Now let's go deeper into all these five metrics and how a brand can look at all of these different types
of metrics to understand how well they are doing in their offline retail business.
Now, to go deeper into that, I'm going to take the last year data for Warby Parker.
I don't really have the latest data for it, so I have the Warby Parker data for 2018, 2019, 2020
and maybe 2021.
But I don't really have the data for 2022.
If you have the access to that data, you can just pick the data online and you can go through it.
So let's start with the journey of Warby Parker.
So what we Parker started as a New York based eyewear retailer and they started in 2010, so they got
their first order in 2010 and then they started selling sunglasses in 2011.
They started selling progressive lenses in 2013.
They built their first e commerce app in 2015.
Then in 2019, they.
End up distributing 5 million glasses and the journey is still going on.
And they did that by using three important strategy.
They started a home trial program where you can order these five different classes online and you can
get all of those classes within like one or two days and you can pick which one is best for you.
You can simply return the remaining four frame and Warby Parker will ship you the glasses.
Once you submit your prescription.
And that was their home trial program.
Then they started having the omnichannel presence, which means they have more than one sales channel.
And those sales channels are tightly integrated.
So instead of opening a brick and mortar store that is not connected to online and they have a disconnected
experience, they started opening click and brick store.
That means you visit a retail store, you explore the product, and if you like the product, you can
simply.
Buy those product online inside the retail store and you will get the product within like a day or two.
Now, let's understand all the five important metrics in case of Warby Parker.
Let's start with the revenue.
So more than half of their revenue was coming from these offline retail store.
So you can see that the kind of channel mix they are having from 2018 to 2020.
In 2018 they were getting 38% of their sales from their e commerce platform.
But in 2020, they are getting around 60% of sales from e commerce and 40% from these offline store.
Not the reason they have a lower sales in the retail business and a higher sales in the e commerce business.
And the reason behind that is that these click on brick store are acting as the first touchpoint.
So people are going into these click on brick store.
They are trying out all these different types of frame and then they are buying these product from the
store itself.
But after the first purchase, if they are really happy with the product, then they are doing the repeat
purchase online from their mobile app and website.
And that's why you can clearly see in the channel mix that even after their overall growth, their online
e commerce contribution is increasing because people have done their first purchase from these click
on brick store and now they are doing the repeat purchase from their e commerce platform.
Now let's look at their growth, especially in the click and break kind of store or let's say the offline
store that they were opening.
So if you look at the growth rate, you can see that in 2018 they had 42% growth rate.
In 2020, the growth rate slows down a bit because of obviously COVID 19.
And in Q2 2021, they have 23% growth rate.
And because they are having a higher growth rate and their revenues also increasing in the long term,
their CapEx or capital expenditure will reduce.
Now, let's talk about the most important part of a business that is retention.
That means how many customer are doing the repeat purchase from the same brand.
Now, if you look at this diagram, you can see that they have 12 month retention, 24 month retention,
36 month retention and 48 months retention.
So they have more than 50% sales retention rate within 24 months of their first purchase and nearly
100% sales retention rate over 48 month.
So you can see that customers are really happy with the product because the offline store, also known
as your click and mortar store, is acting as the first touchpoint where people are going out, they
are trying out all these different types of frame and if they are comfortable with those frame, then
these people are buying one of the frame.
And then they started buying all of these product online from their e-commerce platform.
And that's why the retention is perfect.
Now let's talk about the last metrics that we need to track in omnichannel business, and that's your
contribution margin.
Now, before we go deeper into contribution margin, we first have to have the basic understanding of
income statement.
So I don't really want to go deep into income statement, but let me give you a high level overview
of our income statement so that you can easily understand about the contribution margin.
So in the income statement at the top, you have your net sales and the net sales is the total amount
of revenue that a retailer is generating during a given period of time.
So this is the total revenue you have.
Then you have COGS.
COGS is also known as cost of goods sold.
So this is the amount.
You are spending to make a product or acquire a product.
So this is the product cost.
And if you reduce your product cost from your net sales, you will have your gross margin or gross profit.
So gross profit is the difference between your net sales and the cost of the product, also known as
cost of goods sold.
Then we have operating expenses, which is the cost of running a business.
So things like the rent of your click and brick store, the salary of your employee.
All of that is operating expenses.
Now, if you add your operating expense and other cost, you will have your total cost.
And if you subtract this total cost from the gross profit, then you will have your EBITDA or earnings
before interest tax and amortization and then you subtract text from it and then you will have your
net profit after tax.
Now let's look at the contribution margin of Warby Parker and you can understand that with the help
of this diagram.
So to calculate the contribution margin, let's take the average revenue that a brand is generating
from their customer.
So Warby Parker was generating almost $188 as the average revenue from a single customer.
And in that average revenue.
40% was their cogs or cost of manufacturing a product.
So $75 was their cogs in 2018.
And then they have customer acquisition cost.
That means what is the amount of money you are spending in acquiring a customer?
So 14% was their customer acquisition cost and then they were spending almost 21%.
That is $39.
To sell that product and just giving a basic service to the customer.
And that was 21%.
And in the end, if you subtract your COGS, customer acquisition cost and service cost, you will have
your contribution margin of 25%.
So in 2018, they were having a 25% contribution margin.
So they were having a $48 as a contribution margin that got decrease in 2020 to $45.
That is 21% contribution margin.
And the simple reason behind the decrease in the contribution margin in 2020 was the customer acquisition
cost.
So their customer acquisition cost got increased from $26 to $27 in 2019 to $40 in 2020.
So they were spending a lot more amount of money in online.
Advertisement.
And you can see that split on the right side.
So in acquisition cost, they had media spend and their home trial program and they were spending a
lot of money on that because they also have a reverse pickup.
Once the customer pick one frame out of those five different frames that they were sending.
So that was all about the contribution margin.
Let's look at the bottom line.
That's your EBITDA.
So earnings before interest tax, depreciation and amortization.
So the EBITDA margins are also quite tight.
If you look at their adjusted EBITDA margin, you can see that in 2018 they had an EBITDA margin of
3.2%.
In 2020, they are having an EBITDA margin of 1.9%.
And the simple answer to this is that they are spending a lot more money on acquiring a customer so
that they can increase their top line.
And that's why the bottom line is getting affected.
So these are all the five important metrics you need to track in an omnichannel business.
In the next video, let's talk about few pricing strategy that are used by many e commerce, brand and
business.