Warby Parker and the direct to consumer wave

While 2018 saw the return of the tech IPO, with the likes of Dropbox and DocuSign going public, 2019 could well be the year of direct-to-consumer (DTC).

The prospect has been triggered by Warby Parker, the highest valued of a much hyped crop of DTC companies declaring plans to go public, following a latest raise of $75m.

“Our goal is to remain independent, so the most likely outcome is an IPO in the next couple of years,” co-CEO Neil Blumenthal told Business of Fashion following the raise, which also reported that insiders have signalled this could happen within a year’s time.

The firm was launched in 2010 by four MBA candidates at the University of Pennsylvania's Wharton School. By sourcing direct from manufacturers and selling online, the firm slashed the price of glasses to $95 at a time when it was hard to find a similar pair in the US for under $500. It later expanded into sunglasses.

“Our goal is to remain independent, so the most likely outcome is an IPO in the next couple of years” - Warby Parker co-CEO Neil Blumenthal

As well as web sales, Warby now has 65 stores in the US, but is not stocked by any third party. The raise values it at $1.75bn according to a report by technology news website Recode. The founders say that the company is set to turn a profit for the first time this year, although no financials have been released.

An IPO could present the first opportunity to trade stock in a company from the DTC batch. Warby Parker is the leader of a collection of similar companies that do the same thing for different products: taking something that already exists, slapping stylish millennial friendly branding on it, slashing prices while maintaining quality and advertising heavily on social media.

Three of the biggest after Warby are: Makeup retailer Glossier, valued at $390m; Casper mattresses, valued at over $750m; and Harry’s razors (which recently revealed plans to diversify and take on Unilever), valued at $850m. All have mentioned plans to IPO. None have needed to yet due to near tech levels of funding – Harry’s has taken $475m, Casper $240m, Glossier $86m and Warby $300m.

A selection of Harry’s shaving products
Credit Harry’s

Smaller DTC companies now number in the hundreds. There’s toothbrushes, suitcases, socks, sofas, at least ten other mattress companies, with venture capitalists lining up to fund them all. Being the first of the crop to IPO would continue to make Warby a benchmark, although the performance of its stock might not necessarily be a signal of things to come, particularly with increasingly swollen valuations of new companies.

Take Hims, an exceptionally well branded company that sells male hair loss and erectile dysfunction products. In March it raised $40m in Series A funding at a valuation of $200m, after just four months of selling products that have been available for years. Whether the brand power that has attracted VCs to Hims and others like it is enough to attract buyers at a public offering, remains to be seen.

The sale of original DTC clothes maker Bonobos to Wallmart in 2017 may well be a cautionary tale. Founder Andy Dunn had been talking of an IPO in early 2014, but instead opted to sell for just $310m – not a staggering return for investors considering over $127m had been plugged into the business.

Warby’s co-CEOs meanwhile seem unlikely to change their minds on a public float. “We see going public as a financing event...a mechanism for us to to continue to raise capital over time,” Blumenthal told Business of Fashion.

The company currently has no immediate plans to expand outside of the US, due to large domestic growth potential. $32bn of eyewear sales were made in the US in 2017 – Warby's slice of the pie was just $250m (estimated to be up 20% on 2016).