Raising the glasses bar

Almost eighteen months ago, I blogged about the trouble faced by Australian optometry chain OPSM (and their Italian parent Luxottica) from the challenge of low-cost newcomers such as Specsavers.

It would seem we’re finally seeing the strategic response of OPSM, a new, innovative store concept launched this week:

“The OPSM Eye Hub, which opened yesterday, is designed in the shape of a retina, and offers next best thing to augmented reality – a simulation machine so people can road test their choice in eyewear in action such as jogging, along with playback mirrors so people can view videos of themselves sporting glasses while not staring forward”

You can read more of the spiel at their dedicated website. This is a classic differentiation ploy, as the firm attempts to make customers willing to pay a premium for bells and whistles.

As spectacles (and sunglasses) are clearly fashion items, it certainly makes sense to try and build a brand and experience that moves away from solely price considerations.  Utilising technology and store architecture are both viable ways to create a clear point of difference from others.  Destination stores (e.g. Apple’s temples) and retail theatre may well be the next phase in once staid optometry market.

From an International Business perspective, it is fascinating to see that Luxottica is allowing subsidiaries to experiment in this manner. Might this be an innovation that gets rolled out around the international network in the future (a la McDonald’s roll out of the Melbourne-initiated McCafe concept)?

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A competitive spectacle

There was an excellent discussion of the Australian spectacles market in today’s Age newspaper.

A previously docile market dominated by a very large player in the midst of hundreds of effectively sole traders has been shaken up considerably by the entry of British outfit Specsavers.

The incumbent giant is the Italian firm Luxottica who added the OPSM and Laubman & Pank marques to their globally known Sunglass Hut brand via an acqusition in 2003 (as discussed in my chapter in a book called The Internationalisation Strategies of Small-Country Firms).

They may be #174 in Deloitte’s Global Retail Powers rankings, but have clearly struggled when challenged by a lower-priced, more streamlined competitor. Luxottica are a curious player in the optometry business, as they were once only a manufacturer and have vertically intregated forward into the retail business, without obviously passing on any cost savings to consumers. Their stores are typically positioned as quality, fashion-conscious purveyors.

In contrast, Specsavers have grown fast in their home-country, Ireland, Spain and Scandinavia through a more thrifty range of offerings and aggressive pricing. It is fascinating that Australia has become such a big target for this mob (we may soon by 15% of their business). Presumably this reflects their own observation about the easy goals that can be kicked on this previously high-margin playing field.

As the article notes, Specsavers are not the only new entrants. Woolworths is experimenting with even more pared back concern through their Big W variety stores. This may well also be a testing ground for Woolies as it prepares itself for another inevitable attempt to tackle the pharmacy regulations and become even more Wal-Mart-like.

It was always going to be hard for Luxottica to build considerable barriers to entry in this business, as there are a lot of optometry outlets (and optometrists) to be snapped up by an aggressive entrant. The challenge is now to adapt their business strategy to this new competitive dynamic.

As a glasses-wearer, I say bring it on!

So where the bloody hell are the global retailers?

In 2006, Australia ran an ill-fated tourism campaign with the tag line “So where the bloody hell are you?”

The latest list of the 250 largest retailers in the world has just come out from Deloitte, and we could be asking the same question of international retailers with respect to the Australian market.

Back in a 2007 chapter (for a book called The Internationalisation Strategies of Small-Country Firms: The Australian Experience of Globalisation), I highlighted the limited presence of retail’s big international players in the Aussie market. The list back then was 13 foreign-owned firms from the Deloitte’s 2006 Top 250, plus 3 Australian firms who were big enough to make the list.

Looking at the 2009 list, there has been a slight decline in this international presence in the intervening three years. There are now only 14 firms from the list operating bricks and mortar stores in Australia. They are (with global ranking, and new arrivals in green):

10. German discount supermarket giant Aldi who operate in 15 countries
22. Aussie behemoth Woolworths (3 countries)
29. Wesfarmers, owner of the Coles, Target, K-Mart and Bunnings brands in Australia (2 countries)
32. Swedish furniture kings Ikea (36 countries)
42. French conglomerate PPR (Gucci, Puma etc) who have a very minor retail presence down under (48 countries)
59. Toys “R” Us from US (36 countries)
68. French luxury goods firm LVMH (15 countries)
113. Gamestop from US, who poerate as EB Games in Australia (16 countries)
129. South African supermarket chain, Pick’n’Pay, who own Franklins (6 countries)
146. Blockbuster video stores from US (22 countries)
150. Sports chain Footlocker from US (20 countries)
174. Italian spectacles seller Luxottica (OPSM, Sunglass Hut) (20 countries)
214. French firm Lagardére (formerly Hachette) who operate Newslink, Relay, Bijioux Terner and various other shops in airports and train stations (30 countries)

The 2009 list also included book retailer Borders who have recently exited Australia. Also gone since 2006 are Gus/Burberry (UK) due to a de-merger and Metcash (South Africa) via an Australian management buyout. (I, like Deloitte, also had erroneously included 7-Eleven which it turns out is run by a licensee in Australia). The Wesfarmers acquisition of Coles shrunk the Aussie-owned presence (as Bunnings will thus leave the list now). The most substantial new kid on the block is EB Games with almost 200 stores in Australia.

So, why the reluctance to head down under? I have argued this about the impact of Australia’s history and location:

As the nation was geographically distant and disconnected, and local suppliers were protected by high tariff walls, domestic retailers quickly built considerable location-bound advantages over any potential inward FDI. Entrepreneurial locals and later powerful incumbents were able to ‘cherry pick’ concepts from overseas and introduce them to Australian consumers confident of their likely success.

Most of the international firms who have broken through have typically had very strong firm-specific advantages (usually in specialist retail formats), and have been pretty aggressive in their internationalisation. It is worth noting that the average firm in the Top 250 operates in 6.8 countries. All but one of the international players in Australia exceeds that average substantially (while the Aussie pair are underperformers).

Is it the case that only experienced internationalisers can make the leap to Australia? Or do they only bother once they’ve exhausted more rewarding locales?

One of the big boys is heading our way – #9 Costco is building in Melbourne right now. Can we really expect too many more from the list on Australian shores in the near future?