IN FOCUS
Oakley Grows Clothing, Prescription Glasses as Sunglasses Hold Steady
By JENNIFER BELLANTONIO
Foothill Ranch-based Oakley Inc. is looking to shake things up with new gear.
Long known for its distinctive wraparound sunglasses, Oakley has been adding and expanding newer products,clothing, watches, shoes and prescription glasses,in a bid to fight slow sales growth from sunglasses.
The “cornerstone” of Oakley’s growth strategy has been these other categories, said Link Newcomb, the company’s chief operating officer, speaking to analysts at a recent Lehman Bros. retail conference in New York.
In the past five years, sales of newer products have grown by about 55%, he said. Last year, watches, prescription eyewear, apparel and shoes accounted for about 29% of the company’s $561 million gross sales, which includes returns. Those sales made up about 23% of Oakley’s 2002 revenue.
Oakley’s bread-and-butter line of sunglasses accounted for 55% of total sales last year.
But Oakley is looking to further tweak its sales makeup.
One reason: to offset a slump in sunglasses sales, which were “challenging” last year due to a tough retail environment and “unusually wet and cool weather in the U.S.,” Newcomb said. Sales of Oakley sunglasses fell 6% to $310 million in 2003.
“Our new sunglass performance was below expectations in 2003,” Newcomb said. “We felt like we needed this year to be braver in our new styles.”
Another reason to diversify: Oakley’s biggest sunglasses customer,Sunglass Hut International Inc.,is owned by its biggest sunglasses-making competitor, Luxottica Group SPA, said Mitch Kummetz, an analyst with D. A. Davidson & Co.
“Any time you can diversify your operations away from that competitor, it’s a good thing,” Kummetz said.
The strategy paid off in the first quarter, with the newer products generating sales growth of 34% to $52 million, versus a year earlier, while sunglasses revenue was flat at $64 million. The new products accounted for 39% of gross revenue in the quarter.
Oakley’s big focus: prescription eyewear, the second largest of the new categories, with sales of $42.7 million last year. Oakley doesn’t break down sales of its new products each quarter.
The company plans to open a 4,000-square-foot prescription lens finishing lab in Japan this summer, which will be its third, according to Becky Wilkinson (photo), director of Oakley’s prescription eyewear division. Oakley also has labs at its Foothill Ranch headquarters and in Ireland.
Japan is the company’s “next biggest growth opportunity” for prescription eyewear, she said. Oakley plans to hire seven to 10 workers to staff the Japanese lab, she said.
The company, which makes both frames and prescription lenses, continues to tweak the line. Frames cost $130 to $295. Prescription lenses, which are made of Plutonite, a type of polycarbonate, go for $165 to $300.
Among the highlights: Earlier this year, Oakley created interchangeable prescription lenses for its Half Jacket frame model. It also fills prescriptions for other brands that want to put a prescription lens in a sunglasses frame that wraps around or hugs the face.
Oakley’s competitors are among its customers: Dragon, Arnette and “anybody and everybody that” has a “high wrap” frame, Wilkinson said.
Oakley offers about 19 different prescription lenses, including some that are colored, tinted and clear, she said.
“Many of those are polarized, which is very popular,” she said.
But the challenge has been getting the word out to consumers and eyecare professionals, such as optometrists.
It hasn’t been easy.
“People think of Oakley as a sunglass company,” Wilkinson said. “We’ve also been pigeonholed to some degree as a sports company. The doctor is waiting for an individual in bike shorts to come in and show them Oakley products.”
To counter that perception, Oakley’s 100 sunglasses and prescription eyewear sales reps are trying to educate doctors, Wilkinson said. Currently, the company’s prescription business is 70% frames and 30% lenses.
“From a long-term perspective we’re looking to balance that out 50-50,” she said.
Oakley also revamped its advertising campaign to include more non-sports shots of people wearing prescription glasses.
“You don’t have an individual riding a bike wearing the glasses, which we had before,” she said.
Oakley also is going for wider appeal in marketing its other newer product categories, such as clothing and footwear. Clothing accounts for the biggest chunk of its newer product revenue with 2003 sales of $76 million.
Oakley has revamped its clothing ads to focus on a younger, 18- to 25-year-old crowd, which “we feel is extremely influential longer term,” Newcomb said.
But Oakley’s diversification has come with some bumps.
Take footwear, the third biggest chunk of the new product categories, with 2003 sales of $37 million. (Watches are the smallest part with sales of $10 million last year.)
The company said it’s done well with sandals and golf shoes, including a new shoe for women.
But Oakley missed with some of its closed-toe styles, such as basketball sneakers, which were introduced in 2002 with lots of fanfare but little oomph at stores. The sneakers no longer are being sold through footwear stores, such as Footlocker, according to the company.
“It hasn’t worked very well,” Kummetz said. “There’s a lot of basketball product in the market. It’s hard to out-Nike Nike.”
