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Eyeglass Start-Up Ready to Battle Industry Titan, Sets Sights on Online Growth

When California attorney Sylvia Chi wanted a new pair of glasses, she came across Warby Parker, an upstart online seller that features hip styles and low prices. She had her prescription but Warby Parker needed one more piece of information to make her glasses – the distance between her pupils.

Chi called a Pearle Vision store where she’d bought her last pair but the store refused to give out the measurement. A local LensCrafters told her its pupil measuring machine was broken. Ultimately, Chi had to pay $25 at a local optometry clinic to get her pupillary distance, or PD.

Turns out the giant of the $28 billion U.S. eyewear market, Luxottica (LUX), owns both store chains. And the Italian company, which also owns everything from brands like Oliver Peoples and Ray-Ban to the Sunglasses Hut chain, has cracked down on giving out the PD measurement.

Optometrists “used to do it for free in optical shops and now they’re refusing to provide that service or charging for it,” says Warby Parker co-founder and co-CEO David Gilboa. “A lot of them work in stores owned by Luxottica.”

“The reason Luxottica invested in all the physical retailers was precisely to create a closed system,” says Barry Lynn, a senior fellow at the New America Foundation.

The company did not respond to repeated requests for comment.

There’s no doubt that optometrists, wary of Internet competition from Warby Parker, Eyeglass.com and others, have become increasingly reluctant to write the pupillary distance on prescriptions. Patients can ask for the measurement but only five states require that optometrists provide it free of charge -- Alaska, Arkansas, Kansas, Massachusetts and New Mexico -- according to the American Optometric Association.

“If you have your eyes examined and you’re paying for that exam, the doctor should give you the PD,” says Tony Giorgianni, Associate Editor for Consumer Reports, which recently surveyed almost 20,000 readers about their glasses buying experiences. “Holding you hostage to buy your eyeglasses there is unreasonable.”

Warby Parker’s Gilboa and three friends at Wharton business school cooked up the idea for selling online after getting annoyed by the high price of glasses in stores, which they blame on Luxottica’s domination.

“The only reason glasses were marked up 10 to 20 times what it cost to manufacture the frames was that one company controlled almost the entire market,” Gilboa says.

Warby Parker charges only $95 including prescriptive lens with anti-reflective coating, free shipping and 30-day, no-questions-asked returns. Similar glasses bought in retail stores usually cost $300 and up.

And for every pair of glasses it sells, Warby Parker gives away a pair to non-profit groups serving the poor in low income countries.

Luxottica dominates the eyeglass business in the United States and elsewhere. It owns and manufactures most top brands including Ray-Ban, Persol and Oakley, runs the top retail chains LensCrafters and Pearle Vision, and even owns vision insurance programs employers offer to workers.

In the PD controversy, LensCrafters has generated among the most complaints, reports Ira Mitchell, a software engineer who runs the GlassyEyes blog dedicated to online eyewear. Customers of membership discount chains CostCo (COST) and Sam’s Club have better luck getting a free PD measurement, he says. Mitchell once grabbed his PD number right after an exam from the back of the phoropter, the Rube Goldberg-esque instrument eye doctors uses to calculate your prescription.

“Consumers are a bit more savvy on asking for it, but many optometrists use this value as the key to keeping the sales in their stores,” Mitchell says.

Online eyewear sales made up less than 2% of the industry over the past year, according to the Vision Council. Luxottica and Wal-Mart (WMT) are the biggest sellers in the other 98% of the market.

So where does the money go on those higher-priced glasses?

Luxottica reported a gross profit of $6 billion on sales of $9 billion last year for the 75 million pairs of glasses it sold both at its retail stores and as a wholesaler. About half the gross profit covers the cost of the stores. Royalties for licensed brands like Prada and Armani along with advertising account for another third. Much of the rest goes to overhead, leaving about $1.3 billion in operating profit.

Warby Parker’s model is different.

Almost all sales come through the Warby Parker web site. Customers pick out up to five frames at a time and Warby Parker mails plain glass versions to the customer free of charge to try on. The customer then picks one or more frames to buy and Warby sends out those pairs with the customer’s prescription.

To combat PD hoarding, Warby Parker has tried to create software that uses a customer’s webcam to measure the distance between pupils. Gilboa says the company is still evaluating the technology. And the Internet is full of other tricks and advice for self-measuring PD.

In the meantime, the hot Internet startup is going where few of its peers have gone before – into physical storefronts.

The company picked two posh neighborhoods, New York’s Soho and Boston’s Newbury Street, and says its sales per square foot rival Apple’s (AAPL) and Tiffany’s (TIF). It has also opened smaller showrooms in 15 more cities.

“I definitely see more stores in our future,” Gilboa says.

Customers can review a range of frames at the store, see an eye doctor and get their pupillary distance measured. The glasses still come in the mail.

Warby Parker’s expansion is being fueled by venture capital. In February, it raised over $40 million from investors including VC firm General Catalyst, American Express (AXP) and J. Crew chairman and CEO Mickey Drexler.

Overall, the company is still growing like a typical Internet start up – quickly and privately. Warby Parker won’t say much about its revenue but made an estimated $25 million last year and is on track to about double that this year.

With 98% of eyewear sales still offline, it looks like there’s plenty more room for growth.

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