November 24, 2014

Warby Parker: $3,000 Per Square Foot

Another breathless article suggests that this e-commerce business is moving into retail, and is doing amazingly well (they are). Click here to enjoy.

The vast majority of retailers would love to enjoy the luxury of $3,000 per square foot.

Catalogers know how this process works. If a cataloger only mailed a November catalog, that catalog would generate $15 per book. But when a cataloger adds the 28th catalog to the calendar, it generates $3 per book. The law of diminishing returns is alive and well.

Catalogers know the square footage game as well ... in catalogs, it's square inches. Have a 64 page catalog, and you get $60 demand per thousand pages circulated. Have a 128 page catalog, and you get $40 demand per thousand pages circulated. The law of diminishing returns is alive and well.

Established retailers know how this process works. Your first store in the New York City market generates $500 per square foot ... your tenth store in the New York City market generates $250 per square foot. The law of diminishing returns is alive and well.

Warby Parker deserves praise for earning $3,000 per square foot - you go and try to achieve that level of productivity - it's not easy. The challenge for Management, of course, is to forecast what happens if the size of a store were to increase (this store is less than 1,600 square feet - very, very small), and as the number of stores within / across markets increase. That's hard work, because with one data point, you can draw a line from the data point to anywhere.

Major, major props for good performance. Major challenges forecasting what happens next. And your mileage will vary.

Your thoughts?