Shopping malls and hypermarkets, particularly brand new ones, are the new segment, alongside city centers, chosen by Pearle Europe to penetrate the Italian market with Ottica Avanzi, acquired last year. A total of 14 new sales outlets have already been opened this year in shopping malls in central and northern Italy, including 4 in November, for an investment of over 10 billion lire (e5.2m-$4.6m). It's a strategic decision, implying a preference for the acquisition of new commercial space rather than the takeover of existing optical stores or local chains.
The new stores are spacious, with between 150 and 300 square meters, and they guarantee delivery of prescription glasses within an hour of purchase. They work on a system of continuous supply of high-quality, standard lenses, without making or processing the lenses on the spot. They use standard materials to assemble the frames in-house.
Following the closure of certain stores that were only selling sunglasses, such as one in Milan, Avanzi's store network will total 34 sales outlest by the end of this year, with a turnover that should top 30 billion lire (e15.5m-$m), compared with 20 billion lire in 1999.
Things are going well for Pearle also in Germany and Holland. The Apollo chain of optical shops owned by Pearle Europe in Germany has been performing very well lately, thanks in part to a couple of very strong marketing campaigns. The number of Apollo concessions within Karstadt department stores will be raised from 50 to 90 within an unspecified period of time. Also the De Graaf chain recently acquired by Pearle Europe in The Netherlands is performing ahead of budget.
No other details could be obtained about the latest developments at Pearle Europe, which currently operates about 630 stores in Holland, Belgium, Germany, Austria and Italy, including Avanzi, for a total annual turnover of about $400 million. The vision business of Cole National, which owns 22 percent of Pearle Europe, comprises an additional 2,028 outlets in North America, including 396 company-owned Pearle stores in the USA, 29 others in Canada and 27 in Puerto Rico, 405 franchised Pearle outlets in the USA, and 18 franchised stores elsewhere. The others are 117 Target Optical stores and about 950 Sears optical stores and concessions in the USA and Canada.
Cole National is expanding stongly its new Target Optical chain, which operates in host stores and is now run by Michael McCauley, formerly with Wal-Mart Optical and LensCrafters. The number of Target Optical units has grown from 20 to 117 in the course of this year, and an additional 100 outlets are planned for 2001. Involving an initial investment of about $100,000 each on fixtures and inventory, these stores tend to break even with a turnover of about $300,000 a year, so the management gives itself 3 years to reach positive operating results with this format.
Cole is also planning further investments on a new so-called Focus Store program at its own Pearle stores in the USA, which involves a better assortment of products, the presence of eye doctors in the stores, additional marketing and training in customer service. First introduced in 80 Pearle stores last August, the Focus program has improved sales and margins. It will thus be rolled out through an additional 100 stores next year before applying it also to some franchised outlets.
The success of the Focus program helped to boost by 6.4 percent on a comparable store basis the turnover of Cole's chain of Pearle shops in the 3rd quarter ended last Oct. 28. Including franchised outlets, Pearle Vision raised its sales by 5.6 percent. Sears Optical was up 1.8 percent on a comparable basis. Counting in also the Things Remembered chain of gift shops and other operations, Cole National's total turnover grew to $255,950,000 in the quarter from $251,165,000 in the same period one year ago.
The overall gross margin rose from 65.4 to 67.4 percent, thanks in part to the sale of excess inventories of frames that are no longer adequate for Pearle's Focus program. Operating expenses increased slightly. The group's net loss was reduced to only $605,000, which was better than originally budgeted, compared with the $2,806,000 loss of the year-ago period.