|© iStockphoto.com/Plainview (water), Tbd (boat)|
By Marge Axelrad
With contributions from Cathy Ciccolella
and Deirdre Carroll
NEW YORK—With new tides churning the U.S. and global economy, American optical retailers and eyecare professionals are grappling with slowing consumer expenditures and a cool financing climate, an atmosphere that is requiring a clear-headed examination of business planning and day-to-day operations.
In the midst of daily headlines about the country’s unprecedented fiscal crisis, transition plans of the President-Elect and virtually hourly updates on the financial woes of companies in every sector, the eyecare and eyewear communities are not immune from the slowdown. They are trying to focus on staying positive and taking charge of the things they can control, like managing expenses, finding efficiencies to streamline their business and fine-tuning ways to continue to stoke their relationships with customers and patients.
View a PDF of the Cover Story.
Vision Monday continues to “monitor
the pulse” of the market, via reader business surveys and through interviews with retailers and ECPs around the country to get a read on their attitudes and tactics for the short- and near-term. In this Special Report, we have also gathered some expert advice and recommendations to help business leaders plot their course through some rocky waters.
Optical’s business fared fairly well through the first half of 2008, but the consumer slowdown for some optical retailers began in late summer and, for most, hit hard in October. Buffeted by the financial, credit and housing markets’ woes and the seesawing of the stock market, consumers have held back.
As a result, retailers and ECPs are implementing steps to stay on a positive track. Some have been hit harder than others; several are reporting sustained business,
VM has learned.
Al Bernstein, president, Nationwide Vision, with 60 stores in Arizona, related, “The Phoenix economy has been bad, and business is very tough. Our laser business has been down by about one-third, and sales in our stores began slowing in September. Our eye exam volume for eyeglasses is down about 5 percent this year, although contact lens exams are running ahead of last year.”
VM, “We realized we had to react, so we came up with several initiatives to change the complexion of our business: In managed care, we reduced the discount on our discount plan and raised exams fees. We changed some pricing and eliminated some vendors if we weren’t getting the margin we wanted from them, while replacing them with more competitively-priced fashion product.”
He added, “On Oct. 1, we closed our contact lens department, reducing $150,000 in labor costs, and went to online-only for CLs, through ABB Concise. Now we only stock trial lenses—that eliminated $500,000 in inventory we previously carried.
“Those initiatives gained us $3.3 million in savings—which means financially this will be one of the best years in the company’s history through a very difficult time. We also have stopped our planned store expansion program. We will open one more store by the end of 2008, and open and move just one additional store in 2009. We trimmed marketing dollars.”
At Luxottica Retail, executives discussed the climate during the company’s Oct. 28 conference call about its Q3 results. Comp store sales in Q3 were down 6.6 percent for LensCrafters and Pearle, worse for Licensed Brands stores. Comp sales also declined about 4 percent for Lux Retail’s sun segment.
Kerry Bradley, COO, Luxottica Retail, commented, “July was strong, then we saw a sudden downturn. There are fewer people in the market for eyewear, as some people choose to delay purchases. People are spending on one great pair of premium eyewear, but the multiple-pair business is off. We’re seeing a pullback in the ‘uninsured’ market, especially in areas like the West Coast where the housing market is most depressed.”
Noted Bradley, “We’ve got to continue finding ways to drive our sales and market share. For LensCrafters, the story will be lenses, for Pearle frames and lenses but also insurance.” New ad campaigns will break in ‘09 for both LC and Pearle, with media mix changed to slightly more TV advertising, he noted, adding, “Even in these tough times of watching costs we’re still going to attract sales.”
Among other optical retailers, sales reports range from “fine” to “challenged.”
Cleve Barham, owner, Fine Eyes, Ridgeland, Miss., said, “Business is doing pretty well. We’re in the conservative South where the economy always seems to stay the same. We don’t see real highs and lows here and we never have, so the current national economic situation is just par for the course.
“We are moving into a new store and have been having a moving sale which has really boosted business. Through July we were 3 percent to 4 percent down for the year. We started our moving sale in August and it was the biggest month we’ve ever had. Due to construction delays, our move didn’t happen when we thought it would so we just carried the sale over and were 62 percent up in September, 40 percent in October and for the first half of November we are already up 25 percent, which means we are actually 10 percent up already over last year.”
Barham added, “The new location is much more visible than our current one and located in a ‘specialty store’ area with other high-end retailers. So I am actually bringing in new lines to match the higher end location, like David Yurman, Lilly Pulitzer and Salt. Also with the new location we are going to tap into a younger demographic, 18 to 35 year olds. To keep the momentum going we’ll probably have a Grand Opening sale.”
Lance Snarr, CEO, Thoma & Sutton Eye-Care Professionals, with 22 stores in Ohio and Kentucky, noted that store traffic “has trended up every month this year compared to last year. Traffic softened in September, up by only 1 percent compared to last year, but rebounded surprisingly strong in October and so far through November.”
When asked if consumer buying patterns had changed, Snarr reported, “Surprisingly, and I really mean surprisingly, our average sale reached its highest level on record in October, as did our AR percentage. So far anyway, customers are continuing their trend of the past few years to buy up.”
He noted, “We’ve worked hard over the last few years to upscale and improve our frame selection and in training our opticians in presenting and explaining the benefits and features of AR coatings, Transition lenses, Free Form progressive lenses, etc. We still offer basic products and frame lines, but customers are responding well to our higher-end offerings.”
Rachel Sivi is co-owner of Real Optics, Des Moines, Iowa, which operates 21 locations under the Vogue Vision Centers, Younkers Optical Centers, EyeMart Optical Outlets and One Hour Optical names throughout the state. She said, “I’ve become very conservative with what I buy and we have no back inventory so we refresh often. At our Younkers locations, we rolled back prices and have three sales a month. Our Vogue locations are doing really well though we have seen a bit more slowing down in some of the smaller towns. To date, we are totally in-line with last year and are actually ahead this month over last year.”
She noted, “We cut back on advertising before the economic slowdown. We are still doing some advertising but we are being smarter about it; instead of spending on print or television ads we are doing more direct mailers, really targeting our customer base, making sure they know about our sales, to get them to come back in and get new glasses.”
Ira Haber, president/CEO, Europtics, with four stores in Denver, commented, “The undercurrents feel dreadful, more so than the following numbers will show: Through Sept. 21, we were having a good year. In the first nine months of 2008, we were up about 8.5 percent from the same period in 2007. October was down 4 percent from Oct. 2007. The period from Nov. 1 to 16 was down 9 percent from the same period in 2007.”
He reported, “More people are putting new lenses in their existing frames, not surprising since we tend to sell a better quality frame. Frames purchased are not less expensive than what we have previously used, but discounting is more prevalent. We are making more multiple pair sales because we started our year-end sale early.”
On the West Coast, Dimitri Grunhauser, co-owner, Spectacles for Humans, San Francisco, said, “We’ve been a little slower than normal but nothing too bad. We’re not an insurance environment, we don’t participate in medical plans, so we are truly a retail location and we’ve seen that with our customers, optical usually comes before other things they may spend their discretionary income on. We’re in a good area; the Silicon Valley is pretty well-to-do so we’ll be okay in the long run.
“We have changed our buying a little bit, we aren’t buying as indiscriminately. We’re being more picky, especially with new product. We won’t get all six colors, maybe just three. We also choose to work with flexible partners, like Cutler & Gross who we just had a trunk show with, and Dita, who we have one with in the Spring. It’s our selection of product that attracts our customers, once they’ve come here, they tell their friends and they never want to go anywhere else.”
In Detroit, Jackee Smith, president/CEO, Co-Op Optical, with 11 stores in that market, reported, in mid-November, traffic was down by 7 percent compared with 12 months ago.
“We’re seeing the average price that patients are willing to spend on designer frames is far less than it was one year ago. In response, we have reduced the average price point on frames.” Smith noted, however, that Co-Op’s average lens sales have increased over the past 12 months with the following results: AR sales up 4 percent; Transitions sales are up 3 percent; polycarb sales are up 5 percent; and free form lens sales [new for this year] represent a 10 percent impact on progressive sales. Our multiple pair sales percentage is unchanged but the discount was increased to maintain this.”
Smith added, “We have introduced new frame and lens products which include DriveWear and HDV freeform lenses, as well as unique frames. We continue to emphasize employee training. Much of our ‘brand’ is communicated through our retail staff as they interact with customers.”
With all of this, Co-op’s anticipating a 6 percent overall sales gain for 2008 and is forecasting a 3 percent sales increase for 2009. “We anticipate that consumers will continue to become more aware of new and innovative optical products. We expect that there will be growing recognition of the need for yearly eye exams as more emphasis is placed on preventive measures and health wellness plans continue to become more popular. It is up to us in the industry to educate the public of the need and benefits of taking care of their sight.
“In our market in particular [Southeast Michigan/Detroit], there are some considerable challenges ahead of us. The struggles of the auto industry and all of the related businesses are leading to fewer people with vision benefits. The challenge will be to attract and retain the cash customer. It is up to us today to make sure that the patients who do have vision benefits realize that it is in their best interest to continue to care for their eyes and to utilize our products and services when they do.”