After reviewing its license agreements to manage the optical businesses of three large American retailers, inherited through its acquisition of the former Cole National, Luxottica has decided to drop the license with BJ’s stores and to focus on Target and Sears.
Luxottica’s chief executive, Andrea Guerra, acknowledged that Sears has struggled in the last two years and will probably continue to do so over the next eight to 12 months. Nevertheless, the license agreement continues to be profitable. Luxottica will focus on cutting costs to offset slack consumer traffic.
The company is also implementing a straightforward pricing scheme at Sears, like the one already used at Target, eliminating coupons, discounts and promotions. Simple pricing is used by other big retailers like Wal-Mart and Costco.
Luxottica added that the North American market is a “dogfight” but nevertheless the company agreed with competitors and other industry players to try to boost client demand by publicizing the need for annual eye exams. The group said the North American optical market is currently worth an annual $16 billion in sales, but the figure should really be $25 billion, and this campaign could help it grow.
On a comparable store basis, Luxottica’s licensed brands operation in the USA suffered a 5.4 percent sales decline last year, while LensCrafters and Pearle Vision together increased by 1.2 percent. Sunglass Hut’s global sales increased by 1.7 percent on a same-store basis, with a 5.7 percent gain in the sunwear segment and a 38.4 percent drop in watches and accessories, which are being phased out. The group’s retail sales in Australia and New Zealand went up by 6.3 percent on a comparable basis, and those in Greater Chine jumped by 15.7 percent.
Luxottica, which expects comparable store sales to rise by just 0-2 percent in North America this year, intends to focus on cost-cutting to improve profitability. The company generates nearly $4 billion in annual sales and has a cost base of more than $3 billion in the region.
For its LensCrafters banner, Luxottica plans to add 30 new stores in 2008, a slowdown compared with previous years, and expects to remodel or move 53 shops. Luxottica’s new premium retailer, Ilori, will have more than 30 stores by the end of the year compared with six at the end of 2007.
Sunglass Hut is scheduled to open 40 stores in North America this year and fully remodel 125 locations. The sunglass chain is also working on the introduction of Tiffany frames in March and of an e-commerce channel in June.
The company intends to optimize the use of its eight central labs in the USA and of the 905 in-store optical laboratories of its LensCrafters stores, which will also be used by Pearle Vision shops. Luxottica claims that after a recent boost in capacity, its labs produce 20 percent of all the ophthalmic lenses sold in North America and largely cover the group’s needs.
In-house production will enable the group to save about $30 million annually in a couple of years. The new production organization cuts the delivery time for lenses to three to five days, from seven to 10 days previously. This is expected to enhance customer satisfaction and generate about $20 million in additional annual sales in the next two to three years.
In its effort to boost revenues, the group’s managed vision care operator EyeMed is gearing up its market efforts by directly contacting the employees of its corporate clients like the telecommunications company Verizon or the bank JP Morgan. EyeMed had 23 million insured customers in the USA at the end of last year, up 8 percent from one year earlier.