Warby Parker's Remarkable Vision with Neil Blumenthal, co-CEO and Co-Founder

Welcome to the Remarkable Retail Podcast, season 9, episode 4. I'm Michael LeBlanc,

and I'm Steve Dennis. Our special guest on this episode is a retail leader we've been hoping to have on the show since the beginning nine seasons ago: Neil Blumenthal, CEO of Warby Parker.

We do a little bit of making the sausage here. We do make lists every season for people we want to try to get on the show, and sometimes we are lucky right away, sometimes they never return our calls, and other times it just takes a while. But yeah, I think Warby Parker, as we'll talk about, is kind of the top tier of the so-called disruptor or digitally native vertical brand. So, great conversation.

Yeah, it was fantastic. And it was great seeing you in Dallas, my friend. I've become quite fond of Texas and Texans, though I must apologize to the patrons of Central Market on Preston Road as I cleared them out of the amazing Duke's Mayonnaise that I bring back each and every time. So sorry for all those people who are following me up the aisle.

One quick thing I want to ask everybody before we get into the news and our interview: reviews are very important, and we can tell by the number of excellent reviews we have on Apple that many of you are listening but you have not yet reviewed. So take this time to go give us that five-star review on Apple, Spotify, or wherever you enjoy your podcast. And the other thing you can do that would really help us is, if you like our episode — which of course you're going to, I mean they're all good — forward an episode on to five of your friends that you think might find it interesting or at least entertaining.

Now, before we get to our interview with Neil, as you said, let's dive into the week's most important retail news, brought to you by SCAYLE, the world's fastest-growing enterprise commerce platform. Learn more about their solutions at scayle.com. That's s-c-a-y-l-e dot com.

All right. Well, the big news reverberating really across the industry was the change of leadership at Nike. Talk about that — you know the business well and we talk about it often. What do you think precipitated the change, and what's your perspective on how much of a difference it's going to make moving forward?

Well, first the news is, if people haven't heard, that Nike CEO John Donahoe is out. Elliott Hill is back. Now, Elliott was the head of consumer and marketplace, which is a very big piece of the whole Nike business globally. He retired, I think, about four years ago, so he's coming back. The word on the street is that Nike employees are very excited about that. Donahoe has had a pretty challenging tenure. He's not a retail pro, really, or an experienced retail guy — spent most of his career as a consultant at Bain, then he spent a number of years at eBay. There's been just — anybody who's been following the retail news more broadly or listening to the podcast, Nike's had quite a bit of challenges over the past couple of years. So I think in a lot of respects it's not really a shock, maybe a bit of a surprise with Elliott Hill coming back. I'll talk in a second about what I think might be different.

But the issues — the one that a lot of people point to is that Nike went too far too fast on DTC. I know I've mentioned this before. I think that's a little bit overplayed. They definitely could have gone at a more measured pace. They also got some bad luck because of what happened with COVID, or they kind of misread COVID as well, because I think that gave them confidence to perhaps be more aggressive about pulling back from wholesale. And I think as we look at that, they definitely, as I said, went too far, too fast. But if you actually look at the wholesale business at Nike, when you hear all these people say, wow, they bailed on wholesale — wholesale at Nike in 2024 grew compared to 2023 and 2022. So this idea that they bailed on wholesale is just completely, completely wrong. Facts and stories are different things.

Having said that, it has not gone as well as they planned, for sure. Some of that bad luck, some of that they're not responding as quickly as they needed to to some of the changes. China has been a big problem for them, but there's also been a lot of executional issues. And I think it's ultimately because you could say, well, okay, DTC, you can kind of understand some of the things that were not of their doing necessarily, even though perhaps they could have responded more quickly, but a lot of missteps I think you could definitely put on management. They cut a lot of product lines too aggressively, lots of issues with inventory management that go beyond the supply chain disruption that lots of people of course faced, a lack of innovation. They really created some opportunities for both kind of streetwear brands, heritage brands, and brands like On and Hoka and New Balance to gain share, and kind of lost that cool factor as well.

So they're going to be going from more of an analytical strategy sort of guy to somebody who really has Nike DNA in his blood, much more of a product innovation guy. I've met Elliott briefly when I was out at Nike a number of years ago, but I don't know him personally, so it would be interesting to watch. But I would say both Wall Street and the folks at Nike seem to be pretty excited about it. So it's going to be an exciting story to watch.

Next year. Let's move on to supply chain. So something that Canadians have been dealing with for 18 months. We've got a port strike right now in Vancouver, where we've got a threatened one next week in Montreal. The US is dealing with a potential port strike that could wreak havoc October 1st. I mean, it already is wreaking havoc because I was looking at NRF numbers and retailers have been bringing forward inventories for months, trying to make sure that they don't get caught up by this. But the deadline is approaching, the imports are surging, and this could be the beginning of something bigger and a whole different element to the supply chain.

Well, this is a difficult story to talk about because by the time most people hear it, it will have likely happened. But if in fact the strike does happen, this could be very significant. To your point, a lot of retailers have been scrambling because this has been on the horizon for months to try to work around this, and of course this is the time where there's so many shipments going in to support the holiday season, so that's difficult. So when you look back, the Port of Los Angeles has seen 60% year-over-year growth in imports in July, so people trying to get stuff in. Similar kind of story with vehicles coming across the US-Mexico border. So I guess it remains to be seen how successfully retailers have been able to mitigate the potential damage. So if the strike is short-lived, they probably have been able to massage their way around many of the issues, but if it were to extend for a significant amount of time, and there's only so much you can do to make up for that steady stream, and then you also probably, again, if the strike is prolonged, there's probably going to be some real excess cost that will be hitting the bottom line in the fourth quarter.

A quick follow-on to last week about Target's early start to the holiday. Walmart and Amazon seem to be following suit now. Talk about that, but I also want to understand what's the advantage, other than is it just I'm going to get that sale first? Because it's probably not going to lift overall sales, right?

Oh, I think there's no chance it will materially move overall sales. I think there's this general belief that people are only going to spend so much over the next few months for the holidays, and there's a first-mover advantage. Of course, if everybody starts moving earlier and earlier, that first-mover advantage goes out the door. So essentially what has happened, as we've seen happen for many, many years, is the holiday keeps moving earlier. So we talked about Target last week kicking things off early. Amazon has moved their Prime Day up two days to October 8th compared to last year. Walmart made an announcement about some of the promotions they're going to be doing, but the headline on that was they're going to start even earlier than they ever had. So they'll be starting — here's a huge coincidence, you remember I just said Amazon Prime Day October 8th? Yeah, Walmart's going to launch on October 8th.

I know, that is very shocking. So yeah, it's just the race to the bottom. Yeah, yeah, as you and Seth would say, the problem is you might win. Let's talk about Kmart. So it's funny when I saw this story — Kmart's been gone in Canada for literally decades, and I just didn't even think there was any stores left, but apparently there are. But looks like they're about to close some.

Attention Kmart shoppers, time to say bye-bye. Finally, this has certainly been a long time in the making. I'm with you. It's hard to understand, both with Sears and with Kmart, which many folks will know — I worked at Sears many, many years ago, and Sears and Kmart were together essentially for many years, and that ended badly. But yes, there's still some vestiges apparently. And their final full-line US store, which happens to be in Bridgehampton, New York, will close on October 20th. They still will have a smaller store in Miami and an outpost in Guam and the US Virgin Islands. Now, it's very hard for me to work out how you could keep even a dozen stores or 50 stores like this going for any length of time. So anyway, end of an era. The Blue Light Special is going out. Just for a quick historical context, when Sears and Kmart merged way back in 2005, Kmart had 1,400 stores while Sears had almost 900.

So yeah, turns out it's really an epic collapse, right? I mean, we've spoken about it often, but it's not to be taken lightly when business starts to get — the momentum starts to turn against you, because man, these were big companies and big retailers. Now they're just gone, or they're in Guam, I guess.

That's right. Yes, might be the Museum... the Museum of Kmart. You're relegated to Guam, you got a problem.

Let's move to some quick hits on earnings. Let's start with Costco.

Well, of course we talked about Walmart and Amazon's earnings. One of the points I made back then was really just how strong the big two continue to be, and overall the concentration of success among the big three. So now we've heard from the third in the big three, which is Costco. Another great quarter, 5.4% comp, well above industry average, very strong earnings growth. So I think we're just seeing more of the flight to value for sure, but also those that have a really powerful value proposition and execute it well continuing to grow market share. On the not-so-exciting side, just to mention two other big companies that reported this past week: H&M, which would be more in the value, affordable fashion, fast fashion category, had more or less flat sales, but the other thing which wasn't so awesome was that they continue to have a lot of margin pressure, which most of the analysts pointed to pressure both from their direct fellow Spanish fast fashion company Zara, but also folks like Shein. And H&M, I think, I don't know, a year ago or so, had said that they were targeting a 10% operating margin, and they basically said, hey, you know, maybe not so much. That looks like it's not going to happen anytime soon. So that's not great. And then Five Below — this is sort of interesting, we haven't talked a lot about Five Below, and for folks outside the United States, Five Below has been one of the fastest-growing retailers for several years now, also in the, well, I guess you'd say, $5 store category. They had overall sales growth because they continue to open a lot of stores, but their comparable sales decreased by almost 6%, so that's a pretty terrible number. So again, as we talked about with the dollar store guys, you really see some of the value retailers like Costco, like TJ Maxx doing very, very well, but anyone that's not really well positioned and firing on all cylinders seems to be losing pretty significant market share.

You know, I was struck with our conversation with Simeon last episode about the discussion around Shein. He said, well, we're trying to figure out where those sales are coming from, and I guess this might be one indicator, right, that there's pressure being put on the weaker of the fast fashion, H&M. Would you think that correlates together? Is that a fence post or a signpost for it?

Oh, I think it's definitely coming from somewhere, but I think Simeon's point is there's also got to be some folks that just buy an incremental thing because it's so cheap. I think we just haven't seen any great data as to the relative proportion, but certainly we've got to be seeing some impact on more or less the direct competitors. It's just hard to work out how significant it is, but absolutely, I think it's a factor.

So Andy Jassy, when he first took over Amazon — speaking of Amazon — he hit the pause button on Amazon Fresh. They had stores they had built, they just said, let's hold on, we don't think we got it right. They kind of went heavily down the tech side, and they've kind of recalibrated, and now they've got 50 stores, and they make a big deal out of it, which made me laugh, and I think it did to you as well. It's like, woo, 50 stores, big deal, right? Like Albertsons or a Kroger would have 50 stores in a neighborhood, for God's sake.

Yeah, I had the same reaction. I mean, I guess you could say for sure Amazon is really trying to make this work because they have been at it for a while, and as you mentioned, they've had several different iterations of this. But yeah, 50 stores is really nothing in the grocery world, particularly since they're spread out. Like having 50 stores in just, say, Chicago and Dallas — okay, that would be a regional player then. But the other thing I tried to calculate was, I took how many stores Kroger and Albertsons have, which is, they both have I think around 1,400, something like that, and what the average square footage is, which the average square footage of both those stores is considerably bigger than an Amazon Fresh store. And anyway, this is a very rough estimate, but I would say that Amazon Fresh has roughly 1% of the square footage that either Kroger or Albertsons would have. So yes, not material, but obviously they're going to keep working at it, but they are certainly not approaching escape velocity on this concept as of now, or I would say anytime in the next couple of years.

Let's go to the other end of the scale, talking about 50 years of affordable fashions from Primark. We toured the Primark flagship location when we were in Barcelona a couple of years ago. Talk about your perspective around Primark — what a growth story, an international retailer in the US and expanding.

Well, it's certainly an interesting story. I had actually forgotten they'd been around so long, because I think often when we think about some of the fast fashion guys, seems like they've really exploded on the scene in the last 10 years or so. But yeah, Primark, starting from their original store in Dublin a long time ago, now is up to 450 stores across 17 countries and have almost 12 billion in annual sales, so very significant global retailer. A couple of things I'll just mention quickly: they've been pretty reluctant to get into e-commerce more broadly, but they now are introducing click-and-collect services, so we'll see what that portends for them. But also they're making a big push, continue to make a big push in the US, and if folks are interested in that, we did interview their president of the US, Kevin Tulip, so we'll put a link in the show notes if you want to learn a little bit more about that. But I think a lot of folks in the US and in other countries are seeing Primark continue to grow. Now we don't know very much about their relative performance — we know more about H&M and Zara and a bunch of others, not so much about Primark's relative performance because they are part of a bigger conglomerate. But congratulations to them, and yeah, check out that interview with Kevin, it's a lot of fun.

All right, well, that's a wrap on the news, brought to you again by SCAYLE. Let's now get to our interview with Neil from Warby Parker. Neil, welcome to the Remarkable Retail Podcast. We're so excited to have you on. Where do we find you today?

I am, I am. We share a few things. I did spend quite a lot of time in New York, and also, when I was checking your background out, discovered that we both went to Tufts University. But go Jumbos.

But I was just a little bit ahead of you, just a few years. But it's nice to see a fellow Tufts grad do okay with themselves — that makes us older graduates very, very proud. But in any event, enough about that. We have so much we want to talk to you about, big fans of Warby Parker. But before we kind of just jump in, maybe you could just give us a little bit about how you ended up where you are today, a little bit about your personal, professional journey, whether you always wanted to be an entrepreneur, that kind of thing, and then we'll talk more about the brand and where you guys are going.