Why digital Warby Parker, Allbirds are betting on stores before public

A Warby Parker’s store in The Standard, Los Angeles, California.

Michael Buckner | Getty Images

Retail darlings Warby Parker and Allbirds launched on the internet and paved the way for other brands to follow their playbooks and hope for similar success.

Now, they’re betting big on real estate — not the web — to fuel future growth, filings with the Securities and Exchange Commission show. Whether they reap the benefits of physical stores could shape the path ahead for other online-first companies.

The two businesses have become synonymous with the term “direct-to-consumer” in the retail industry. The strategy involves avoiding wholesale channels, such as department stores, to forge stronger relationships with customers. DTC companies have few or no brick-and-mortar locations.

Dozens — if not hundreds — of brands have debuted and labeled themselves in the DTC category in recent years. Products range from makeup and pajamas to toothbrushes and deodorants.

As Warby Parker and Allbirds prepare to make their respective public market debuts, they’ve entered a fresh expansion phase with aggressive goals. Investors and analysts will hold them accountable.

The success of their next moves, including the planned rollout of more physical stores, will likely carry implications for the brands following in their footsteps.

For one, both businesses lose money. It’s unclear when — if ever — they’ll become profitable. Allbirds’ net loss totaled $14.5 million in 2019 and grew to $25.9 million in 2020.

Warby Parker broke even in 2019, and its net loss last year was $55.9 million.

While opening up stores comes with added fixed costs, brick-and-mortar retail remains the best channel to find new customers. Warby Parker and Allbirds are betting on shops as they prepare to go public.

Allbirds is going public through an initial public offering, while Warby Parker is using a direct listing. In the latter, shares are not taken public by a team of underwriters.

An online-only model is only sustainable for so long, experts say. The success or failure of these companies’ public debuts could fuel additional IPOs or lead retail companies that have followed a DTC model to look to other exit strategies.

“There was this early euphoria that there was a new model where you didn’t need stores anymore,” said Jason Goldberg, chief commerce strategy officer at advertising firm Publicis. “Like stores and the traditional business model was all old school, and the new way of doing things was going directly to the consumer … slapping up a website and inventing a cool product.”

Companies are figuring out the model is not sustainable, Goldberg said.

“There’s a certain phase of your infant growth where you can achieve success without stores, and it can be really easy to acquire customers,” he said. “But no digitally native brand has achieved a billion dollars in annual revenue without a store. You need those stores as a cost-effective customer acquisition channel at some point.”

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