more generated average revenue of $2.1 million, and are meeting margin targets that deliver over $730,000 per store.
“We anticipate that we'll be able to grow that revenue per store over time,” Blumenthal said. “Given the macro environment, we don't know when that will be. But even at these levels, we believe that the store performance is strong, and we're going to continue to open up lots of stores going forward.”
The physical model helps the company attract customers, offers opportunities to grow its business with services inside the store, and makes financial sense.
To be sure, it is not downgrading digital. Rather, the store makes room to cross over between the two mediums. Think about how shoppers might see a pair of glasses online, then head to the store to try them on.
Having long seen potential at the "intersection" of online and offline, brick-and-mortar is a big part of the vision going forward.
Trending in Retail Channels
Microservices architecture allows the company to give retailers ownership over omnichannel software.
With the growth of digital commerce, providing consumer choice is at the center of all of a retailer’s operations.
In recent years, that became especially evident in the area of fulfillment.
Ecommerce made the process of moving an order into place for delivery a crucial function, as the ability to source products close to demand quickly was an imperative.
“Retailers are looking to own more of their fulfillment destiny because consumer expectations have increased,” Chap Achen, VP of product strategy and operations at Nextuple, told The Current on the floor of the NRF Big Show 2023. “Fulfillment is now a competitive weapon.”
As digital operations increasingly blend with the physical store, a host of new fulfillment options are coming online. They can have an item delivered from the store on the same day, or they pick it up. Even a wider offering such as in-store pickup has a host of different choices inside of it. Consumers can pick up an item at a counter, or a locker. They can stop by anytime, or schedule a pickup on Saturday.
While this optionality helps retailers meet customers where they are, it also adds complexity to the systems that run them, and requires operational adjustments to put them in place.
It means the software that powers fulfillment operations must also meet retailers where they are, Achen said. Many retailers have specific setups and processes. They may have a store located in a mall with a nearby distribution center, or a series of small storefronts. At the same time, retailers need to have flexibility with the software that they use so they can provide options to consumers.
For Nextuple, the vehicle to provide this is microservices, which describes a software architecture in which the parts of an application work independently, but are also built to work together. The company harnesses microservices to offer an ownership-centered approach to deploying its software through a product called Nextuple Fulfillment Studio.
“Today, there are only two ways to buy software: [software as a service] or custom building,” Achen said. “You can do it yourself or with a partner. We are a third option. We will help you accelerate your time to market because we've already developed 80% of your requirements, and then we'll give you that as source code.”
The software is composable. Retailers own the source code, and they can iterate. Along the way, they have the ability to swap out components of the software for pieces that enable them to better respond to the needs of customers, if they choose.
It shows how composable commerce is spreading throughout retail operations. A first wave of development applied the approach to the “front-end” of commerce, such as operating an ecommerce store and marketing. With fulfillment software such as Nextuple coming online, there are signs it is being applied to backend operations, as well.
In all, Nextuple offers 14 microservices as part of the Studio, including engines for same-day delivery, storage, inventory management and sourcing.
At the NRF Big Show, Nextuple announced that it is live with five national omnichannel retailers. Together, they have $50 billion in annual revenue and 7000 store locations.
The company is aiming to serve a group of retailers that are widely known, but still looking to hone operations for omnichannel retail. When it comes to fulfillment technology, the retail landscape has distinct tiers.
The largest players have built their own fulfillment tech to power logistics networks that reach across the country.
Name brand retailers with a national presence also want to offer competitive fulfillment, but haven’t made the move to acquire platforms or developed their own software in-house. Typically, they would seek out a software provider that offers a set platform on a subscription model. But the particular needs of commerce require software that powers physical operations with digital tools. That requires a different type of solution, Nextuple believes.
“We want to level the playing field,” Achen said. “We're helping the mid-tier [retailer] compete with Target, Amazon and Walmart.”