Canada’s KITS Eyecare sells eyewear online. It wants people to own multiple pairs of glasses, similar to how they have many scarves and headscarves. The advantage of the business is its special online vision test technology and its own production facilities, allowing it to keep prices low and quickly deliver glasses to customers. In July of this year, its share price rose above its IPO price for the first time since the company went public three years ago. The stock, having gained more than 60% since the beginning of the year, is now trading near the target price of analysts.
Glasses like scarves
Wearing glasses is a global fashion trend, points out Fortune Business Insights, partly due to the growing number of people with vision problems. Still, most people use only one or two pairs of corrective glasses in their daily lives. The goal of KITS Eyecare is to encourage customers to own more pairs, buy new glasses more often, match them with their outfits, and so on.
“We have this incredible offer of putting quality glasses in front of you for a low price,” said the company’s head of product design, Edita Hadravska, to the Canadian publication BCBusiness. “So you start treating them as your scarf. Glasses go in the middle of your face – why wouldn’t you play with them…?”
Most glasses at KITS cost $28 a pair – cheaper than most online competitors, notes BCBusiness.
KITS employs about 150 people. It positions itself as a digital eyecare platform where customers can have an online eye exam and purchase glasses and contact lenses. Its product range includes over 2,100 styles of frames, including custom-made ones, all of which can be tried on virtually. Most glasses are made on the day of order and delivered within 1-2 days across Canada. The company’s optical laboratory can produce more than 4,000 pairs of glasses a day, cofounder Joseph Thompson stated at the recent LD Micro conference in New York.
The founding trio
KITS Eyecare was founded in 2018 by Canadian entrepreneur Roger Hardy and partners. Hardy had previously started another online eyewear retailer, Coastal Contacts, which was acquired in 2014 by France’s Essilor for CAD430 million. The deal was done at a 43% premium to Coastal Contacts’ three-month volume-weighted average share price and an 84% premium to the six-month average price. At the time, it was the largest acquisition involving a Canadian online retailer and a Canadian eyewear manufacturer. “They approached us. The offer didn’t start at CAD430 million. It moved back and forth a couple times,” Hardy said in an interview with the business news journal Business in Vancouver.
Hardy later acquired several online footwear retail assets and created Shoes.com. However, this venture proved unsuccessful – the company went bankrupt in 2017. That is when he went back to online eyewear. To help launch the new company, he brought in Sabrina Liak and the aforementioned Joseph Thompson, wrote BCBusiness. “In early 2018, Roger, Sabrina and I decided it was time to rebuild the eyecare category to be more customer friendly,” Thompson told the Vancouver Sun newspaper. The partners named the company KITS – short for Kitsilano, a neighborhood and beach in Vancouver. Liak, with over a decade of experience at Goldman Sachs, took charge of the company’s finances, while Thompson, who had previously worked at Procter & Gamble and Amazon, oversaw its day-to-day operations.
The partners started with contact lens manufacturing to build a customer base before making eyewear. “One of the tricks of the industry is that you have to start with the manufacturing,” Thompson told BCBusiness. “It’s counterintuitive, because you’d like to learn how to sell 100 or 1,000 pairs of glasses before investing millions in a lab… Before we sold our first pair of glasses, we put a couple million into the first version of our lab”.
‘One of the best-kept secrets’
Hardy was drawn back to the industry by the possibility of injecting virtual technologies into online retail. “I wouldn’t be getting back into the category if I didn’t think there was big change afoot,” he acknowledged. By “big change” he meant self-diagnosis of vision problems. In 2019, KITS acquired LD Vision Group, which developed technology that allowed customers to check their vision online and get prescriptions for glasses in 34 U.S. states. “We found the technology platform these guys have is one of the best-kept secrets in the industry,” Hardy told The Globe and Mail newspaper.
Thompson said that customers had to visit many different places to get glasses and lenses. “We thought it would be great if there was one place where customers could get everything they needed for eye care,” he explained.
In 2020, KITS opened a new, fully automated optical lab in Canada, the idea being that “we can start making your glasses to your prescription within 10 minutes of you placing your order,” Thompson told the Vancouver Sun. In an interview with BCBusiness, he discussed the advantage of having a local manufacturing facility. “It feels different when you have designers working on glasses next to where folks are QAing and assembling them versus doing it over FaceTime with a 12-hour time difference,” Thompson said.
On February 16, 2021, KITS shipped over 1,000 glasses to customers in a day, while it claims it would take 150 traditional optical retail stores to ship that many in the same time frame.
Additionally, the company has invested in the largest lens inventory in Canada, which makes it more likely to be able to fill a doctor’s prescription. BCBusiness visited the company’s 33,000-square-foot warehouse (just over 3,000 square meters), packed with equipment, tools, and merchandise. Everything is stored with a precision and neatness that “would make even the most ardent Marie Kondo disciple blush.”
What’s next?
The global eyewear market (corrective and sunglasses, as well as contact lenses) was valued at $161.61 billion in 2023 and is projected to grow to $285.20 billion by 2032, notes Fortune Business Insights. Its analysts describe the industry as highly fragmented. Among the leaders are giants Johnson & Johnson, Alcon, and EssilorLuxottica. Amid the growing demand for eyewear, the companies are competing by implementing new technologies (such as 3D-printed glasses) and lowering prices.
In June, KITS announced an agreement with TELUS Health, a provider of medical technology services, including insurance. The partnership allows KITS to offer direct billing for glasses and lenses to 38 insurance companies, which, combined, cover 70% of Canadians. With this, KITS claims to have the widest direct billing coverage in Canada in the optical segment.
Company risks
KITS initially grew through debt, as its 2022 report shows. In January 2021, it went public on the Toronto Stock Exchange, selling CAD55 million in an oversubscribed offer. KITS sold stock to its IPO investors at CAD8.50 per share, but by the fall of that year, the share price had fallen below CAD3.00 in the market. Only in July 2024 did the stock get back above the IPO price.
The company is now approaching a million active customers and has been profitable for five consecutive quarters, Thompson told BCBusiness at the end of May.
In 2023, the company’s revenue came in at over CAD120 million, up 32% versus 2022. For the second quarter of 2024, revenue was 25% higher year-on-year at CAD37.5 million. The revenue growth was five times the industry average, according to CEO and cofounder Roger Hardy.
Thompson describes the market opportunity as large, at about $80 billion in the U.S. and $10 billion in Canada. The population is aging, meaning more people will face age-related vision problems. Additionally, people are spending more time in front of screens, which also damages their eyes. Another advantage for KITS is the COVID-19-induced surge in online shopping, as noted by analytical firm Canaccord Genuity. This means that online businesses should be poised for growth.
However, KITS faces some objective headwinds: in its earnings, it acknowledged competition with large companies with more recognizable brands and greater financial resources. Additionally, not all competitors are subjected to the same regulatory requirements as KITS, since it fills prescriptions. Finally, some products, such as lenses, are purchased from third-party suppliers who may impose resale restrictions, posing a risk for the company amid the growing customer demand.
Currently, the six analysts that cover KITS recommend buying the stock, according to Investing.com. However, they do not see much upside: their average target price is CAD10.75 per share, while on August 1, the stock closed at CAD10.00.
