Warby Parker Adds Storefronts to Sales Strategy

Warby Parker has made a name for itself by selling affordable, hipster-chic eyeglasses through a website, avoiding costly store expenses and licensing fees.

While that business has thrived, the startup's promising next act is taking shape in a chain of storefronts dotting trendy retail neighborhoods from Boston's Newbury Street to Abbot Kinney Boulevard in Los Angeles.

Warby Parker's eight brick-and-mortar stores are now collectively turning a profit, says Dave Gilboa, the company's co-founder and co-chief executive. The stores sell an average of $3,000 a square foot annually, higher than most retailers not named Apple Inc.

It is quite a feat for a one-off experiment that began in April 2012, with Warby Parker's first physical retail showroom in Manhattan's SoHo district, where the company is based. Later this month, Warby Parker plans to open its first San Francisco and Chicago stores.

"We quickly realized that while we were seeing all the benefits we expected from branding and marketing---the 'halo' effect of having a store open---stores could be a meaningful driver of sales and profitability, which was really unexpected," Mr. Gilboa says.

Many e-commerce players have tested the waters of physical retail, but most of these efforts are still experiments. RentTheRunway has three shops where women can pick up high-end fashion to rent, and it plans to open its fourth, in Washington, D.C., this month. Amazon.com Inc. is expected to open its first brick-and-mortar location in New York in time for the holidays.

New York-based men's apparel retailer Bonobos aims to have 40 outlets by 2016, up from 10 at the end of 2011. The stores have limited inventory for sale and are designed primarily to help customers try on clothes so they can order them from the website.

Mr. Gilboa says the first stores it opened in 2012 have already generated enough cash to cover the initial construction costs, rent and staff salaries incurred over the nine months it usually takes for a store to open.

A payback period of two years or less is about average for retail shops in popular locations so it's a good sign that the stores will eventually be sustainable, says Anne Zybowski, vice president of retail insights at Kantar Retail. "When they are able to hit that hurdle and they are able to overcome those costs in two years, as long as they are able to at least maintain that sales volume, it definitely means that they've got a winning model," Ms. Zybowski says.

In moving offline, Warby and others face larger overheard costs and new challenges, such as hiring and training a sales staff. Mr. Gilboa confronted another risk when it came time to sign a 10-year lease on his company's first New York store. At the time, his company was just three years old. "It was scary in a lot of ways," he says.

At the same time, the stores do help cut down on shipping costs. Warby Parker sends customers as many as five frames to try on at a time at no cost. The company also donates one pair to charity for each pair it sells online or in stores.

Mr. Gilboa declines to say how much revenue the company generates, whether the overall business is profitable, or what portion is coming from brick-and-mortar sales. He still expects e-commerce to always make up the majority of revenue.

Since it's a private company, there is no way to verify Warby Parker's estimate of its sales per square foot. But compared with the top 168 publicly traded retailers tracked by New York-based research analyst RetailSails, that would be second only to Apple, which averaged $4,568 a square foot at the end of last year. Luxury retailers Tiffany & Co. and Coach Inc. make just below $3,000.

Unlike those retailers, Warby sells most of its products for less than $100. It says its average store is 1,613 square feet.

Back-of-the-napkin math would suggest annual store sales of nearly $50 million if 10 locations were running for a full year at an average of $3,000 a square foot. As for the overall business, Warby Parker said in June that it had donated its one-millionth pair of glasses, suggesting it had at least $100 million in sales in its four-year history, although a company spokeswoman cautions that milestone numbers like this "don't necessarily track with revenue."

One advantage of brick-and-mortar stores is the potential for more personalized customer service. "Consumers want to be talked to in a personal way," says Bruce Cohen, senior partner at retail consultant Kurt Salmon. "Once you get a good retail Sherpa---your curator of good taste and fashion that knows you---you become incredibly loyal."

Warby learned this early on. Soon after Mr. Gilboa and co-founder Neil Blumenthal launched the site in 2010, while students at the University of Pennsylvania's Wharton School of Business, they got calls from customers who wanted to try on the frames. The two invited the customers into Mr. Blumenthal's apartment, where they laid out glasses on a dining-room table.

"They loved being able to touch and feel the product," Mr. Gilboa says. "That was in some ways our first foray into brick-and-mortar retailing."

Since then, Warby Parker has raised more than $115 million from investors including Tiger Global, General Catalyst Partners and Spark Capital as well as credit-card company American Express Co. The company was valued at $500 million in its most recent round of funding in December 2013, according to a report in Fortune. A spokeswoman for Warby Parker declined to comment on the company's valuation.

Its staff of nearly 400 includes executives poached from retail leaders like Nike Inc. Mickey Drexler, the CEO of J. Crew and a board member at Apple, joined Warby's board last year.

The startup's new store in San Francisco's Hayes Valley neighborhood---set to open the week of Thanksgiving---is decidedly low tech. The 2,112-square-foot shop features chevron wood floors, original murals painted by local artists, banquette seating and magazine racks boasting the latest issues of "The Paris Review" and "Lapham's Quarterly."

Customers can try on new Warby Parker frames, including a limited-edition line of "Keene" sunglasses that will be offered only at that location. A squad of salespeople called "advisors" will roam the showroom in designer French worker jackets and fine-tune spectacles at a "reference desk" that is made, like everything in the store, from sustainable materials.