VM Staff Report

NEW YORK--Luxottica-Cole. Moulin-ECCA. AMO-Pfizer ophthalmic surgery as well as AMO-VISX. Zeiss-Sola. Highmark-Viva. Cooper-Ocular Sciences.

Very many major deals, from some of the largest players in the world's optical and visioncare market, continued the unprecedented pace of consolidation throughout the final months of 2004 and into 2005.

And, it's probably not over yet. With these combinations either officially closed or about to close in the first quarter of this year, the new deals may in fact propel other deals or at least "strategic alliances" as the optical landscape further changes.

Eyecare independents, chain executives, wholesale lab executives and leaders of vendor companies tell VM that this year's dealmaking, which comes on the heels of a few years of integration in the U.S. lens and wholesale lab community, points to a real and ongoing restructuring of the market's dynamics.

All say they share a certain level of trepidation about what the consolidations might mean for redefining interindustry competition, about the health of the business in general and what it might mean to operate within a realm of fewer major retailers and fewer major suppliers.

Nevertheless, most industry players feel optimistic about opportunities for business in 2005 and are planning positively for the coming year.

Ed Dietz III, president Dietz Laboratories, Fort Worth, Texas, said, "The year got off to a pretty slow start, especially with the holidays falling on a Friday. We had a couple of terminal type weeks. But starting out this week we got absolutely slammed; there's work coming in from everywhere. So we're confident about this month and the months ahead. We'll be focusing more on customer education this year."

Related? Paul Zito, president, Encore Optics of S. Windsor, Conn., said, "Last August through November was soft. December started out strong but we were hit by some bad weather, and New England is very weather dependent. But overall, the year ended up relatively strong,"

"Lately, I'm seeing more work from my accounts," Zito added, "it's not that they're busier, they're being more selective, and eliminating labs that are not responding to their needs. It's the same with frame companies."

Optical retailers have mixed feelings about the heightened pace of industry consolidation in recent months, particularly on the vendor side. For example, some fear that a shrinking body of possible suppliers will make it harder for them to get the deals they seek. Others still have problems with the idea of eyewear manufacturers owning retail outlets.

Allan Barker, OD, president of Optometric Eye Care Center, with 51 locations in North and South Carolina, told VM his primary concern in terms of vendor consolidation comes in the contact-lens arena, since that segment has so few suppliers in the first place. "It would be sort of scary if we didn't have several CL vendors fighting against each other," Barker noted. "To me, technology is the most important thing in contact lenses, so as long as enough major suppliers are around with the desire and the financial backing for research and development to take CLs to the next level, we're OK."

Such consolidation is inevitable, he noted: "The vendors have the same issues we retailers and practitioners have, including huge personnel costs; they are looking for economies of scale. And in categories other than contact lenses, the optical industry has plenty of suppliers, so a couple of acquisitions won't bring about a shortage."

Barker noted, "Obviously Luxottica has already shown us that vertically integrating product can be very successful--it works with a company that has quality merchandise."

Diana Hall, president of Peoria, Ill.-based Bard Optical, hopes the ongoing optical-industry consolidation does not mirror the experience of other retail segments. "With the optical chains getting stronger, we independents need to focus on serving the patient better, to avoid going the way of the mom-and-pop drug store or hardware store," Hall said.

Added Hall, who oversees 18 Bard locations, "It's obvious this kind of thing will continue, with the big eating up the big. The question is, what's left for the small?"

As for vendors owning retail chains, "I have problems with that concept," she declared. "If we buy from one of them, it's like we're in bed with the competition. But you can't just have a knee-jerk reaction; we need to really evaluate how we'll do business with those vendors."

Eric Silverstein, owner of Test Rite Opticians in Livingston, N.J., noted, "Business was good in 2004 and we expect it to increase even more. I would say that in the industry as a whole, especially with Luxottica gobbling up retail, the high fashion names are now at these chains and we [ECPs] lose business to that. It's almost a monopoly. At Test Rite, we offer a lot of niche products to overcome this--"plus our patients know us. We do some advertising with two local coupon books."

Richard Golden, president and chief executive officer of 116-store D.O.C Optics, said Luxottica's acquisition of Cole Vision and Moulin's pending purchase of an interest in ECCA are just two more big events in the story of industry consolidation. However, the fact that some suppliers to Cole and ECCA will be losing business could affect D.O.C, he said, is "not a great thing for the industry, or for us, to see longtime vendors that we buy from getting hurt."

Golden is not crazy about the concept of competing with stores owned by his own suppliers. "But in our case, we had a relationship with Luxottica long before it bought Cole, and as long as the relationship works, I'm okay with it."

Of the recent optical mergers, such as the proposed SOLA-Zeiss merger, Mike Daley, president of Essilor Lenses, said: "Sometimes with mergers, one plus one can equal three. A lot of good can happen. It just depends if the companies that merge can do it right."