The real estate industry should keep an eye on this one.

Eyeglasses retailer Warby Parker debuted Wednesday on the New York Stock Exchange at a nearly $7 billion valuation—a strong response to the company’s direct listing, which saw its value rise 30% from its reference price of $40 per share. Although the company is best known for selling its products online, a major part of its vision is expanding its physical retail presence. It added 35 stores this year alone.

“If we look at most of our large competitors, they have thousands of retail stores across the U.S.,” David Gilboa, co-founder and co-CEO, said during the firm’s virtual investor day. “So that just underscores the massive opportunity we have.”

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Founded 11 years ago, Warby Parker was a pioneer of the direct-to-consumer online business model. By avoiding department stores, the company’s leadership said, it could offer quality frames at lower prices.

It raised some eyebrows, then, when Warby Parker revealed that 65% of its $370 million in 2019 revenue came from in-store sales, according to the S-1 filing the company made in August with the U.S. Securities and Exchange Commission, the first regulatory step in going public.

Online sales brought in the majority of Warby Parker’s revenue last year. Its stores were closed for two months in response to the COVID-19 pandemic, then had limited capacity for the rest of the year. The company said in the filing that it saw a shift “back toward pre-Covid” levels in the first half of this year.

Warby Parker opened its first retail store in 2013 near its headquarters in New York's SoHo. It had 142 stores total as of June 30. A dozen of those are in New York. California is its largest physical retail market, with 21 locations.

Stores as billboards

Part of the advantage for physical retail, in Warby’s case, is lowering its cost to acquire customers. For digital brands, winning over buyers online requires spending big on advertising with Facebook and Google. Plus, Warby Parker pays to ship out glasses for customers to try on at home.

“Unless you are paying for ads or finding some way to get in front of people online, they will forget about you,” said Daniel McCarthy, assistant professor at Emory University’s Business School. “A store is a big billboard. People can go in and buy things, but when you are walking down the street and see the store, it at least triggers that awareness.”

On average, the company in 2019 spent $27 on marketing for each customer it acquired, according to its S-1 filing. Last year, with store purchases limited, the total climbed to $40 on average. In the company’s S-1, it noted that it absorbed higher costs last year amid a surge in home try-ons.

Although the company declined to disclose any future locations, its interest in physical retail is a promising sign for the struggling real estate market. Pre-pandemic, e-commerce companies moving into storefronts helped boost some shopping districts. That’s particularly true in SoHo, where many online brands followed Warby’s lead. During the pandemic, SoHo has been one of the hardest-hit retail markets, with CBRE finding an estimated 30% of space up for grabs in the spring, the period with the most recent data.

Pandemic protections

Other digital brands are eyeing the retail market as well. Makeup brand Glossier in July closed an $80 million funding round; it said it would open more stores with the money. San Francisco-based shoe company Allbirds has filed for an initial public offering and plans to open hundreds of stores nationally. It currently has 26.

Ed Coury, managing director at RCS Real Estate Advisors, which has consulted with direct-to-consumer companies, said many brands spent aggressively on real estate in the years leading up to the pandemic and struggled when those stores were forced to close. But with digital sales strong, brands are returning to brick-and-mortar locations, though at a slower pace and with pandemic protections built into lease terms.

“They are not seeing a negative impact on online business as stores reopen, and now you have stores performing at 85%, 95% or even above 2019 levels,” Coury said. “So though there may be a shift in how consumers are buying products. Brick-and-mortar is still viable when properly executed.”

Warby Parker reported $270 million in revenue for the first half of the year, up about 50% year over year, with a $7 million loss during that span.