Warby Parker’s IPO Filing: Red Ink, And A Vision For D2C Eye Care

Certain themes are emerging on Wall Street, dominating listing activities, whether through SPACs or traditional IPOs.

Among those themes: The shift toward digital commerce and payments, and the direct-to-consumer (D2C) models that have become staples of everyday life — all accelerated, of course, by the pandemic.

Drill down a bit into the filings and other themes emerge, hallmarks of fast-growing young companies: torque on the top line and red ink on the operating line.

Warby Parker’s filing with the SEC on Tuesday (Aug. 24) didn’t come entirely as a surprise. It had submitted an earlier, confidential document in June.

See also: Warby Parker IPO Would Tap Dual Specialty Retail And D2C Trends  

As noted in this space, in a signal of broad trends, PYMNTS’ own research shows that roughly three quarters of “digital shifters” plan to keep at least some of their digital activities in place, which builds a long runway for firms to build their D2C models to capture the fancy (and dollars) of consumers who are newly flush with cash, having paid down credit, embraced debit spending and built up savings with stimulus checks.

In detailing the opportunity for selling glasses online, Warby noted in its filing on Tuesday that when the company started 11 years ago, less than 2.5 percent of glasses were sold online. That has grown to 8 percent across an industry worth $21 billion in the U.S. and $140 billion globally. The company noted that at present, its active customer base stands at more than two million individuals. The model is omnichannel — accessible via app, online or at 145 retail locations (up from pre-pandemic levels in 2019, when the store count stood at 119).

Breaking down the top line, the bulk of sales, at 95 percent, comes from the sale of the glasses themselves, 2 percent comes from contacts, 2 percent comes from accessories and 1 percent is from eye exams (the firm notes that D2C telehealth, which would include vision, is slated to surpass $16 billion by 2025).

As for further greenfield opportunity for Warby, the company estimated that it has sold glasses and  contacts to less than 2 percent of adults in the U.S. who use vision correction; its total market share in the country was 1 percent. That market share would be increased amid an industry that the company said “has been slow to innovate, despite strong and defensible fundamentals.”

The shopping and purchasing experience has typically been done on site, with premium and opaque pricing. By offering lower price points (with glasses starting at $95) — and with virtual “try on” and shipping models that let customers keep only the pairs they like — Warby Parker is seeking to disrupt the status quo.

Drilling Into The Numbers

The company logged 6.3 percent net revenue growth to $370.4 million in 2020 over 2019; loss from operations widened to $55.6 million, up from $1.7 million in 2019. Warby said that for 2020, 60 percent of net revenues came from eCommerce, and the remaining 40 percent from retail. It’s interesting to note that in June of this year, the split was 50 percent. But pre-pandemic, eCommerce represented 35 percent of sales, which shows a continued embrace of buying an essential, health-related item online. Indeed, the average order value stood at $184 in 2020, up from $176 in 2019.

But it costs money to gain scale. As Warby Parker noted in its filing, customer acquisition costs increased to $40 last year, up from $27 in 2019. “In 2020, we … observed a meaningful increase in customer demand for our Home Try-On program, which increased our costs to support that program. The increase in Home Try-On demand was driven by an increase in eCommerce demand as a result of the COVID-19 pandemic and related store closures. If we fail to cost-effectively acquire new customers or retain existing customers through our campaigns and offerings, our overall profitability could be negatively impacted,” the filing noted.

It continued: “Because we have a short operating history at scale, it is difficult for us to predict our future operating results. We will need to generate and sustain increased revenue and manage our costs to achieve profitability. Even if we do, we may not be able to sustain or increase our profitability.”