Gold Chains
How are chains faring? Here's a look at the strategies and categories that some, both large and small, are focusing on in today's recovering, but still turbulent, economy
By Erinn Morgan

It is a tumultuous time for the American economy. Likewise, it is an unstable period for the eyewear industry. How have chain stores fared in this economic environment, one that has been a difficult--but promising--recovery for some time now.

Training at Pearle Vision stressed premium products in 2003

Surprisingly, many chains are reporting a relatively robust business in a down economy--some even peg increases in the single digits for 2003. Additionally, many say 2004 is off to an excellent start.

For both optical and sunglass chains, it is critically important to remain competitive in an industry that has recently seen even more consolidation on the retail side. The recent acquisition of Cole Vision parent Cole National by Luxottica Group (which also operates LensCrafters and Sunglass Hut) again changes the playing field. In a deal valued at about $401 million, Luxottica will acquire all of Cole's outstanding shares at $22.50 per share. The deal is expected to close during the second half of 2004.

Despite this behemoth competitor, many chains remain undaunted. Likely, it is due to the positive upswing some saw in 2003. "We have been contrarians all year," says Jeff Obstfeld, president of the Oakley-owned Iacon, a chain that operates 77 sunglass specialty stores under the brand names Sunglass Designs, Sporting Eyes, Occhiali da Sole, and Oakley Icon.

"We ended the year with a comp store increase. With December, we had a double-digit comp store increase. We work real hard to have that happen.

"The whole year wasn't quite as rosy," he continues. "But we stayed our course on our plan to have a lot of product to offer customers. We are aggressive to make sure the shelves are stocked. We didn't run scared by reading the newspapers."

At Eye Care Centers of America (ECCA), which operates more than 370 optical retail stores under 11 store brands (the net results of acquisitions) in 32 states, the results for 2003 were also solid.

"Certainly, the downswing in the economy took its toll," says Dave McComas, chairman and CEO. "But 2002 was a record year for us. It is because in October of 2001 we launched our value strategy. We began focusing on delivering great quality at a terrific price."

Strategies such as value pricing and promotions were key for some chains to move up in 2003. Other profit-inducing positions included a focus on massaging managed care business, promoting premium lens products, enhancing customer service, and building strategies for capturing baby boomers.

While things are moving and shaking at some chain operations, certainly not all remain unscathed by the economy.

"Business has not been strong at all," says Frank Adkins, president of Vision Masters, a group of three stores recently downsized to two in Chatanooga, Tenn. "Last year was not good. And December was a terrible month. This year has not started off well either."

	With 17 stores, Clarkson Eyecare promotes lenses with golfing, fishing, and computer packages

BUSINESS BAROMETER

Some of the ups and downs of chain store business are determined by the economic health of the areas in which the company's stores are located. "The economy is not real good in our area," says Adkins, who is a past president of the Opticians Association of America. In response to several difficult years in business and an economy that does not promise to pick up quickly, Adkins has decided to sell his business.

"We are in the process of selling the retail business, our doctors will buy it. We have a wholesale lab, and we will focus on that. That gives us an opportunity to get business outside of Chatanooga. Some of the rural areas are doing better than the metro areas," he says.

On the upside of things, many chains are reporting growth in their markets. "In our area, it's been real good," says Alice Stephens, president of The Hour Glass, a chain with eight stores in Florida and two locations in Georgia. "Since Christmas, it's been busy. Tallahassee is always busy. Our economy is good, and we have seen increases here."

Others agree. "We are continuing to expand at a rapid pace in a number of areas," says Bill Jehling, president of Clarkson Eyecare, a chain with 17 locations in the St. Louis area. "Our total business was up in 2003 about 6.5 to seven percent. Some of that is spurred by new office growth. Some offices were up as much as 12 to 25 percent, and some were down. And, 2004 is off to a good start."

In Utah, Standard Optical, a chain with 17 conventional locations and two high-end sunglass stores, reports that their business is also growing. "2003 was very good for us," says Aaron Schubach, director of marketing and lab manager at the chain. "We were up about eight percent again and up about 23 to 25 percent in the last three years."

Indeed, many chains are buoyant about 2004. "2002 was a record year for us," says ECCA's McComas. "In 2003, we were flat to a record year in a tough year. We are pretty pleased with that, and we are excited about 2004 because we think there's a lot of opportunity here."

Oakley-owned Iacon ended the year 2003 with comp-store increases by staying with an aggressive business plan

SUCCESSFUL STRATEGIES

Local economy aside, the real meat and potatoes of growth at the chain level is in business strategies. Retailers cite a number of different programs put into play in the last year or two, and new ones coming to fruition in 2004, as the reason for their survival.

Increasing market penetration. One direction is to penetrate markets with targeted stores. "Our strategy is to build out a market so we have the leverage from an advertising/marketing perspective and from a field/store perspective," says ECCA's McComas.

Focusing on value. ECCA has also employed a value program that McComas credits as the main reason for its growth. "Selling multiple pairs is our primary strategy," he explains. "Our marketing program is centered on two complete pairs of eyeglasses for $99. Our primary value offer of two for $99 is hard for the consumer to pass up. We put a lot of emphasis on selling two pairs, especially with prescription sunglasses as the second pair." (See sidebar "Strategies at a Glance" for more tips.)

Emphasizing managed care. With an eye on the value segment, some chains have put the onus on growing their managed care business. "Managed care is growing in leaps and bounds for us," says Standard Optical's Schubach. "We own our own insurance company here in Utah. I bid against companies like VSP and Davis. To date, we have over 150,000 lives enrolled. We view it as another marketing tool to get people into the stores."

Accepting more providers. "We are broadly credentialed for over 200 insurance plans," says Clarkson Eyecare's Jehling. "A large percent of our traffic is derived from the plans."

Adding LASIK. "Our LASIK business is up about 80 percent through advertising and training," says Schubach. "Our dispensers are talking about it with every customer. We currently have three LASIK centers. Two are roll-on roll-off centers, and the other one is a fixed center."

Stressing training. "If you're able to communicate the product to ECPs, they will successfully present it to the consumer," says Nick Miletti, manager for technical support at Cole Vision, which has over 2,000 stores, including Pearle Vision, Sears Optical, and Target Optical locations. "In this industry you have to get the eyecare professional first. They have to be embracing the product before they can do anything with it."

Citing 2003 sales, Cole president and CEO Larry Pollock, says, "Training of sales associates to present the features and benefits of premium products (such as drill mount rimless frames and flexible metal frames), as well as the different lens treatments, had a positive impact on average spectacle transaction and contributed to the increase in same store sales."

Measuring service. "Our bonus programs, promotions, rating system, and value system include in-store customer service performance," says McComas.

Querying customers. "We ask one-third of our customers to rate their shopping experience with us in 10 different factors," adds McComas.

As a result, the store and each salesperson has a score, he says. "That score impacts the store managers' monthly bonus. The scores get published once a month for field supervisors and the executive staff to review. We want to win their votes in customer service. If we win their vote, we will win them over as long-term customers."

Starting new formats. Next month, Iacon plans to open a new outlet business called Sunglass Club and a flagship at Disneyworld called Sunglass Icon. "It is a history type of store in a museum format," says Obstfeld. "It is a completely different idea."

Integrating the three Os. "We will fully integrate an MD into our practice in 2004," says Standard Optical's Schubach. "We did 1,200 LASIK surgeries in 2003. And we expect to do that volume in cataracts and LASIK in 2004. We will fully integrate the three Os--the MD will rotate between four of the different locations to start."

Building boomer business. "Without any advertising," says Schubach, "we probably see four cataract patients a day through general pathology and patient flow. With the graying of America, we feel this strategy is looking to the future."

Providing credit options. According to Cole's Pollock, "More than 11 percent of all sales at the Pearle company-owned stores were charged to the new Pearle Vision Preferred Card. The card gives us the opportunity to market directly to cardholders, enabling us to provide them with special promotions for themselves and their families."

	Occhiali da Sole parent company Iacon plans two new store formats for early 2004

PROFITABLE PRODUCT

The right retail products are also key to continued growth, say many chain retailers. "Technology is driving all aspects of the business," says Cole Vision's Miletti, who is also president of the AR Council. "This includes AR coating, polarized lenses, photo-chromics, new progressives, contacts, drilled rimless frames, memory metals, magnetic clip-ons, and new fashion frames with jeweled accents. Some of the things they can do now in frame products are definitely driving sales."

Promoting AR. Critical to success with technology-related products is promotion. "All the increases we've had in AR are through internal promotion, training and educating people what the product is about," continues Miletti. "All the things we've been talking about in the AR industry are what we've taught the salespeople."

Incentivizing dispensers. At Standard Optical, Schubach says its AR increases have been realized due to incentives offered to dispensers. "It is a huge segment of our business," he notes. "We do about 33 to 34 percent AR. We have a lens spiff--and 80 percent of our incentives come from AR. We know what the international numbers are, and that's where we want to be at some point. We will push it until we are at 90 percent."

The same rules apply at Standard for photochromics. "Photochromics are up again this year," says Schubach. "Typically, this has not been a very good segment for us, but we are spiffing them aggressively. We like the idea that we can put AR on a photochromic lens."

Combining products. Other retailers are also highlighting the AR coating and photochromic combination. "Last year we put a real emphasis on AR and photochromics products and the combination of those two," says Diana Hall, president of Bard Optical, which has 17 locations in Central Illinois. "We will continue with that in 2004."

Stressing lenses. In frames, retailers cite both high-end and lower-priced options as strong sellers. Some say, however, that designer frames are not as popular as they used to be. "Our lens sales are great," says Schubach. "The consumer has a perceived value in lenses that they don't have in frames. It is a much better profit margin for us. People want cheaper frames and are willing to pay more for the lenses."

Standard Optical's chain of 19 stores reports that business was up about eight percent in 2003, with LASIK up a whopping 80 percent

Seeking upstart brands. "'Street product' is an important growth area for us," says Iacon's Obstfeld.

"These upstart beach brands are getting discovered and it is a good area of growth. Because of the channel of distribution of major brands through department stores, we are seeking product that is more specialty niche," he says. "We will grow these rather than compete on duplicate brands with department stores."

MARKETING MANIA

To support their products and business strategies, most chains are employing advertising campaigns as well as in-store promotions and signage.

"We have appointed a marketing director and planned out a marketing campaign for the first six months of the year," says Obstfeld. "We are trying to single out brands you don't see at everybody else's front door. We aim for a combination of promotion and education. We will have a new marketing program that includes signage that promotes a certain brand's merits."

Bard Optical will take a different tack with marketing efforts. "We have some different positioning plans in place, things like trunk shows," says Hall.

Savvy chain retailers realize that they have to be assertive with their efforts in marketing, merchandising, and new strategies, and positioning because in a fiercely competitive environment, only the strong will survive.

"We have three LensCrafters here in Chatanooga, plus Wal-Mart with their superstores and vision centers," says Vision Masters Adkins. "Anywhere you go there is a whole lot of competition."

But, in general, the mood is rising. "We are charging ahead in 2004, and we are cautiously optimistic," concludes Obstfeld. "We have challenges like everybody else, but for the most part we are happy with our success."