Oakley, the American sporting goods company bought last November by Luxottica, expects to close 2008 with double-digit growth in U.S. and international sales. Double-digit growth is expected in all the segments of Oakley’s business including its secondary brands, men’s and women’s products, wholesale and retail operations, and apparel, footwear and accessories. The growth in earnings before interest and tax (EBIT) is expected to outpace sales growth.
For the Oakley brand, revenue growth is forecast at about 20 percent, with comparable sales also rising by double digits. The company plans to add 28 to 35 O stores to its network and to remodel 13 shops in 2008. It also intends to roll out its “open” eyewear display concept to an additional 10 stores.
In 2007, Oakley had 83 O stores in the USA and 38 elsewhere, the bulk of which offered open eyewear and custom services, and saw a 15 percent rise in comparable store sales. Oakley’s “custom” service enables clients to tailor-make the glasses they wish to purchase. The service represents 20-25 percent of sales in the group’s O stores and nearly 50 percent of online sales.
Luxottica did not release Oakley’s 2007 results but said the management indicated that optics represented 74 percent of its revenues; apparel, footwear and accessories 19 percent; and other lines the remainder.
By geography, the USA represented 59 percent of Oakley’s sales and the rest of the world 41 percent. By channel, wholesale represented 81 percent of the turnover, retail 15 percent and direct sales 4 percent.
Oakley intends to focus on building its international presence, especially in Europe where the company believes its image blurred when it sought to blend its sports identity with fashion. The company’s management said it intends to promote the sport performance and the optic superiority of its products as well as to establish the positioning of the women’s collections it launched about two years ago.
Oakley also plans to expand its customized service to other products starting with goggles. The manufacturing of goggles for ESS, its recently acquired military brand, previously done by third parties, will be transferred in-house by the middle of the year. The move is expected to significantly boost margins. Oakley has been suffering from a capacity bottleneck for high-margin optical lenses but expects to overcome the problem in the first quarter.
In North America, the Luxottica group and Oakley each had 15,000 wholesale clients prior to the merger, with only 5,000 overlapping. At the retail level, Sunglass Hut has integrated the 125 or so stores of Oakley’s Sunglass Icon chain. Along with the premium chain Ilori, which has six stores, the company’s sunglass retail network now has nearly 2,000 locations in North America, about 1,600 of them being Sunglass Hut.
Jeff Obstfeld, president of Oakley’s Iacon sunglass retailing unit, has said he will resign in March. Obstfeld will continue to assist Oakley and Luxottica in the transition of Sunglass Icon to the new business. When he leaves the group, he plans to devote time to his sunwear wholesale business, Desert Sunglass of Scottsdale, and other projects, including his thorough-bred race-horse stable.
Sunglass Hut used to be by far the biggest client of Oakley, representing more than 30 percent of its sales before Luxottica took over the chain. Under Luxottica’s ownership, Sunglass Hut’s purchases of Oakley frames have declined over time to the benefit of Luxottica’s own offerings, but while no details were available, this will presumably change now.
On the other hand, Luxottica has started selling Oakley frames in some of its LensCrafters stores. In the test sites, Oakley came to represent 5 percent of LensCrafters’ sales without any marketing effort, and the collection is expected to quickly be among the retailer’s top five sellers. LensCrafters has introduced Oakley in 25-30 percent of its stores and intends to increase its presence to half of its stores in the second quarter.
Oakley is also relying on Luxottica’s firepower to expand in Europe and in emerging markets. Currently, Luxottica and Oakley are working on their new European organization, expected to be ready in the Spring. The plan is being examined by the local employees’ representatives. No announcement is expected until the end of March, pending a round of consultations due to start next week.
Luxottica’s chief executive, Andrea Guerra, assured that the new organization will be “clean, clear and streamlined” to ensure that the group’s clients will have a “very clear picture” of the products, prices and counterparts.
Oakley’s CEO, Scott Olivet, said the company plans to expand its own network of European concept stores, possibly with two or three locations per country, to lift brand visibility and to use them as training centers.
Luxottica estimates that over a two-year period it can double Oakley’s European sales and quadruple those in emerging markets. Luxottica highlighted the fact that in some markets like the USA, the UK and Australia the Oakley and Ray-Ban brands have similar sales levels, but in most European countries Ray-Ban sells ten times more than Oakley.
The group has started to roll out the Oakley brand in Greece, Turkey, the Baltic states and the Balkans. In Greece, in the first five weeks of 2008 the new organization sold the equivalent of 60 percent of the sales achieved in the country in all of 2007.