Survival of the Fittest – How to Profit inOptics

The last 12–18 months have probably been the most interesting and dynamic of all my years in optics. For many decades, our industry appeared to be living on some sort of parallel business world ruled by its very own peculiar mechanisms: a magic ‘patient/optometrist/doctor’ relationship, fuelled by increasingly high performing optical products (ophthalmic lenses/contact lenses/care products) and more innovative/captivating eyewear solutions (frames).

Let’s be honest, this industry has been paradise on earth for many beautiful years.

On one hand, we have optical stores (independent, organised and chains) and on the other hand manufacturers, all partnering up to serve millions of engaged and respectful end users…

Consumers stopped listening to brands and distributors, and started to make up their minds based on the ‘reassuring bias and erratic mood movements’ of social and digital media

The End of the World (the Way We Knew It)

Around 10 years ago, everything started to change. There were two major drivers:

1. The 2008 macro economic crisis, which took a big toll on the entire optics value chain: from manufacturing to distribution and consumption, and
2. The digital revolution, which reshaped the entire concept of supply/demand.

These events radically changed the way consumers think and behave when purchasing a product or service. More so, they impacted the very way they perceive products, brands and retailers.

A new ‘shopping paradigm’ in which multi-channel cost saving-opportunities and ‘viral purchasing experiences’ appeared, replacing the previous model based on a perceived image of a product’s quality, brand’s credibility and/or retailer’s reputation. Consumers stopped listening to brands and distributors, and started to make up their minds based on the reassuring bias and erratic mood movements of social and digital media; the concept of ‘community decisions’ started to emerge, which resulted in more practical, yet volatile, purchasing decisions.

Impact on Optics and Optometrists

The change didn’t come to our industry overnight. Due to the highly technical and specialised nature of optics, it took more time to find its way into our daily lives. Needless to say, a number of optical stores and manufacturing companies didn’t realise what was going until the symptoms were irreversible.

First to be affected was the vast, crucial, medium price segment of the market. While some products, moved into the top end and continued to perform at higher prices, the majority were forced into the bulk buy, lower priced end of the market.

The second phenomenon (and this is where the industry and distributors took the biggest hit), was marked by an increase in channel competition between chains/organised distribution and independent optical practices. This was triggered by the arrival of new ecommerce and digital channels. The rules changed and only the quickest adapt to survived.

In the traditional retail channel – possibly advantaged by a wider, multi-country platform of observation – the international chains were the first to adapt by re-engineering their product portfolio decisions and pricing practices. Standardisation, cost reduction and client service efficiency, became the new operating model.

Professional retail KPIs were introduced as part of a more structured approach to management.

Initially, this new retail model proved quite successful, contributing to the industry’s overall positive performance during the complex global scenario following the 2008 economic crisis. Consequently, it was progressively adopted worldwide.

Some very visible phenomena from this time are worth reporting:

1. We saw a progressive switch from high-priced products to high margin products. To maintain consumer end prices, high margin, premium ophthalmic lenses were fitted with a ‘lower price’ trade branded frame. To make this new product mix work private labels, once perceived as ‘cheap, unbranded product’, were evolved into more sophisticated trade brands that appealed to consumers. This strategy enabled retailers to switch the product price/margins ratios and maximise return on investment. As a consequence, this segment of the market developed dramatically, in terms of absolute revenues as well as product and marketing sophistication.
2. A more tactical, retail driven approach to portfolio management increased consumer traffic in stores with the promotion of daily contact lenses to keep customers coming back and silicon hydrogel contact lenses offered as upsells when in store.
3. The spectacle industry consolidated with the acquisition of companies at manufacturer and retail level creating visible vertical integration that resulted in reduced costs, more innovation, greater efficiencies and stronger retail performance for those that made the move. This process was predominantly concentrated on high margin spectacle glasses.

Not surprisingly, the changes were strategica lly implemented to meet the market at the most profitable stages of the consumer journey:

• Presbyopia (the age at which consumer purchasing power reaches its peak) with high value, high margin progressive lenses
• Astigmatism (where the drop out from contact lenses towards spectacle glasses starts gaining momentum). In many regions of the world, contact lenses and cosmetic contact lenses became the first ‘contact point’ between consumers and optical products.

Multi-Channel Competition Here to Stay

When change is irreversible and inevitable, the best way to survive it is to embrace-it. In the last 10 years I have had the chance to sit down, discuss and help several retail optical businesses meet the challenges of today’s multi-channel environment. Here is a very short compendium of what optometrists could/should be doing to extract as much value as possible from the industry value added chain:

• Margins: focus on increasing your margin through product selection and by reducing costs and improving efficiencies,
• Consumer activation programs should be implemented to generate and convert traffic into sales,
• Exclusivity of trade brands etc is your first line of defence for any retailer vs. internet/multi channel competition.

In future sections we will deep dive on some of these points.

For the past seven years, Gianni Cossar has held the role of Global Director Optics and Eyewear at GfK Retail and Technology, Italy. Mr. Cossar has international business expertise in sales, marketing, retail, and management consulting within the optics Industry (B2B & B2C). He holds a Masters in Business Administration (MBA) from Trinity College Dublin, and is a MCIM/Chartered Marketer through The Chartered Institute of Marketing, England. Mr. Cossar is the author of various management articles published in England and Italy. He has been Visiting Professor at Sole 24 ore, Business School in Milan, for Master Program as well as for SDA Bocconi University in Milan. He is a regular lecturer and chairman at international business conferences and tradeshows worldwide.