Why Digital Warby Parker, Allbirds Betting on Stores Before Open House

Warby Parker store in The Standard, Los Angeles, California.

Michael Buckner | Getty Images

Retail lovers Warby Parker and Allbirds have been launched on the Internet, paving the way for other brands to follow their playbooks and expect similar success.

Currently, they are making big bets on real estate, not the web, to drive future growth, they have submitted to the Securities and Exchange Commission show. Whether they enjoy the benefits of physical stores can shape the way ahead of other online-first companies.

The two businesses are synonymous with the term “direct sales” in the retail industry. This strategy involves avoiding wholesale channels such as department stores in order to build stronger relationships with customers. DTC companies have few or no physical store locations.

In recent years, dozens, if not hundreds, of brands have debuted and fall into the DTC category. Products range from cosmetics and pajamas to toothbrushes and deodorants.

Warby Parker and Allbirds are preparing to debut in their respective public markets, so they have set positive goals and entered a new expansion phase. Investors and analysts make them accountable.

The success of their next move, including the planned rollout of more physical stores, could impact the brands that follow in their footsteps.

For one thing, both businesses lose money. It is unclear when (if any) it will make a profit. Allbirds net losses totaled $ 14.5 million in 2019 and increased to $ 25.9 million in 2020.

Warby Parker went bankrupt in 2019, with a net loss of $ 55.9 million last year.

Although fixed costs are added to opening a store, retailing in-store is still the best channel for finding new customers. Warby Parker and Allbirds are betting on the shop as they prepare for the release.

Allbirds Publish through initial public offering, in the meantime Warby Parker uses direct lists.. In the latter case, the shares will not go public by the underwriter’s team.

According to experts, the online-only model is only sustainable for a very long time. The success or failure of these companies’ public debuts could facilitate additional IPOs or lead retailers looking to other exit strategies according to the DTC model.

Jason Goldberg, Chief Strategy Officer for Advertising Agency Publicis, said: “Like a store, and the traditional business model was all old schools, and new ways to do things went directly to consumers … hitting the website and inventing cool products.”

Companies are wondering if the model is unsustainable, Goldberg said.

“Infant growth has certain stages that can be successful without a store, and it’s very easy to get customers,” he said. “But digital native brands haven’t achieved $ 1 billion in annual revenue without stores. At some point, they need these stores as a cost-effective customer acquisition channel.”

Allbirds’ New York City retail store is located in Manhattan’s trendy SoHo district.

Source: Allbirds

Dan McCarthy, an assistant marketing professor at Emory University, monitors companies such as: Casper sleep, FIG, Revolve When proton When monitoring Warby Parker and Allbirds. They all have relied primarily on the internet for sale.

However, they are also struggling to make a profit and can suspend potential investors.

“If you can’t make a profit, I’m sorry. It won’t be a valuable stock in the long run,” McCarthy said.

Mattress maker Casper turned away from its DTC strategy when it went on sale at other retailers, including: the goal.. Since then, we have opened more than 70 of our own stores. This is further evidence of companies that are initially backed by web sales and are enjoying the benefits of real estate.

Allbirds, a sustainable shoe brand that started in Silicon Valley, said it “scratched the surface” with the possibility of opening a store, especially in the United States.

According to the company, as of June 30, the company has 27 retail stores worldwide. SEC filing..

“We expect growth to accelerate compared to 2020 as store fleets grow,” says Allbirds. “Our new store is also profitable, has an attractive payback period, acts as a good capital investment and is well-positioned to take advantage of the physical retail recovery from the pandemic. I believe. “

According to the company, e-commerce accounted for 89% of total sales last year, with stores accounting for the rest. Due to the Covid crisis, physical stores were closed for several weeks in 2020. Until June 30, shoppers who visited both real-world locations and websites spent 1.5 times more money than customers who just went to stores or shopped online, according to Allbirds.

The company pointed out the location of Boston’s Back Bay to show the benefits of opening a shop. In the three months since its debut in March 2019, web traffic in the region has increased by 15%. The company saw 83% more new customers in the neighborhood.

To take advantage of stores, businesses may not need to target expensive markets such as New York City and Los Angeles. Web Smith, the founder of 2PM, recently I wrote in a memo to the subscriber Direct-to-consumer brands need to consider opening stores in second- or third-tier cities, such as Columbus, Ohio.

“The DTC industry is a club, and clubs have rules designed to be broken,” Smith said. “For retailers who have the courage to think out of the box, the opportunity to break through is far outside the current city and strategy.”

On the other hand, eyeglass maker Warby Parker has more than 145 stores as of June 30th. We plan to open 30 to 35 stores this year, aiming to expand at that pace every year.

“Our retail stores are highly productive,” the company said. SEC filingAdds that the average sales per square foot is $ 2,900. For comparison, Apple is reported to be the top-selling retailer on this metric, generating over $ 5,500 in revenue per square foot.

“Our retailers serve as a valuable marketing tool for introducing new customers to our brand and promoting repetitive purchases, which in turn has a positive impact on our sales retention.” Warby Parker said.

The company offers direct eye examinations in 91 locations. This service gives more people a reason to travel.

According to Warby Parker, last year’s e-commerce business accounted for 60% of net sales. The remaining 40% is made up of stores.

“Almost all of these first-generation retailers have peaked,” Goldberg said. “And they are looking for store model flavors to keep growing.”

“Previously the mall was everything”

The online sales model may be just the starting point for Warby Parker, Allbirds, and the companies that follow them.

Kirsten Green, founder of Forerunner Ventures, states that he does not use the term Direct-to-Consumer or DTC to describe businesses such as Warby Parker, Allbirds, Bonobos, and Birchbox.

“These are just businesses that started all online because they were efficient,” she said. “You can start learning because you have all these touchpoints to launch your site, start courting your customers, and track your behavior.”

These experiences have made this “new generation” of retailers smarter about opening stores and avoiding overbuilding, Green explained. Rapid expansion has confused companies in the past and has pushed many to bankruptcy courts to get out of leasing.

“Previously malls were everything,” Green said. “Understanding the mall strategy and launching 200, 400 stores …. Now I think we’ve reversed that equation. The first impetus is increasing our online presence. . “

For people like Warby Parker and Allbirds, the benefits of opening more stores come with higher fixed costs and leasing responsibilities.

However, many companies are finding ways to manage these costs. Target, for example, is a pioneer in using the Big Box location as a mini-fulfillment center to get the most out of real estate.

It encourages shoppers to pick up online orders in their parking lot. Target leverages stores to reduce transportation and transportation-related costs.

“You can build a business of a certain size online,” Green said. “But if you’re really thinking about scale, you need to think about meeting customers where they are, and they’re in different places.”

Warby Parker and Allbirds have decided that they need to expand their products to be profitable. According to Publicis Goldberg, the success of their public debut will impact other companies that follow the online-first model.

“This first class is a positive affirmation for the model. [of DTC brands] We’re starting to get an exit because we’ve had some good acquisitions so far … but the market wasn’t very ripe for these IPOs, “he said.

“Currently, the market seems to be beginning to tolerate some of these ideas, especially if they succeed in these unit economics, getting caught up in a second wave of digital natives trying to follow in these footsteps. Will be, “he said. ..

Why Digital Warby Parker, Allbirds Betting on Stores Before Open House

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