A roundtable discussion among some of the top industry frame suppliers unearthed some interesting points about the changing relationship between frame buyers and frame vendors. Look for a series of roundtable discussions in future issues of Eyecare Business. Special thanks to all those who participated, including Al Berg, Marchon Eyewear; Mike Ferrara, Marine Optical; Peter Friedfeld, ClearVision; Steve Hollander, Luxottica; Ken Kitnik, Ambassador Eyewear; Harvey Ross, Viva; Douglas Tanguy, Charmant; Valerie Vail, Brendel Lunettes; and John Weir, Tura.

BUYER/VENDOR RELATIONSHIP

How is the frame buyer and frame vendor relationship changing?

Al Berg: It has been evolving. There hasn't been anything remarkable in the last 12 to 24 months, but vendors have to make sure our buyers are successful. I would call it supplying them success. They need marketing, service, education, product, value, training, and we need to provide it to them.

Peter Friedfeld: Buyers today are looking for a stronger relationships with their vendors, and vice versa. The whole market, especially at the retail side, has gotten very competitive. The market has not expanded in a big way in the past two years. Business is tougher. Relationships are more important than they were five years ago.

Mike Ferrara: The eyewear industry is going through the same steps that other businesses such as the apparel and cosmetics businesses have been through. I re-member the first time I walked into Wal-Mart, the things they talked about five years ago were pretty shocking to our world, in terms of vendor-managed inventory and all the other things you needed to do to compete. That's really indicative of 1999. You've got to provide total value, you've got to drive all the costs out of the system, and I think it focuses on inventory. I think those vendors that know how to manage inventory, and know how to manage sell-through are going to win. And it's a normal maturity of the eyewear business that's following the patterns of other businesses. That's the crux of what a successful vending relationship has to be over the next couple of years.

John Weir: I was interviewing someone recently who had exposure to the evolution of the drug store industry, the mom and pop druggist. He said that the pressures he is under are exactly like the evolution of the drugstore industry 10 years ago. The obsolescence exposure of the fashion industry is probably even greater than the drug industry. I worked in the drug industry years ago, and you have to manage sellthrough, because we are actually in a situation where we don't know the cost of goods until after we've started selling the product, because we don't know what the ultimate end life of the product is going to be.

RETURNS

What can buyers and vendors together do about returns?

Valerie Vail: Of course, returns are a reality, and we are also confronted with returns. Brendel targets a clientele that is familiar with high-end products. We take on huge risks in production and therefore chose a selective distribution. Our sales force carefully looks at our clients and evaluates our prerequisite to see if our products can be successfully marketed. A careful selection of clients limits our returns.

Ken Kitnik: I think we all perpetuate the return problem, and part of the reason is because board space is so valuable. When we have frames in an independent or chain and we have a percentage of that board space, if the frames don't sell through as quickly as we would like, we are the first ones to say, 'let's replace it with product that we think is going to sell better.'

Friedfeld: A certain amount of returns are acceptable for the industry. Again, paralleling the apparel industry, which calls it mark-up money--we call it returns. It's very similar problem: What do you do with a product that isn't selling through?

Friedfeld: We'd all like to have returns as minimal as possible. If we all designed the perfect frame, had the perfect customer, and the perfect sell-through, there would be no returns. But there's a level that's healthy for the industry.

Harvey Ross: The supply side is so strong today. We're doing a very good job of controlling our sales people when they go out into the field. They have nothing else to do but take back goods and replace them with other goods. Until management decides that this is not the best way to go, this is not going to change.

Weir: Both ends of the industry need to improve their performance, both the buyers and the sellers, and it will ultimately take its toll on those who are late finding a better way to manage the environment.

Ferrara: The whole replacement return policy is a way to drive share. If a vendor wants to grow board share, it has to have a liberal return policy.

Steve Hollander: Some of the return policies are caused by the policies of the eyewear manufacturers. For example, a sales person comes into the dispensary and sees items that are not selling well. If the return policy's expiration date is coming up, an exchange is made and the product is replaced. In many cases, the frames are not left on the board long enough to sell through. If one analyzes the number of frames on the board, and then calculates the average number of inventory turns, it is easy to see that the practice is carrying so many different products that it is impossible for them to all sell through.

Friedfeld: The vendors and sales consultants have the responsibility to work with frame buyers. The sales reps in the industry have a lot of education. They need to teach the frame buyers about board management. They need to take responsibility for not pushing product on buyers. They need to manage the boards and help their frame buyers in the business.

Doug Tanguy: Buyers need to open up though, and share a little bit. They need to have a better understanding of who their client is. What happens is that the board becomes very generic. When you take the best selling products from the best selling vendors, it tends to look the same, as opposed to focusing on who the customer base is and making sure they have a broad mix to meet all of those needs. That's where some education is needed.

Weir: I think that education would work a lot better if independents were more comfortable talking to their patients about how a practice makes money. A lot of doctors are uncomfortable talking about this, and, hence, it's left to the buyer to follow their perception of taste. They're whip lashed between, "do I try to push volume but keep the frames, or do I try to sell up?"

How are consolidation and managed care impacting frame returns?

Berg: It's nice to blame the rep or the buyer, but I think it comes back to the vendor. We set policies for four- and six-month returns, so I don't blame the rep for pulling the frame off the day before I'm going to charge him for it. I think it's the company policies that force the rep or buyer to return, and the lack of training by the company and how they communicate with the buyer. It goes back to who's controlling the business. Is it the vendor, the rep, or the buyer? I think it's got to be the vendor or else we're all in trouble.

Kitnik: Returns are so integrated that buyers don't necessarily return only when it doesn't sell; they want to know what your return policy is when you set foot in the door. Retailers don't really take full ownership, and it's our fault as much as theirs.

What are some other solutions?

Berg: The reps that seem to have a very high rate are retrained, and the customers that have an absurd rate are called on less frequently. So there are ways to reduce it, but you're never going to get rid of it. I think returns are better than mark down, because if we start with mark downs, we'd be marking down everything. At least with returns, we have some way to watch. Reducing returns would save money for everyone, because we're all eating the cost which goes into the selling price.

Vail: We educate our customers by giving them product information and support them with marketing packages. An optician should understand that nothing in this world is free and that it would be an illusion to think that the returns are not packaged into the prices. Our philosophy is: we'd rather invest in the quality of our products than into returns.

Ross: All we sell is "stuff." It's up to the company to offer merchandising and arrange it in such a way that's appealing to the consumer.

Ferrara: On the retail chain side of the business, we're using a lot more scrutiny on what goes on the boards. We're using a lot more checks and balances internally. And that takes some real discipline.

Kitnik: Training the sales rep and having the sales rep train the buyer will reduce the return rate, but then that rate's going to go to another company. Those companies that have higher returns aren't going to make it. Eventually the return rate is going to come back to the ones that are left. Because unless the whole process is changed, the retailer can only sell so many frames, and there are only so many frames on the board...it's just a circle.

Ross: There's a big difference between the chains and the independents in the percentage of returns. Chains will sometimes work out an arrangement [such as tiered pricing] where they won't return.

Tanguy: It makes you wish that there was an incentive for the buyer not to have a high return rate. That would be the ideal situation.

Ferrara: The buyer completely abdicates responsibility for the frame board. We own it totally, whether we're paying for it or not. It's totally up to us what happens on that frame board, so we'd better manage it right.

Friedfeld: I would still say: honor independence. By working closely with the rep and customer, we're able to reduce return rates. It might not be by a lot, but at least we're able to have some control over return rates. Otherwise, it does get out of hand, and it will go from 15 to 20 to 25 percent and up. So we do have the responsibility to keep some kind of control over returns.

CONSOLIDATION

What impact is consolidation having on the vendor/buyer relationship?

Ferrara: Consolidation has had a serious impact on chain business. Some businesses do a great job of retaining cultures and people when they acquire companies; some don't.

Kitnik: I think that sometimes consolidation can be an opportunity for companies, because they have new buyers who have established relationships with people from other companies. As frame vendors we have to look at consolidations as an opportunity, not as a negative.

Ross: I don't agree. I think that consolidation is very difficult, because even if you're a vendor, sometimes you get new business because you are an existing vendor. But consolidation is not helping any business where it's being controlled by very few people.

Ferrara: Fewer and fewer. It's scary to think of certain segments if the bigger retail chains continue to get bigger. The percentage they control relative to the buying decision is pretty scary. If you look at five years from now, the same four guys could control an average of 1,500 to 2,000 doors.

Berg: Maybe it all ties into the fact that it's more competitive. We're all better businessmen with better products. I think the surviving independent is going to be a better businessman with a better product as consolidation happens. What's happening is that it's survival of the fittest out there, at all levels. I think the key with our future is to help our retailers be the better businessmen. A better business person knows who their target audience is, and they buy the right product for the right price. Our sales of higher end product is rising because the better independent is finding that that's a wonderful area to focus on, in addition to managed care. The competitive world is going to force dispensers to be better business people. There will probably be a lot less independents, but they'll be a lot stronger.

Hollander: I really don't think that the consolidation going on in the industry today is impacting on the independent very much. The amount of business being done by the independent has remained relatively stable. What really seems to be happening is that the chains are merging and acquiring each other, but not necessarily gaining overall market share. The more up-to-date independents that have computerized and are aggressively marketing themselves with fashion products and know how to sell upgrades, are thriving.

In this age of consolidation, is the independent going to survive?

Kitnik: The optical industry is a lot different than the drug store industry, where a bottle of Advil is a bottle of Advil, whether it's in the superstore chain or whether it's in an independent. The independent in our business has a relationship with its customer and has the ability to provide different products that the chains can't provide or don't have as much flexibility to provide. The ones who are sharper businessmen and become more retail oriented will continue to survive.

Weir: I think those sharper businessmen, unless they have multiple outlets, might not get the chance. They might finish up with three or four outlets over the next 10 years. The smarter businessman will finish up owning more than one outlet.

Hollander: Many independents enjoy a business edge over the chains. They can choose to provide a more personalized approach to eye care than can some chains who have a number of different employees and sometimes high turnover. When the patient makes an appointment with most independents, they are making a return visit to the doctor of their choice. This personalization creates confidence among patients. Many independents spend a great deal of time with their patients and know the products they offer very well. Independents who can provide this exceptional service will thrive just as they would in any business, and the practices that can't adapt will have difficulty.

Berg: You've got these independents who are fairly alone out there, trying to compete in a modern world. A typical independent is computer literate, and fairly fashionable, or she's lost her shop. They need a level playing field, and our future is going to require the supplier to help level that playing field, give them the marketing of a big guy, the computers of a big guy, the training, etc. We haven't had the shake out yet--but I think there will be fewer independents, but they will be better because they wanted to learn and we wanted to teach.  FB