Features: State of the Market

Feb
2002

"It's Was a Very ______ Year"






“It was a very________year”

That blank spot in our headline suggests uncertainty, shock and confusion. The numbers in our State of the Market represent economic performance in the optical industry. Our story delivers analysis of those performance figures. But 2001 was engraved by historical and political ramifications nearly unprecendented in modern times excepting two world wars and the great depression those global battles sandwiched.

The year started out weak but economic experts were late in christening the financial downswing a recession. Those experts are now backtracking (or looking for new careers) in hopes that the  recession doesn’t morph into the dreaded “d” word.

But the stark reality is that all the rhetoric about retail conditions and the mood on Wall Street literally and figuratively collapsed just a few blocks northeast of said street on the morning of September 11.

Can 2002 take the dust and rubble of 2001 and rebuild? Possibly. Can all of optical learn some positive lessons from the gains and growth of premium lens products and regenerate that tech savvy into all segments of the opti-market? Hopefully. Can the dire shadow that looms over selling sunwear in optical outlets be forcefully wiped out by eyewear retailers willing to realize a future in sun already powerfully acknowledged by the industries leading vendors and manufacturers? Bluntly, they must.

So here it comes again. The numbers (via Jobson Optical Group Data Base and presented by Director Gerry Fultz) chart optical in 2001. But numbers without analysis can never tell a story. A productive story needs energetic and expert guidance. The editorial team of Brian Dunleavy, Jackie Micucci and Gloria Nicola provide those thoughtful words. Take all of it optical, remembering that on its most positive note the future of your industry is potentially upward and, rightfully, still in your mind’s eyes.  —
James J. Spina

The Premium Push
2001 may have been a tough year for the optical industry as a whole, but not because of sluggish sales in the spectacle lens category, according to the Jobson Optical Group Data Base. Indeed, while lens pair sales declined from 79.3 million in 2000 to 76.5 million last year, their share of the optical market actually increased from 50 percent to 50.5. And, while retail volume from lens sales declined from $8.35 billion to $8.12 billion over the same period, it is the smallest percentage decline (2.7 percent) experienced by any optical product category. Plus, even with the down year, spectacle lenses have been the fastest growing optical product category over the past five years, with revenues growing by 6.5 percent between 1997 and last year. Frame revenues grew only 4.1 percent over the same period.

In addition, spectacle lenses were the only optical product to experience an increase in average retail prices between 2000 and 2001. Lens pairs sold for, on average, $106.20 per in 2001 compared to $105.32 the previous year (a 0.8 percent increase). Over the past five years, lens prices at retail have increased 11.3 percent, compared to only 8.8 percent for frames.
So why have spectacle lenses been able to withstand the brunt of the optical market’s downward trend in the early 21st century? One reason is the influx of new, premium lens and lens treatment products brought to market during 2000-01. Progressive lenses—arguably optical’s most important product given the ever-growing presbyopic population—made up 23.3 percent of all lenses sold in 2001, up from 22.9 percent the previous year. More tellingly, progressives accounted for 52.5 percent of all revenues from lens sales in 2001, up from 51 percent in 2000. Thanks, in part, to new premium designs (such as short-corridor progressives and computer vision lenses) average retail sales prices for progressives increased from $207 in 2000 to $210 last year.

Sales of two more premium products—anti-reflective (A-R) coatings and photochromic lenses—also invigorated the lens market by experiencing growth in 2001. A-R, for example, accounted for 6.6 percent of retail dollar sales volume for lens and lens treatments in 2001, up from 6.3 percent in 2000. In all, 12.8 percent of the lenses sold in 2001 were A-R coated, up from 12 percent in 2000. Similarly, photochromic lenses made up 5.7 percent of retail dollar sales volume last year, an increase from 5.6 percent the previous year. In all, 9.3 percent of the lenses sold in 2001 were photochromic, up from 9 percent in 2000.

In terms of materials, premium products such as polycarbonate (29 percent of all lenses sold in 2001, up from 28.1 percent in 2000) and mid-/high-index plastic (10.5 percent, up from 10.2 percent) also experienced growth. Sales of more “standard” or “traditional” lens products such as conventional plastic and glass, meanwhile, declined. In 2001, plastic accounted for 57.5 percent of the lenses sold, down from 58.1 percent in 2000. Glass continued its precipitous drop from 3.6 percent in 2000 to 3 percent last year.

Consumers’ preference for premium isn’t the only reason why lens sales outpaced other optical product category figures in 2001, however. It’s important to note that lenses, unlike frames and even sunglasses (in most cases), are a medical necessity—patients eventually need to purchase them if they want good vision. According to the Jobson Optical Group Data Base, consumers, on average, replace their lenses every 2.21 years and their frames every 2.69 years. With a significantly shorter repurchase cycle, it’s no wonder lenses seem to be outpacing frames.

Manufacturers have continued to place their future in the hands of higher-end lens products, limiting most of their new product introductions to premium categories such as progressives, high-index/polycarbonates and photochromics as well as branded A-R coating products. So far, the strategy seems to have worked. But with opinions mixed on the short-term future of the U.S. economy, it will be interesting to see if the trend holds in 2002.

The Economy Effects Retail
The optical retail market is feeling the effects of the current economic downturn. Retail sales volume for the independent three Os decreased 6 percent from $9.6 billion in 2000 to$9 billion in 2001, according to the Jobson Optical Group Date Base. Chains also experienced a bit of a decline (1.3 percent) from $6.5 billion in 2000 to $6.4 billion last year.
Sales for independent ODs dropped from $5.2 billion in 2000 to $4.9 billion in 2001. Opticians decreased from $2.4 billion in 2000 to $2.2 billion last year while ophthalmologists were down from $2 billion in 2000 to $1.9 billion in 2001, according to the Jobson Optical Group Data Base.

Optical sales by independent retail channels also fell across the board. (Their total retail outlets decreased from 25,350 in 2000 to 24,500 in 2001.) Optometrists, which continue to make up the largest portion of retail sales among independents, had a slightly smaller percentage of the retail volume in 2001 (31 percent) as they did in 2000 (31.2 percent), according to the Jobson Optical Group Data Base. Optical shops share of the marketplace declined from 14.5 percent in 2000 to 13.8 percent last year. Dispensing ophthalmologists decreased from 12.5 percent in 2000 to 12.3 percent in 2001.

In addition, HMOs saw a slight decline. Their retail volume dropped slightly from $414 million in 2000 to $413 million in 2001.

As consolidation has slowed down so to has the retail volume of chains. While their number of retail outlets increased from 13,020 in 2000 to 13,850 in 2001, sales decreased from $5.6 billion in 2000 to $5.4 billion in 2001, according to the Jobson Optical Group Data Base.

However, the one segment continuing to experience growth is the mass merchandisers/warehouse clubs most likely buoyed by consumers looking for a bargain in a tough economic climate. Their share rose 7.4 percent from $9 billion in 2000 to $9.7 billion last year.

Other Retail Facts
The majority of the locations in each category (both independent and chains) are freestanding (38.7 percent) while 26.7 percent of are in medical/office buildings and 22.2 percent are in strip malls, according to the Jobson Census 2001 Data Base.
 
Dispensary size for 46.1 percent of retail locations is under 1,000 feet followed by 1,000 to 2,000 (39.7 percent) then 2,000 to 3,000 (10.7 percent). Only 3.5 percent are over 3,000 square feet.
The average number of full-time employees for the majority of dispensers is three to four (34.5 percent) followed by five to 10 (29.8 percent) and one to two (23.7 percent).

And eyeglass price range averages $100 to $200 for 54 percent of locations. That’s followed by $200 to $300 (22.9 percent), under $100 (19.1 percent) and over $300 (4 percent).

Fr
ame and Sunwear Sales Dip
Reflecting a cooling economy, an uncertain global mood and the overall downward trend of the optical sector, Rx frames, plano sunglasses and clips lost market share in 2001, according to the Jobson Optical Group Data Base. Retail dollar sales, units sales and the average price of frames and sunwear fell.

In 2001, Rx frames represented 32.6 percent of the $15.86 billion spent on all product categories, accounting for $5.17 billion, a decline of 4.6 percent over 2000. However, the good news is since 1997 the dollar amount generated by Rx frame sales has risen 4.1 percent. Unit sales, too, fell—from 65.25 million in 2000 to 62.81 million in 2001, a 3.7 percent decrease. For the period between 1997 and 2001, there was a 4.3 percent decline.

The average retail price point for an Rx frame alone has also inched downward 0.9 percent in 2001 to $82.34 from $83.08 in 2000. However, the price for a frame and lenses remained at $175, the same figure reported for 2000. And since 1997, the average price for a frame alone rose 8.8 percent and for a frame and lenses, 10.1 percent.

Two other factors relating to the frame market also reflect a cooling trend in this segment. Both the repurchase cycle and the percentage of consumers who put new lenses in previously purchased frames increased in 2001. The purchase time for a new frame increased from 2.56 years in 2000 to 2.69 years in 2001. And the percentage of customers fitting new lenses into older frames climbed 7.2 percent—from 21.5 percent in 2000 to 23 percent in 2001.
Although all product categories declined in 2001, the segment taking the biggest hit was plano sunglasses and clips. The sharp decline in this area can be attributed to two main factors. Sunglasses are still largely viewed as a non-essential purchase that can be delayed in a weak economy. And the optical community places too little emphasis on selling plano sunwear, thus giving up market share to other channels of distribution. In fact, according to the Jobson Optical Group Data Base, plano sunglasses and clips accounted for only 26 percent ($656 million) of the $2.5 billion in sales through all primary channels of distribution in 2001, a decline of 6.4 percent from 2000. The average decline in sunglass sales for all primary channels of distribution in 2001 was 3 percent.

In the optical segment, plano sunglasses and clips dollar sales fell 8.7 percent in 2001 to $619 million from $678 million in 2000 and now account for 3.9 percent of the total optical market. What is far more significant, however, is market share for sunglasses has plunged 30.1 percent since 1997 and is the only product category to show decline in dollar sales over the five-year period. Sunglass unit shares also fell—from 8.5 million in 2000 to 8.25 million in 2001, a 2.9 percent decrease. Over the five-year period, the decrease was 7.8 percent.

The retail price for plano sunwear followed the same downward trend in 2001, with an average price of $75.03, a 5.9 percent decrease from the $79.76 indicated in 2000. But again the big change was the 24.2 percent decline since 1997 when the reported figure was $99.01.

This decline in plano sunwear price points was also reflected in 20/20’s Sunwear MarketPulse of Independents 2001. According to the MarketPulse, the average retail price for plano sunglasses decreased from $105.80 in 2000 to $96.92 in 2001. And clip-ons dropped from $49.56 to $44.87. Also lower price plano sunglass products generated more activity in 2001 than in 2000. In the past year, 54.5 percent of fashion-oriented sunglasses sold for $99 or less, with 14.5 percent selling for $50 or less. This is a decrease from the 44.1 percent and 9.9 percent, respectively, cited for the previous year. Only 13.7 percent of plano sales were in the $150 and above category in 2001, compared with 21.4 percent in 2000. In sports-oriented plano sales, the trend toward lower prices was similar. Products priced at $99 and less represented more than half of all sales (50.3 percent) in 2001, up from 39.8 percent in 2000.

Although these numbers for both frames and plano sunwear are not as rosy as they have been in the past, they were not unexpected. And there are reports the economy is beginning to rebound. Additionally, with the wide range of frames and sunglasses in all price categories, retailers have plenty of options for even the most cautious and cost-conscious of consumers.

















 

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