Over the past year, inflation hit its highest numbers in 40 years.

This January alone, prices leaped up 7.5% year over year. That’s the biggest YOY jump since 1982.

According to The Vision Council’s Alysse Henkel, director of research data and analytics, “Transactional data of independent ECPs finds that patients paid just over 6% more for eyewear products last year than in 2020.”

In addition to paying more out of pocket, Henkel adds, “Some patients may have had more expendable income last year than the year before, so they may have been opting for eyewear at higher price points than previously.”

Though wages in the U.S. are increasing at the fastest pace in two decades, bloated prices throughout the economy are erasing much of that increased buying power. According to data from the Bureau of Labor Statistics, eyecare and eyewear prices did rise over the past year, “but not at the same pace as prices in other areas,” shares Henkel. “We aren’t, however, immune from supply chain problems or staffing challenges, both of which may be contributing to increases in pricing.” Those factors are definitely impacting business across all industries, not just optical.

A Business Overview

Gross domestic product (GDP) is the value of all finished goods and services produced. That number rose 6.9% in the U.S. at year’s end.

The Federal Reserve, which conducts national monetary policy, plans to temper what’s being referred to as runaway inflation by raising interest rates several times this year.

That will translate to more questions and, of course, more change. As National Retail Federation chief economist Jack Kleinhenz puts it, “Though it is not clear how Fed policy will develop, there will be indigestion as we adjust to new policies.”

What about the “R” word? Though supply problems have triggered recessions, continuing demand should more than quell any unease.

The Vision Council’s recent virtual economic trends forecast hosted by Brian Beaulieu, CEO of ITR Economics, confirms that because eyeglass sales coincide with the GDP, there’s no real threat of a recession over the next couple of years.

Unfortunately, such positive projections are dampened by today’s unrelenting supply chain challenges. The unexpected rise in consumer demand has, in fact, been met with ensnarled logistics at seemingly every turn…or should we say port? From computer chip shortages to raw materials and finished goods, experts expect supply chain pressures to continue into 2023 and perhaps beyond.

As Beaulieu indicates, the biggest long-term hurdle that will impact the supply chain is availability of labor. One positive note, he explains, is that the quit rate will be leveling off.

The Issues Aren’t New.

Supply chain issues continue, but, according to Steve Horowitz, chairman of The Vision Council’s Eyewear and Accessories Division and president of Eyewear Designs, “These pricing and supply chain issues aren’t new. It’s been happening for a while. To begin, we had increased duty on frames and more severely on cases. We had consistent increases in prices, particularly from China. And, then there was a consistent rise in shipping costs.

“When it all hit the fan, everything exacerbated. In one sense,” he adds, “we got a break because for one year, we didn’t need that many frames because business was knocked down by Covid-19. It wasn’t a good break to have, but all of this has factored into rising prices.”

Lens companies have been similarly challenged. From worker shortages at the docks in the United States to decreased production in China, for example, lens suppliers and labs alike have been challenged to meet demand.

And, in the contact lens arena, a just-completed survey for Contact Lens Spectrum found that just over 70% of ECPs reported that supply issues have definitely impacted their contact lens inventory. And fully 80% said it also affected their cost of goods.

Despite all this, explains Horowitz, there’s one thing that has kept optical above water, so to speak. “It’s the resiliency of the industry. It’s a combination of factors—better eyewear, support of insurance, an increasingly more sophisticated retail industry, and a more aware consumer. All these factors came together and allowed us to be resilient. Sure sales were down 15% in 2020, but nothing like a lot of industries.”

Implementing Strategies

This isn’t to say that suppliers have been able to simply absorb all the increased costs. They have, however, applied a variety of strategies to address them.

Eduardo Martins, president of Hoya Vision Care North America, explains how suppliers have had to adapt to rising costs and supply chain disruptions: “We evaluated the strengths of our global operations and implemented a multitiered approach that includes expediting shipments, leveraging air freight, and adding capacity in overseas facilities.”

Alex Incera, president of Coburn Technologies, addresses the situation from the equipment side. “We have experienced increased costs from nearly all our suppliers,” he says. “Some have been so substantial that we’ve had no choice but to pass them on to our customers, but in other cases we have maintained our prices, which obviously reduces our margins. In a few cases, we have negotiated with our suppliers and have increased our volume commitments to avoid cost increases.”

Adding Lead Time

How have supply chain issues impacted the situation?

According to Incera, who is active in The Vision Council’s Lens Processing & Technology Division, “Supply chain issues have had multiple effects. First and foremost, it has stretched lead times for products. What was once a two- or four-week lead time could now be two or three times that.”

Then there’s the issue of added inventory and its cost. “On occasion, some of our suppliers have completely missed even their extended lead time,” Incera said, “which forces our purchasing organization to search the world over for alternative suppliers so as to avoid disappointing a customer to whom we’ve already committed. All of this has us buying extra inventory to avoid further disruptions down the road.”

Looking ahead, Incera concludes, “The biggest hurdle that will impact supply chains is the availability of labor.”

What does all this mean for the health of optical?

Follow the money, say the experts. “Look at all the PE coming in,” says Horowitz. Beaulieu agrees. His message? “PE money isn’t interested in dying industries!”