Features: State of the Market

Jan
2003

The State of the Optical Market



The dawn of a rebound in retail optical sales might be on the horizon for 2003 but don’t expect that new light to be bright. Clouded by the jerky stop/starts of a wounded stock market, building war-zones on two fronts and cautious consumers layered in concerns about mounting unemployment and strapped incomes, the message for market growth is slight at best. Solutions seem built on maintain ing flexibility and remaining open-minded to change. For all optical retailers those factors range from  paying more attention to moderate and opening price points and adapting to modern merchandising ideas. Others are re-evaluating managed care structures. An intense focus on these critical retailing facets might just bring, at most, a return to the retail volume status of 2000, one of the industry’s peak sales years.Cautiously, bluntly… and hopefully, 20/20 presents its annual report and projection on the condition of the optical market.   —James J. Spina

Frame Strength in Moderate
Welcome to optical’s roller coast ride—frame unit sales inch up while frame dollar sales were flat or slightly down in 2002 compared to 2001. The frame segment of the market experienced modest growth in unit sales in 2002, but the category declined slightly in market share due to a higher proportion of dollar sales in lenses, according to Jobson Optical Research. Plano sunglasses and clips lost ground in dollar sales through the optical channel. And average retail prices for Rx frames declined throughout 2002, no doubt reflecting a weak economy and a consumer focused on value. Jobson Research data mirrors these changes.

Rx frames represented 32 percent of money spent on all optical product categories at retail, a slight decrease from 32.6 percent reported in 2001. The projection for 2003 remains flat at 32 percent. Unit sales rose, more substantially—to 64.8 million, a 4.7 percent increase from the 61.9 million reported for 2001. Projections for 2003 anticipate a small increase of 1.2 percent in units for a total of 65.6 million units. The majority of consumers are anticipated to concentrate on more moderate-priced eyewear overall.

The steady decline for the past year of the average retail price point for an Rx frame is a real concern retailers are addressing. The retail price across all types of optical retailers has dropped each quarter since December 2001—from a high of $124.59 to $120.25 in September 2002. It was projected to be an even $120 by the end of 2002. It’s now essential to have frame options at more moderate prices than in the ’90s when the trend was toward higher prices. 

The weakening in average price points was supported through interviews with optical retailers nationwide and generally attributed to the economy and to an uncertain global mood. “Today’s economy is definitely hindering us,” says Jack Schaeffer, OD, of the Alabama-based Schaeffer Eye Center, with 10 locations. “We used to always try to sell up. Now, if we think it’s necessary, we will sell down. Some people feel they can’t afford the high end, even if it’s only from an emotional standpoint. We really have to be very attuned  to what our customers want and need at this time.”

Jon Gruen, head of Gruen Optika, a chain of nine stores in New York and the greater metropolitan area, concurred that the economy is causing caution among consumers. “We have noticed much more interest in price among our customers in the past year, even in our Manhattan stores, where cost was rarely a consideration in the past,” he says.

Although average Rx frame prices are clearly down, prices varied by channels of distribution, even within optical. In the 12 months ending September 2002, independent optical retailers nationwide registered the highest average frame price ($128.95) among all channels of optical distribution. Optical chains averaged $126.84. The average retail price for frames in department-store-based optical departments was $109.96. The lowest average price, $76.12, was for frames sold through mass merchants.

The shifting price positioning is also influencing the findings for plano sunglasses and clips sold through optical. Dollar sales and market share continued to decline in optical channels. Dollar sales fell from $678 million in 2000 to $619 million in 2001 to $615 million in 2002, now accounting for only 3.8 percent of dollars generated by all optical products. Plano sunglass dollar sales are projected to stay flat in dollars in 2003.

Some retailers attribute this primarily to the economy. Sunglasses are still largely viewed as a non-essential purchase that can be delayed in a weak economy. In fact, Bob Royden, owner of two Village Eye Works locations in Arizona, one in Phoenix and one in Surprise, has seen the effects of the economy in his Surprise location. “Much of our consumer base in Surprise consists of retired people, adversely effected by the stock market. As a result, they don’t spend as freely as they did in the past, especially with something they see as nonessential, such as sunglasses.”

Another factor accounting for the decrease in plano sunwear sales among the optical community, according to retailers, is optical placing too little emphasis on selling plano sunwear, thus giving up market share to other channels of distribution. One more consideration is undoubtedly the aging of the population, resulting in a greater need for prescription sunwear.

Although the numbers for both frames and plano sunwear are not what the optical community like them to be, they were not unexpected. It’s essential that frame and sunglass manufacturers offer a wide range of style- and feature-oriented product at more moderate price points and that retailers continue to re-explore their options in various price categories.  —Gloria Nicola
SOURCE: JOBSON OPTICAL RESEARCH‚ SEPTEMBER 2002
SOURCE: JOBSON OPTICAL RESEARCH‚ SEPTEMBER 2002
SOURCE: JOBSON OPTICAL RESEARCH/VISIONWATCH‚ SEPTEMBER 2002
SOURCE: JOBSON OPTICAL RESEARCH/VISIONWATCH‚ SEPTEMBER 2002

Lenses Reflect Modest Growth
Apparently, spectacle lenses don’t need a mirror coating treatment to accurately reflect on the optical industry as a whole. Based on the 2003 projections developed by Jobson Optical Research, the lens and lens treatment categories will experience the same modest growth in the coming year as the optical industry as a whole. Lenses, however, remain the largest dollar segment of total retail sales.

Overall, lens sales, in terms of total pairs sold, are expected to grow by roughly 1.5 percent in 2003—from a projected 73.3 million last year to a projected 74.4 million. Products such as progressives, polycarbonate and anti-reflective (A-R) lenses—the industry’s emphasis in recent years—will once again lead the way. According to Jobson Optical Research, progressive lens sales will grow from a projected 22.9 percent of overall lens sales (in units, by design) in 2002 to an estimated 23.6 percent this year. Polycarbonate, still the industry’s fastest-growing lens material is expected to increase from a projected 30.7 percent of total lens sales (by material) in 2002 to a projected 31.9 percent this year. Conversely, “commodity” products such as bifocals and conventional plastic lenses will continue to decline, albeit slowly. Sales of other premium lens products—namely mid- and high-index plastic lenses—will essentially remain flat (declining from 10.2 percent to an even 10.0 percent of sales, according to Jobson Optical Research.

“Progressives especially are carrying us now,” notes Jan Liberatore, owner of JK Liberatore Optical in Horseheads, N.Y. “All the talk about Baby Boomers... It’s true. Now, when our patients get to be 40-ish and moving into a multi-focal, it’s progressives all the way. And that’s helped us. Last year, business remained at a good, steady pace. Premium products helped us keep our numbers up.”
A-R lenses are finally experiencing the growth industry leaders have hoped for, at least according to the Jobson Optical Research statistics. By this measure, A-R lenses are expected to grow from a projected 18.2 percent of all lenses sold in 2002 to 18.7 percent this year. A-R lens sales have grown in each of the past four years.

“I’m not a good enough optometrist to sell my patients cheap lenses,” jokes C. Earl Loftis, Jr., OD, owner of Eye on Gervais in Columbia, S.C. “Seriously, I’ve gone to high-end lenses exclusively. And my patients are going to get A-R unless they beg me not to put it on. It’s not just about profits, although that’s a factor. As a profession, we have to learn that it’s about what’s best for the patient’s vision. The economy recently has taught us that should be the message we give our patients. If a patient has glaucoma, we want to give them the best treatment possible. Why don’t we always do the same with vision?”

Retail lens pricing, meanwhile, seems to have stabilized following two years in decline, though a value-oriented consumer is influencing the results. Average retail prices for progressive lenses, for instance, decreased from $215 per pair in 2001 to $207 per pair last year, according to Jobson Optical Research. This year, however, the average price of progressives is expected to increase slightly to $208 per pair as newer designs hit the market. Even single-vision lenses are expected to command higher retail prices this year, thanks at least in part to growth in premium products such as poly and A-R. According to Jobson Optical Research, the average retail price of single-vision lenses was $54 per pair last year. It is expected to increase to $56.50 this year.

“I don’t feel like I can raise prices overall,” says Liberatore. “But as I move more and more patients into premium products, they are paying more for their eyewear.”
And more good news: “Alternative” vision corrections such as laser surgery don’t seem to be as big a factor, now or for the future. According to Jobson Optical Research, the number of people pursuing laser vision correction will decline from roughly 675,000 in 2000 to a projected 560,000 for 2002. That, along with all the advancements in premium lens products in recent years, certainly proves wrong the predictions of a few industry observers that “alternative” vision correction solutions would render spectacle lenses outmoded technology.

“Lenses have played a big role in what I’ve been doing in my dispensary recently,” notes Dr. Loftis. “And I expect that to continue.” —Brian P. Dunleavy
SOURCE: JOBSON OPTICAL RESEARCH/VISIONWATCH‚ SEPTEMBER 2002
SOURCE: JOBSON OPTICAL RESEARCH/VISIONWATCH‚ SEPTEMBER 2002
SOURCE: JOBSON OPTICAL RESEARCH‚ SEPTEMBER 2002
SOURCE: JOBSON OPTICAL RESEARCH/VISIONWATCH‚ SEPTEMBER 2002
SOURCE: JOBSON OPTICAL RESEARCH‚ SEPTEMBER 2002

STATE OF THE DISPENSARY:
DIFFICULT TIMES, DIFFERENT MEASURES

C. Earl Loftis, Jr., OD calls himself a “solo guy.” And why not? As an independent practitioner, he has owned and operated a successful optometric practice—complete with what he describes as a “high-end” eyewear dispensary—called Eye on Gervais in Columbia, S.C.

But things changed.

After operating on Gervais Street in downtown Columbia for years—hence the name—Dr. Loftis decided to move his shop to a warehouse he had purchased in the city’s up-and-coming Vista neighborhood because, as he says, “the rent got too high.

“I didn’t want to pay rent forever so I bought the place,” he continues. “I decided I’d fix it up, put in a fireplace, a roof deck. Make it real nice. Plus, I could keep all that rent money for myself.”

The optometrist even hired a local marketing company to publicize the move and, as he says, “create some excitement.” And so Eye on Gervais moved from its eponymous street to Lady Street in late August 2001. “And two weeks later it was September 11,” Dr. Loftis says. “We had the TV on in the shop. For the next month, we had people coming in and telling us, ‘I know I need new glasses, but I just don’t feel like buying anything today.’” Over the next month following the terrorist attacks, according to Dr. Loftis, business at Eye on Gervais dropped more than 40 percent.

It was with that in mind that the optometrist decided to make a drastic move early in 2002. He took chair hours Wednesday and Saturday at a Wal-Mart located about 30 miles from his practice, conducting exams for the mass merchant’s eyewear department. The distance is by design: Dr. Loftis didn’t want to be selling discount frames “just down the street from his shop. My regular patients wouldn’t take kindly to that.” His divide and conquer approach has paid dividends: Though business at his practice/optical shop only grew 2 percent last year, his overall revenue/income increased by 25 percent.

“I built up my revenues using an alternative income source,” Dr. Loftis says. “If it hadn’t been for that additional income, my year would have been much different. I was industrious enough to get out there. Corporate optometry offers an excellent opportunity for job security and income to build your practice to where you want it to be. Is it ideal? No. But eyecare is eyecare. I treat high-end patients at my practice and a lot of seniors and young families at Wal-Mart. Patients are patients and exams are exams. I could practice optometry with a Snellen chart hanging from a tree in my backyard.” —BPD

Retail’s Slow Course
Much like the rest of the retail world, the optical retail market has been feeling the effects of the shaky economy. However, there are now signs that there is a slight upswing. While it’s not time to break out the champagne just yet, the retail market, which experienced losses in 2001, is projected to display some growth in 2002 and 2003, according to Jobson Optical Research.

For the first time in many years, retail volume decreased in 2001 to $15.9 billion (down from a market high $16.5 in 2000). But sales increased to a projected $16.2 billion in 2002 and are projected to rise to $16.6 in 2003, according to Jobson Optical Research.

“We haven’t felt any lows,” says Dianne Szwed, co-owner and optician of Optical Heights, a six-year-old, high-end dispensary in Roslyn Heights, N.Y. “People are coming in and still buying. There haven’t been too many people bringing in frames and just changing the lenses.”

Market share will continue to chip away for the independent, (defined by Jobson as a retail or professional location of three units or less)—from 57.3 percent in 2002 to a projected 56.3 percent in 2003, reports Jobson Optical Research. And chains sales collective market share will continue to rise—from a projected 40.1 percent in 2002 to a projection of 40.8 percent in 2003. Independents are losing sales in part because both big chains and mass merchants such as Wal-Mart have been  confronting consumers with a new lower price level that they can’t always compete against.

Another important factor in the chains’ increase in share is the amount of promotion they do. Conventional chains as well as group practices often have more resources to focus on the marketing and promotion of their products and services.

Independents need to seize on the opportunity these behemoth chains present by creating product awareness, maintains Norman Childs, owner of Eyetique, which has three locations in the Pittsburgh, Pa. neighborhoods of Wexford, Squirrel Hill and Wilkins Township. “When people were afraid of the big chains I welcomed them,” says Childs, who has one shop just three doors down from a Pearle Vision. “I always think it’s to our advantage to ride the coattails of a company like LensCrafters that spends millions of dollars on marketing and advertising. For us to follow and see what they’re doing and do it even better. For example, many people over the past year have been coming in asking about those FeatherWates lenses. I tell them we have something like that and show them our [polycarbonate] products. It makes the consumer aware.”

Szwed agrees that in order to compete in rough economic times it’s important to keep your name out there. “You need to market more in a low time than a high time,” she says. “We actually had two or three trunk shows last year, which piqued people’s interest. If they couldn’t come to the show, they came in the next day to ask what was new. Service is key too. People want more specialized attention. They don’t want to be a number.”

Another interesting trend is the emergence of small chain retailers or regional group practices—independents that merged to group offices but do not have large regional or national corporate offices. The major chains, such as LensCrafters and Pearle Vision, remain steady in size while smaller chains are steadily growing. Major chains have remained level at an average of 8,200 retail locations since 2000 and are projected to stay the same for 2003, according to Jobson Optical Research. However, smaller chains are on the rise from 2,500 in 2001 to 3,000 retail channels in 2002 and a projected 3,500 in 2003. Independent dispensaries have seen a steady decline in their average number of retail locations, decreasing from 24,500 in 2001 to 23,500 in 2002. The reason for this decrease for independents as well as the leveling off of the big chain locations is due to both a slowing down of expansion and consolidation, and an alignment of independents to form these smaller chains.

“After September 11th everybody slowed down, some more than others,” says Childs. “It affected a lot of people in our industry. But after the first of the year in 2002 things started really looking better and the retail climate, at least for me, got better. We’ve been very fortunate. We weren’t really hit that bad initially. But it got a lot better at the first of the year. We were up. I would have been happy with flat but we did much better.” —Jackie Micucci
SOURCE: JOBSON OPTICAL RESEARCH‚ SEPTEMBER 2002
SOURCE: JOBSON OPTICAL RESEARCH‚ SEPTEMBER 2002
SOURCE: JOBSON OPTICAL RESEARCH/VISIONWATCH‚ SEPTEMBER 2002

STATE OF THE DISPENSARY: SERVICE SAVES
Larry Massey has been in the optical business for more than 40 years, so he has seen recessions, such as the one currently gripping the U.S. economy, come and go.

Just not in his current position.

Massey has been the optical manager at Jacksonville Ophthalmologic Associates in Jacksonville, Ill. for nearly 10 years. He believes the practice’s location and structure have shielded it from the peaks and valleys of our cyclical economy.

The group practice—owned by A. George Schultz, MD and Eric Giebelhausen, MD—has been in operation since the 1920s. According to Massey, Jacksonville Ophthalmologic’s approach to eyewear sales has helped make the practice’s dispensary recession-proof. His dispensary believes strongly in premium frame and lens products, but its business plan has been designed so that it doesn’t depend on sales of these products to remain profitable.

“We structure our inventory based on what patients want,” Massey says. “We carry a wide selection of products, in a wide array of price points. We’re not a sales-oriented practice. We don’t need to make that big-ticket sale all the time, and so we don’t push it. We don’t forget we are providing a healthcare service as well. Above all, we are treating patients for their vision needs, providing eyecare, whether we are selling glasses or performing exams. It’s great to have all the high-end products. I’ve been in the business a long time and I want to sell quality. But, in my opinion, your business should be based on the service you provide. And that’s eyecare. There is always a demand for that, no matter what the economy is like.” —BPD

 

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