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HomemistoryRiding Out The Perfect Storm

Riding Out The Perfect Storm

By now, we are all aware of what has become known as ‘the global financial crisis’ (GFC) with the collapse of the sub-prime mortgage market in the U.S. and the collapse of financial institutions and stock markets around the world.Of course, Australia is not immune to the effects, but thanks to our more regulated banking systems, Australia is somewhat more cushioned.As for the eye care industry, there is no need for panic, according to industry leaders with whom we’ve spoken … and their message is clear – work smart and you will not only survive, but thrive.

“There is no doubt that the current financial crisis is the worst series of events in memory.” So says mivision financial expert and CEO of Experien Finance, Barry Lanesman.

“There is no doubt that clients will find responses to obtaining credit will take longer, and be more stringent. Therefore, ensure you conserve cash and limit borrowings. Although liquidity has improved, there may be bumps along the way and in these uncertain times cash is undoubtedly king,” says Mr. Lanesman.

“As credit tightens for you, so will it be for your clients and they will also be conserving cash, being careful where they spend. Although the RBA has drastically reduced rates to get more money into the system, this is happening while the economy is tightening. It is likely that discretionary spending reduces for a while, particularly on more expensive frames and procedures.

Those businesses that know their customers and take the time to market themselves back to their patients will build loyalty and will succeed in any market environment

“The fall in the dollar will add considerable cost to equipment purchases … Just being careful, not going out with aggressive expansion plans and just focusing on managing your practice should ensure you get through the next while.”

Pascal Toneatti, CEO of Essilor Australia & New Zealand, agrees that a weaker Australian dollar will have an impact on the optical industry as it may lead to the increase in cost for imported products. However, he points out that on the other hand “it facilitates exports which can benefit the general Australian economy making the crisis less painful than for some other major countries.”

Mr. Toneatti believes: “The Medicare rebate and health insurance benefits that cover most consumers allow them to make the necessary expenses through good or bad times without bearing the full cost on their own. This is a big positive for our industry.

“Emotional and extreme reactions are detrimental to business. Panic is never going to help address the real issues. Much of the turmoil has been due to investors panicking. Phillip Kotler, one of the great marketing writers says, that in times of uncertainty business needs to return to the fundamentals and those who do will better weather the changes,” says Mr. Toneatti.

Have No Fear

According to Andrew McKinnon, CEO of the Optometrists Association (NSW Division): “The end of the world is not nigh”.

“The thing that affects retail sales more than anything else is unemployment – and at the moment, unemployment is still at levels near record lows in Australia … and as a consequence, retail sales (a major factor in optometric operations) will probably hold up fairly well,” says Mr. McKinnon.

“What this uncertainty does is to create opportunities for practices that can move quickly and act innovatively.”

Greg Johnson, the CEO of OAA (Qld Division) says he has not received feedback from his members suggesting a lessening of interest in regular eye examinations or contemporary eyewear.

“Sight is the most precious of all senses and it would be unlikely that citizens would forsake a regular examination because of economic concerns, especially given that most examinations are bulk billed under Medicare,” he said.

Industry Optimism

Richard Grills, Chairman of the Optical Distributors and Manufacturers Association says there is no doubt that the current world economic crisis will affect everyone throughout the world, but to a lesser extent here, due to the health of our economy.

“As most of the products in the eye care industry are imported, the lower Australian dollar against all currencies in the world will increase prices, forcing companies and suppliers to in some instances reduce their margins to be competitive. Obviously this will have an affect on profitability for such organisations.

“The set up of Optometry and Optical dispensing practices will become more expensive and may lead to less new entities coming into the market. We truly believe that good service, presentation and quality products will enable retailers to remain viable even in an economic down turn.

“A major factors in favour of our industry being less affected than others is that eye care is extremely important to all people – after all eye sight is our most important sense.

“Eye tests are funded by Medicare and therefore should not be affected. Smart practitioners will adopt strategies to enable them to work their way through this down turn and at the moment I do not believe there is cause for businesses and practitioners alike to panic,” says Mr. Grills.

Discretionary Spending Slows

Sharon Smith, mivision’s fashion eyewear expert, says this section of the industry is likely to take the biggest hit as discretionary spending will slow down.

“Marketing budgets are being slashed and people aren’t buying magazines to read about what sunglasses Paris Hilton is wearing this week. Suppliers are circling the wagons, cancelling trade fair participation, reducing outsourced consultants, marketing material and laying off staff,” says Sharon.

“My advice would be for suppliers and practice managers to work together – use your previously strong relationships to negotiate new terms. Also, review poor performing brands and reduce excess stock.”

Independent Optometry

Emmanuel Calligeros, optometrist and founder of the Optometrists Co-operative, agrees that the current economic climate will mainly impact the sale of frames and sunglasses.

“COGS (Cost of Goods Sold) has started to be affected by the falling Australian dollar so look at joining a bigger group to help you reduce your COGS.

“Concentrate on high quality spectacles and contact lenses and support Australian made product over the foreign-owned corporate. There is no need to panic – consumers have very short memories,” says Mr. Calligeros.

Cam Battaglia, the Chief Executive of the largest group of independent optometrists, ProVision, acknowledges that general business conditions are getting tougher and aside from the global economic impact on consumer confidence and sales, the deterioration of the Australian dollar is likely to place further downward pressure on margins and profit.

“Regretfully, there is no magic pill. History has shown us that in tough times, the answer is simply to get back to basics. Whilst eye care could be considered somewhat recession proof, the reality is that a number of people will defer seeing their optometrists, reduce their spending on a new pair of glasses or shop around for a better deal.

“Many Australians are doing it tough right now so we need to be responsive to the market. Just opening the doors and hoping for the best simply won’t be enough. We need to seek out lots of one per cent improvements and make sure we act on them.

“Economic conditions are cyclical so it’s not a matter of ‘if’ but ‘when’ there will be highs and lows. Putting some prudent measures in place now will pay rewards both short term and long term,” he says.

Tony Hanks, optometrist and chairman of Eyecare Plus, has no doubt that consumer confidence has been affected by the GFC and is likely to have some impact on optometry “but, as in the past, clinically oriented practices can expect to be less affected than other businesses,” Mr. Hanks says.

“This is because of their emphasis on caring for eyes rather than in the more discretionary spending areas of fashion and discounting.”

He points out that the falling Australian dollar will increase costs and advises practitioners to bring forward some of their purchases if orders can be filled with product that is currently in stock with suppliers.

As for suppliers, Mr. Hanks says they will be the hardest hit because, in addition to the lower consumer demand, they also face increased import costs.

“We can expect to see consolidation here in order to maintain the critical mass necessary to continue operating.”

Colin Kassinger, the CEO of Blink Optical says: “the downturn with the current corporate optical activity makes it more necessary for the independents to remain calm and focussed on their business.”

He believes that if independent practitioners are looking to align themselves with a corporate partner, “ensure that it is not an emotional or fear decision but is a judgement based on their personal aspirations and culture fits,” he says.

The Multinationals

The corporate and multinationals remain sanguine about the GFC and insist the industry will continue to expand.

Chris Beer, Luxottica’s CEO, says although the global financial crisis will affect the Australian economy, his experience shows that the optical sector will be relatively resilient as people will still need to upgrade prescriptions.

“That said we will likely see some softening of discretionary spending on eyewear. People will still buy eyewear, but we may see value-for-money purchasing dominate and some customers may delay purchases.

“Optical retailers will need to be nimble in adapting to these new circumstances, for example, by re-configuring the mix of products at different prices, focusing on service and being more innovative in their marketing. Operators will need to watch costs carefully. Smaller outlets lacking a strong product or service proposition may struggle, as scale will be an important factor in absorbing new pressures”.

Mr. Beer claims Luxottica remains strong with a large retail footprint and its access to the Luxottica Group product supply chain means they are “relatively shielded from currency movements”.

As for Specsavers, its founder Doug Perkins says he sees 2009 as a year of opportunity and of growth. He points out that the company has seen its greatest periods of expansion through tough times – the crash of 1987 and that of the early 1990’s. “Because of this, we are massively increasing our investment in the Australian and New Zealand marketplace,” says Mr. Perkins.

The Opportunity

Throughout history, whenever there has been a downturn in a market, on the other side of the equation others have prospered. As bad of the situation is right now, right now, is also the time that the seeds of the next boom are being sown. The current economic climate will represent a tremendous opportunity for some businesses.

Leading Sydney optometrist, international speaker and regular mivision contributor Jim Kokkinakis, sees this period is an “aberration in the economic cycle” and it will present “an opportunity to position your business appropriately for the inevitable upturn that will occur”.

“If things slow down it allows us all opportunity to apply strategies to enhance the customer experience.

“Do not fall for the discounting trap, these discounts come directly off the bottom line. Start today by reminding your patients of the need to check their eyes. Letters are good but getting on the phone is more effective. There is a goldmine in your database of patients that have not seen you in three years or more,” says Mr. Kokkinakis.

Tim Grant, head of Professional Marketing, Asia Pacific, at Ciba Vision has been through all of this before and remains upbeat.

“This is the third crunch I have experienced in my corporate life. We will all survive. My first experience confirmed the value of contact lenses to a practice. In anticipation of a slow down a decision was made to reduce our production volumes and reduce the number of shifts at our manufacturing plants. Within two months the plants were back into full production to meet the demand for product. There had been no slowing in demand. The lesson is that contact lenses had entered the mainstream as a basic consumer product much like soap and toothpaste. Advice: Introduce more patients to the benefits of contact lenses for passive sales and future proof yourself.”

Sam Andersen, the Managing Director of Eyecare Partners, says the health care industry in general is “somewhat protected” against a downturn in consumer confidence.

“Those who concentrate on continuing to build their business through community marketing, high service levels, and an emphasis on eye health will pull through with stronger businesses in the future,” she says.

Kelley Mirabello, Commercial Director at Bausch & Lomb, says it is important for optometrists to stop to consider what made their practices successful up to now and how the financial crisis is affecting their patients.

“A considered, proactive approach rather than reactive changes will yield the best results in uncertain times. Practitioners can consider offers that reward customer loyalty and aim to increase the average purchase value.

“Contact lens examples include, discounting a six month supply of lenses to add incentive for an upgrade from a three month purchase or offering discounts on a complimentary purchase such as 20 per cent off a pair of designer sunglasses when the customer returns to buy their next supply of contact lenses.”

And her final words on the subject probably sum up the feelings of most industry leaders.

“Those businesses that know their customers and take the time to market themselves back to their patients will build loyalty and will succeed in any market environment.”

Useful Advice

Andrew McKinnon, CEO of the Optometrists Association (NSW Division), points out that there are many commentators offering advice, but a summary of some of the most useful pieces of advice would see optometrists thinking along these lines:

1. Secure lending relationships – stay in close contact with your bank or financier – and if you aren’t getting the service you expect, look for other sources.

2. Look after customers – make sure you provide top class service with the top class product so that the value people get at any price point is incomparable.

3. Improve supply chain – talk to your regular suppliers and look for improvements in their deals with you.

4. Motivate employees – introduce incentive bonuses for staff – and not only for sales-related performance. Also reward people if, for example, they figure out ways to provide a product or service for less money or reduce waste.

5. Understand Your Business Costs – make sure you know, in detail, the cost of running your business. You need to know which products are the most profitable, both per unit and in total volume.

6. Protect Your Cash – opinions around capital investment vary, but one thing is a certainty – keep your stock inventories lean. Regarding capital purchases, opinions vary from “great time to invest in new, revenue-producing equipment” to “don’t spend your cash on things you can’t liquidate”. Again, a certainty is that if you do buy new equipment, it must pay you back in solid revenue (e.g. charge for digital imaging).

7. Advertising and Marketing – one of the first things that businesses tend to do during tight times is to reduce its spend on marketing – potentially with disastrous short and long term results. When promoting your practice, look for avenues that produce results – and cut out those that don’t. Make sure you’re assessing your business to see from where your income is coming – ask people how they found you when they call to make an appointment – and keep a running tally!

Cam Battalglia

Cam Battaglia, the Chief Executive of ProVision Eyecare, advises members that it is time to take the opportunity now to review the performance of your business, and do the following, if you have not already done so:

1. Plan – set budgets – review all expenditure and shed any costs which don’t add value.

2. Customers – aim to understand your customers better than ever before – their needs and perceptions of ‘value’ are changing, so listen to what they want.

3. Customer Service – ensure that customer service standards are impeccable – everyone on the team should go the extra mile to make every customer’s experience a memorable one. Customer loyalty, in the current conditions, is priceless.

4. Review Strategies – review product ranges, services and pricing strategies to ensure every potential sale is captured.

5. Marketing – don’t turn your back on marketing. Focus instead on responsible expenditure. Only invest in activities that are going to provide return and are measurable.

6. Work On The Business – take some time to work on the business – not just in it.

Ophthalmologists Don’t Expect to See Hard Times

Unlike other sections of the eye care sector, the consensus is that ophthalmology will remain almost completely cushioned from the affects of the global financial crisis … except for refractive surgery.

Mr. Bob Guest, CEO of the Royal Australian and New Zealand College of Ophthalmologists (RANZCO), says the issues regarding the financial crisis are for governments and market analysts.

“It may affect individuals, institutions and industries, depending on their in dividual investments, but we (RANZCO) believe it won’t affect the eye car sector as a whole, due to the rising demand for eye services from an ageing population.

mivision columnist and noted ophthalmologist, Professor Gerard Sutton, agrees, but adds these interesting insights, saying:

“We are privileged in many ways to be ophthalmologists. It is a fascinating, enjoyable, useful and rewarding profession. It goes further than most professions in addressing what I consider the requirements for a successful career. I refer to them as the three “F’s: Fulfilment, Fun and Financial security. Without one of these three essentials, I don’t believe any career can be truly satisfying.

“Whilst the doom and gloom surrounding the economy places a small question mark over the third “F”, the other two (which I would argue are the most important)remain valid.

“Indeed even from a financial point of view, ophthalmology is relatively protected in a downturn. A famous Australian ophthalmologist known for his philanthropic work overseas was once quoted as saying that ‘the only good thing about a recession was that it allowed ophthalmology to financially catch up with all the bloody bankers’. There is some truth in this comment.

“The one area in ophthalmology that is suffering and will continue to suffer in the short term is refractive surgery. I would estimate that demand is down 15 to 20 per cent. Refractive Surgery is discretionary and demand closely follows consumer sentiment. Despite these estimates, I have not really noticed any reduction in my refractive practice and I would expect a return to growth in this area as soon as there is a whiff that the economy has stabilised.

“I am not concerned about the medium term implications of this downturn and I am taking the opportunity to remind myself about those other two “Fs” that really make getting up and going to work worthwhile”.