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Fashioning the Strategy

Thursday, November 1, 2007 - 11:07

Form or fashion? It's a personal thing, but Chris Beer of Sunglass Hut is riding the wave of a boom in global demand for luxury accessories. By Jason Day

Sunglasses are one icon for a modern age. Most of us have a pair, although the reasons for doing so vary. Athletes use them to cut glare, celebrities or security types wouldn't be caught dead without them, while sensitive eyes are covered for medical reasons.

Over 800 years before sunglasses appeared, the Italian Salvino D'Armate is credited with inventing the first wearable optical glasses in the late 13th century. Chinese judges wore glasses darkened by smoke in the 12th century, although only to conceal their eyes in court. And Englishman James Ayscough experimented with blue or green-tinted glass in the 1750s, but to fix vision impairments, not for sun protection.

Widely available sunglasses are a mid- to late-20th century phenomenon. While silent movie actors in the early 1900s apparently used them on set as protection from the harsh glare of studio lighting then common, mass-produced sunglasses were introduced into America by Sam Foster in 1929. He sold his Foster Grant sunglasses on the beachfront of Atlantic City in New Jersey from a Woolworths store.

They proved popular, made more so by their take-up by movie stars of the day. In time, Ray-Ban's "aviator" glasses first appeared in 1936 for issue to US military aviators to protect them from glare, and the public could get their own pair from 1937.

However, sunglasses really hit the big time through the efforts of marketers in the 1960s and 1970s in actively attaching the glamour of Hollywood stars and fashion designers to the product. Along with their undoubted medical benefits, a huge industry based on the "just gotta have them" look and feel of owning and wearing sunglasses grew in just a few decades.

A very big market

Luxottica, an Italian company with headquarters in Milan, is 46 years old, and started out the back of a factory making components for frames. It has since expanded into the largest manufacturer and wholesaler of optical products in the world. Chris Beer is Chief Operating Officer of Luxottica, the company's most senior position in Australia. Luxottica own brands such as Ray-Ban, Persol and Vogue, and licenses other brands including Bvlgari, Chanel, Versace and Prada; currently, 26 brands in all.

The Italians, seeing an opportunity for vertical integration as manufacturer, wholesaler and retailer, moved into the eyewear business in the mid '90s, buying Lenscrafters in the US. Around 2000, it also acquired the American company Sunglass Hut, which had stores in Australia. Luxottica bought into the Australian market a few years back by purchasing OPSM, which included the brands Laubman & Pank, Sunglass Hut and Budget Eyewear.

Luxottica is huge. It has just under 6000 stores globally – about 4000 optical stores and nearly 2000 Sunglass Hut stores – and it is growing. In 2006 its net sales were €4.7 billion ($AUD7.8 billion).

Beer has been with the company for 22 years, starting out as an optical mechanic. His primary role is to position each brand for growth without cannibalising each other. His plate has been full lately in heading up the Australian team's responsibilities for Sunglass Hut's expansion into Asian markets.

"In Australia, Sunglass Hut has gone from 150 to 220 stores in three years," says Beer. "It is a great brand to leverage globally. Whereas in the past the US, UK and Australia were each doing something slightly different with the brand, we put together a global team and designed a more bankrollable proposition, including giving Sunglass Hut a new, unique and world-class store design.

"Our mantra is to expand the Sunglass Hut business as quickly as we can. We now have six stores in Hong Kong and 220 in Australia and New Zealand. By December, we will have 10 in Singapore, and we are looking at other countries."

Sunglass Hut is riding a worldwide fashion wave, with marketing campaigns meeting higher disposable incomes. Sunglasses are increasingly seen as a fashion accessory, along with items like belts and bags.

"Globally, there has been a huge growth in luxury goods," says Beer. "With our sunglass brands we have a unique value proposition. We provide that touch of luxury, and often at the cheapest entry point.

"If you go and buy a Prada or a Bvlgari suit, unless you are Italian, people don't know which very expensive suit you're wearing. But buy a $350 pair of Prada sunglasses and people know what you are wearing. It's got the bling and it's got the name.

"Sunglass Hut is benefiting from the explosion in luxury goods and accessories. From a business perspective, we want to capitalise on that. With the brands and the sunglasses we have, it is a model we can replicate quickly in other markets."

Segmentation challenges

For the fashion-challenged or brand novice, understanding the market isn't easy. It seems that everywhere you turn there is a sunglass outlet offering a wide range of brands. Beer confirms as much.

"The sunglass market is fairly segmented into different areas in Australia," he says. "We position our own business in the fashion and luxury segment. But you can buy your sunglasses in service stations, chemists and department stores – on the street, too."

The expectation then is perhaps of a fragmented market, where it is hard for store brands to make themselves heard. After all, if everyone is selling, how is customer loyalty to be expected or cultured?

"Customers are entitled to shop wherever they please; whether we like it or not is another matter," laughs Beer. "But the expansion of the category forces you to be better at what you do. It is up to us to get smarter value propositions, better store environments, better guarantees and better service.

"We often have people running into my office, concerned about another competitor. It is not arrogance or cockiness, but I don't care," adds Beer. "We have got a clear strategy globally and it is up to us to do better; if we do that, we are okay."

Sunglass Hut's expansionist goals are to enter about one country a year. As such, the company has categorised emerging markets into three tiers: ready now; watching; and not quite ready. The idea is based on the local level of fashion sophistication.

"Europeans have fashion running through their veins," says Beer. "I remember doing a retail tour in Paris among these magnificently executed shops, and I asked the supplier looking after us, 'Where do you shop if you don't want such fashion?'. She just turned to me and said, 'Chris, everyone wants fashion'.

"In fact, Australian, Hong Kong and Singaporean consumers are very sophisticated in their knowledge of brands. Australians are more sophisticated than the US customer in buying fashion. We sell more fashion and luxury goods when benchmarked against them, but a bit lower than the UK."

Core markets

Sunglass Hut has been positioned by Beer and his management team in the middle/upper end of the fashion sector, skewed somewhat towards fashionable females, aged between 25 and 35.

"They are the core audience; there are older and younger customers, as well as males, but the Sunglass Hut brand is becoming far more female-oriented, because it is becoming more fashionable," says Beer.

"If you step back three years, the majority of customers were male – probably a 60:40 split – and they would be buying the Ray-Ban and Boland brands. If you look at our new concept store environment, it is flipped the other way, 60:40 female to male.

Sunglass Hut has a specific general manager. This is to keep the dominant optical eyewear operations of OPSM somewhat separate, allowing the sunglass business culture to remain young, fresh and fast.

"We have to make sure that the culture and ambience of Sunglass Hut is much younger than Luxottica's optical brands; a bit more fashion-forward," says Beer. "Fashion brands lead with their sunglasses, not their optical."

A key management strategy challenge is that, similar to ice-cream, sunglasses are very much a purchase based on the season. Moreover, while the Northern Hemisphere markets have two peaks – their mid-year summer and Christmas holiday periods – Beer says that about 60 per cent of Australian Sunglass Hut sales occur from October to December.

Naturally, as a seasonal industry, the Sunglass Hut stores are also heavily dependent at peak times on casual staff – for example, university students – who need to be trained up. So, the challenge of planned-for staff churn must be accommodated, especially as the Sunglass Hut brand continues its process of moving further upmarket.

"As such, we will probably change the staffing profile just a little," says Beer. "So that we don't alienate some of the new customers we are trying to pull into the stores."

A new experience

This change to the buying experience is a part of the strategic changes most tangibly seen in the new Sunglass Hut store designs now being rolled out.

"Before Luxottica acquired Sunglass Hut, it was run by the wholesale business," explains Beer.

"The wholesale guys were doing a great job; but their business is wholesale, not retail. The brand was a little run-down, products were locked up and under glass. So if a customer wanted to try something on, they had to ask, 'Am I allowed to touch? Am I allowed to look? Are you able to unlock it?'.

"Our new Sunglass Hut store design has a concept called 'open sales'. We pulled all the glass away to empower customers to interact, touch and play with the products. At the same time, we want our sales assistants to be skilled enough to quickly establish if the customer is interested in fashion or function.

"We have spent a lot of time trying to improve this. Sales staff should be able to tap into the look and feel of a purchase [situation]. Buying sunglasses, you are really buying emotion. This is why you are going to pay $350 for Prada, not $30 from the chemist."

Beer lists their main competitors as Bright Eyes and the department stores, who he says are doing things much better than they used to. Still, while department stores are an improved competitor in retail, they are also Luxottica's wholesale division's fastest growing customers; a nice position to be in.

Integration challenge

Integrating local operations with the new owners proved to be a big challenge. Different ideas, different styles, different cultures. This was made harder as Luxottica initially only secured 83 per cent of shares and had to deal with minority shareholders.

"It was interesting," says Beer. "A major international shareholder paid a lot of money and wanted to get their business plans and synergies happening. But legally, they couldn't. Marrying their ambitions with those of the remaining shareholders meant we had a lot of expectations to manage."

But 12 months later a deal was done and everyone moved on. Beer explains that it was obvious from the beginning that Luxottica had to learn the three‑brand strategy of the local operations.

"They really bought the business because OPSM was such a great brand and fitted in with what they were doing with Lenscrafters in the US," he says.

"So, we communicated clearly with Italy about our multi-branded strategies," says Beer. "In fact, we over-communicated, doing our best to bring the Italians along on the journey of what it was they had bought.

"We talked with them about the future, the strategy and financial goals. We met targets in the second year and exceeded them in the third. We built a lot of trust. As a result, this is the only business Luxottica has bought and entrusted a local to lead."

Beer's team also studied Italian culture and how to integrate it with Australian culture. "There are synergies because Australians are egalitarian and Italians are similar. They like relationships; over-communicating proved to be the perfect thing to do."

Stretching expectations

Beer is a strong believer that a business's culture drives performance. He is very open door, and he says he likes to empower people and give them accountability. It is a concept they call "stretch".

"One of the issues that we faced up to recently [was] a success-driven complacency," says Beer. "Simply because OPSM was big and powerful, there was a danger that the other brands would say 'it's okay for us to do what we are doing because OPSM [is] there'. It set alarm bells off.

"We set about instilling a concept to reach the 'next performance horizon', which we call 'stretch'. Corporate life can be a bit about managing expectations, targets and the like. But private equity is not really interested in your management expectations; what they are really interested in is what you dare to dream. So, they say 'Let's agree to a growth target, resources and capital', and then they say, 'Now, what can you really do with the business; let's go as fast as we possibly can'.

"We call that the next performance horizon, and, over the last three years we have grown sales beyond expectations. We have created an environment here that says, 'Don't manage my expectations; let's work together to exceed everyone else's expectations'."

It's that sort of business attitude that should ensure Sunglass Hut keeps on growing. Roll on summer.