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With Ray-Ban opening its own stores, what does that mean for sales at other retailers? What can we learn from Hugo Boss?

Published on
30/01/2019

Posted by Erik van Dijk

Erik has previously worked for 10 years at Philips in various parts of the business and in different roles, most recently at Philips Healthcare in R&D management. Since his start at EasyScan in 2015 he headed the operations (supply chain/technical support) and R&D team. In 2017, Erik became the CEO. Erik has a PhD in Physics from the University of Twente.

With Ray-Ban opening its own stores, what does that mean for sales at other retailers? What can we learn from Hugo Boss?

Over the summer, Ray-Ban opened its own shops in The Netherlands, the UK, and Australia. This followed the launch of their first concept store in SoHo, New York at the end of 2015. It is the latest stage in the remarkable transition and turn around that Luxottica has performed on the Ray-Ban brand since it bought it in 1999 from Bausch and Lomb. These new brand shops could have a significant impact on other outlets that are currently offering Ray-Bans.

Ray-Ban’s resurrection

At the end of the 20th century, the once-premium brand, whose sunglasses were beloved by Hollywood and played prominent parts in iconic movies, was in a shambles. The quality of the products had deteriorated, so much so that Ray-Bans were sold for 19$ at petrol stations and convenience stores. After the purchase by Luxottica, a decade-long turnaround began—improving quality, slashing the low-end points of sale, and moving the product into more premium retail channels, where the other Luxottica brands were already present.

With strong marketing campaigns, Ray-Ban completely reclaimed its past stylish and quality brand image, with sales growing from 252M euro in 2000 to over 2B euro in 2016. This turnaround resulted in Ray-Ban being listed 22nd in the BrandFinance most valuable apparel brands and responsible for around 27% of the revenue of Luxottica.

Expanding and protecting brands in the fashion industry

Branding is critical in the fashion industry. The brand makes all the difference, and companies put a lot of effort into defining and communicating about their brand. The strongest brands, such as Nike, have spent decades on careful messaging to build up their brand identity, via advertising, sponsorships, and celebrity endorsements. Consistent messaging across all channels touchpoints is key to building a strong brand.

Although the online channel is increasing in importance in optical retail, even for Ray-Ban it is still less than 10% of their revenue  The physical touchpoints in the retail setting are still critical since this is where the consumer will see and test the product.

The quality and image of the retail location is vital to the final brand image and quality perception, something that was recently shown by Payless, a US low-cost retail chain. They set up a store in a high- end area of Santa Monica, called it Palessi, and invited influencers and bloggers to come and try the products, normally priced between $19.99 and $39.99 but now priced at hundreds of dollars. The feedback from the shoppers was that these were really great and stylish products that were well worth the high prices.

To maximize the brand equity, major (fashion) brands have used flagship shops to further reach into the shopping experience and be in more direct contact with their end customers. The aim of these shops is to solidify the brand image and is mostly seen as a marketing tool. More important than direct sales to the brand, the flagship store is to allow customers to experience the brand to its fullest, see for example the flagship stores for Nike in New York and Berlin and the Calvin Klein flagship store on Madison Avenue in New York. For these brands, most of the revenue still comes from wholesale and via partners. The flagship stores just help to build the brand, but the retail partners (shops) will also benefit from the increased brand strength.

The Hugo Boss Strategy

Hugo Boss, the German fashion house, made a different strategic choice. Its products were initially sold through wholesale, and even though it had interesting sponsorship deals in golf and tennis and a successful licensed fragrance business, it had difficulties managing its brand image. From 2008, it started to switch to a direct retail strategy. By having its own outlets, it is able to be closer to its customers, better control the experience, and maintain the customers interest in the brand.

Over time, Hugo Boss developed their own dedicated retail network consisting of large flagship stores and 600+ standard stores, all of which are able to present a consistent brand image. This has resulted in a reduction in the revenue from the wholesale channel (see Figure 1). The wholesale channel is mainly in department stores or other multi-brand shops, and even here the focus is on mono-brand , to ensure consistency, and the company is stopping contracts with channels that are not meeting their requirements.

Figure 1

What does all this mean for Ray-Ban in non-Luxottica optical retail channels?

The question is what are Luxottica’s plans with these new retail locations? Based on the locations and size of the new Ray-Ban brand shops, they are too small to be flagship stores, with all the extra activities that are normally organized around them. They are more sized like typical retail locations, for example the Sunglass Huts, owned by Luxottica. So, it seems that this is the start of Ray-Ban pushing more strongly into vertical integration in their own stores. Ray-Ban is also building up a strong online presence with the online-only Remix program, allowing people to build their own personal variants of the classics.

To protect all its investments in building up the Ray-Ban brand, Luxottica will start to control more and more of the experience in the standard optical retail channel, for example with shop-in-shop concepts. This will result in more requirements with regard to shop fitting, marketing, and minimum size of collection before authorization is given to offer Ray-Ban products. The stronger the Ray-Ban brand grows and the more the revenue is coming from their own direct retail channels, the stronger the negotiating position of Luxottica will be against normal retailers. In one of their latest investors calls, they responded to questions about European wholesale by saying that their introduction of a new Authorized Retailer Agreement is likely to result in closing of more doors (see bottom of page 14 of transcript).

So, what does that mean for Opticians? How can you build your own brand, to ensure that customers come back to you for their glasses? What do you want to be the first thing that comes to mind when your customers think of you? How can you ensure that you are different from all the other opticians out there?

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