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Prices for razors and blades have long dominated the sale of glasses. Opticians offer inexpensive eye tests, which restore the margin with a profit on the sale of glasses. Warby Parker wanted to disrupt it by selling trendy glasses online to American consumers who first got prescriptions of bricks.
The 11-year-old business is regularly touted as a model for running a retail business. But as it is listed on a stock exchange, it is turning its business plan towards the integrated model of the industry it is trying to falter.
Warby Parker made his debut on Wednesday through a direct listing. The stock opened at $ 54.05 – more than a third higher than its reference price – giving it a market value of more than $ 6 billion. That’s twice as much as it was worth in its last round of financing 13 months ago, and the loss-making business has a valuation of 15 times last year’s turnover. EssilorLuxottica, the much larger spectacle conglomerate, is used only five times.
Fans of the retailer argue that the premium is reasonable, given the resilient performance of the business during the pandemic. Revenue rose 6 percent last year to nearly $ 394 million, compared with a 17 percent drop at EssilorLuxottica. But the focus on growth at the highest level ignores the problems that Warby Parker — and other brands that are directly to consumers — have in achieving profitability.
Revenue growth did not come cheap for Warby Parker. The business’s marketing spending rose to 19 percent in 2020 from 13 percent the previous year.
It is unlikely that the cost base will fall any time soon. Although Warby Parker started as a non-trading business, he sees his future in physical stores. It seems that many people still prefer to buy glasses personally – and it does not matter to compensate their optician so.
Two-fifths of last year’s revenue comes from 142 retail stores. Plans to open more stores contribute to the fixed costs. But the jump in the valuation of the business over last year implies that it will become significantly more profitable. The two are difficult to reconcile and cause uncomfortable reading.
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