The UK managing director of sports eyewear brand Oakley explains why he can look beyond sunglasses to see a bright future in clothing under its new owner Luxottica.
Last November the world’s largest sunglasses manufacturer, Luxot-tica, bought Oakley for US$2.1 billion (£1.05bn). The deal was a financial whisker below the £1.15bn paid last month by Indian automotive giant Tata in its acquisition of legendary motorcar marques Jaguar and Land Rover from Ford.
The comparison underlines Oakley’s market muscle. Here is a company that in 2006 had global sales of US$761.9m (£381m), of which eyewear made up US$553m (£276.5m); a brand that includes Paul Smith Spectacles, premium fashion eyewear brand Oliver Peoples and sports eyewear brands Dragon and Fox Racing in its stable; and a player with a multifaceted approach which, beyond its core business of sports performance eyewear, is making more serious inroads into young fashion.
“Premium sports performance eyewear technology is our base but Oakley is very diverse,” says Gary Lee, Oakley’s UK managing director and the man responsible for leading the Californian brand’s biggest subsidiary outside the US. “Sunglasses, goggles and prescription eyewear make up 75% of our total sales, with the majority of the remainder driven by clothing.”
It was only after Oakley opened its London Covent Garden flagship three years ago that Lee identified the potential of clothing in the UK. For despite its dominance in total turnover and wholesale footprint, sunglasses only account for 30% of sales in the brand’s own stores, with clothing driving the lion’s share of till receipts.
“Eyewear may be our main focus but we can drive significant growth from our clothing. We know there’s a huge opportunity in terms of womenswear in particular,” Lee observes. “One of the most serious challenges for our wholesale business is in commanding a significant space for women’s clothing in our wholesale accounts. It’s all about getting the product visible to the end consumer. Our shops in Bluewater in Kent and Covent Garden have proved that when we portray our womenswear in an environment within our control, the collection sells.”
Oakley’s findings in the UK have lit the fuse on an ambitious own-retail strategy that will find the brand opening two 2,000sq ft stores a year for the next three years. “Our model is to concentrate on key cities, areas in which our research tells us indies can no longer afford to operate,” says Lee. “The question facing brands in the UK is how they can develop and keep brand equity if the cool indies disappear. Our research tells us that major city centres is where we should have a full product offer at retail, and they’re the same cities in which we’re currently struggling to get distribution because the accounts simply don’t exist.”
Retail consolidation has transformed the UK’s sports retail market, he says. “Fifteen years ago there were hundreds of independent sports shops. Today there are only three or four main players and that consolidation has affected all segments of the sportswear market.”
Lee’s experiences in sportswear mirror the same dynamic that has transformed the UK’s once eclectic high street mix of fashion indies, small chains and a few national multiples into today’s virtual clones of each other. Like mainstream fashion, he cites the rise of own-brand retail and the margin benefits of vertical integration in sports retail as having squeezed out the once buoyant sports middle market. “We had First Sport and Allsports, which are both gone, and now there’s JJB and Sports Direct at the bottom with JD trying to position itself higher.”
The extreme sports market is still Oakley’s most natural retail platform, and while it has never operated in the middle market it has had to weather an aggressively acquisitive climate which has led to mini chains Hargreaves, Streetwise and Giles Sports all being acquired by sports retail mogul Mike Ashley. “At the moment there are no retailers out there left to buy. There used to be hundreds of stores giving branded offers but in extreme sports those networks don’t exist outside Freespirit’s 35 stores.”
Lee believes the lack of extreme sports-inspired fashion available in the mass market has led to high street multiples seizing on the trend’s popularity and reinterpreting it for mainstream consumers.
“With the exception of Freespirit, everyone has an interpretation of boardsports fashion, from River Island to Next,” he says. “Beyond that there is branded merchandise at the top end, but there’s a massive gap in the middle. It will be very difficult for anyone to enter this market because prices have been dragged down by players from Primark to Sports Direct. That makes it challenging for any mid-market retailer to prosper, hence our decision to open standalone stores.”
Own-brand retail and ecommerce are, says Lee, the main drivers set to change the extreme sports marketplace. While conceding that ecommerce “is huge business for the demographic that extreme sports suppliers are targeting”, Oakley has yet to introduce a transactional website, electing instead to use the web for cutting-edge marketing campaigns. Most recently, the brand developed an online fly-on-the-wall video mockumentary following the on- and off-slope exploits of Oakley team snowboarders Scott McMorris and Tyler Chorlton.
The brainchild of Oakley UK’s marketing manager Tom Cartmale, the footage was hosted on global social networking website Bebo, generating up to two million views for each episode, broadcast daily over a fortnight (Drapers takes a closer look at the project in our Web 2.0 special in next week’s issue).
The snowboard market remains a key part of Oakley’s extreme sports DNA. So much so that at an international press conference in Miami last month Oakley unveiled its most fashion-led womenswear collection to date. The autumn 08 offer includes a premium range co-designed by US Olympic snowboarder and Oakley brand ambassador Gretchen Bleiler. Besides goggles and sunglasses, the 17-piece range includes technical ski styles with a fashion handwriting, organic cotton T-shirts and fur-trimmed outerwear, branded discreetly with a lion motif.
The mainline collection has similar fashion ambitions and includes slim-cut trench coats, slim-fit knits, leggings and cropped pea coats.
In terms of communicating with a fashion consumer more accustomed to buying Diesel and Quiksilver than Oakley, the improved collections represent Oakley’s most sincere efforts to date. “Clothing is still a teenager in terms of its maturity, the prescription optics area is just five years old and some others are still in nappies,” says Lee. “But at 25 years of age, eyewear is a fairly mature business.”
Talking trading, Lee concedes that business is tough but remains optimistic due to his brand’s diverse spread of revenue streams. “Take any sports footwear brand such as Adidas, Nike and Timberland and I guarantee that 75% of sales are generated through just seven retail accounts. Some brands have upwards of 20% of sales coming from a single customer.”
Oakley’s sales model, in comparison, has half of its wholesale business driven through independents. “We have six different categories within Oakley all selling into different channels and each is at a different level of maturity.” In terms of its growth, Oakley UK has witnessed 21% year-on-year growth in Q1 for 2008. “Clothing is up, eyewear is up, profits are up and returns are down. It’s phenomenal.”
In the international rankings, Oakley UK is the second most valuable subsidiary to the brand outside its domestic US market. An achievement that is all the more impressive considering the importance of sunglasses to Oakley’s overall sales, not to mention the relative lack of sunshine in the UK.
“Our success on eyewear is down to having an outstanding distribution,” says Lee. The brand’s number one sunglasses customer is Sunglass Hut, which, including airport locations has about 80 doors. The next biggest account is World Duty Free shops. On the high street, chains including Freespirit, Vision Express and David Clulow are all significant players. “Having an airport specialist, an outdoor expert and the most premium chain of eyewear in the UK all in a single brand’s distribution shows our diversity.”
In 2000, when Lee joined Oakley, 87% of the business was in sunglasses, with clothing “driven by a few T-shirts”. The proportions have changed (today eyewear represents 75%) but not at the expense of sunglasses. “In the past five years we’ve doubled our sunglasses business but are selling it in fewer doors,” Lee enthuses. “And that’s by ensuring the market is segmented correctly so that cycle stores, for example, aren’t stocking £250 titanium sunglasses but are supplied with product that is appropriate for their sector.”
The benefits of having various revenue streams has helped Oakley out in the past. “Some seasons your product simply won’t hit the mark,” says Lee. “But if you have the right brand equity and a well-rounded product portfolio you’ll be able to ride it out.
“We’ve had a phenomenal run and I think today as a brand we are as close as we could be to having all the areas covered that we need for the future,” says Lee. The Luxottica acquisition is evidence of Oakley’s “phenomenal run”, which began in 1975 when Jim Jannard founded Oakley out of a garage making rubber motorcycle grips. The business, today based in Foothill Ranch in Orange County, California, rocketed after Jannard’s patented goggles were endorsed by pro motorcycle-racers and his sunglasses were used by triathletes and volleyball players.
For Luxottica, which also owns Sunglass Hut, the buyout adds a critical sports performance eyewear player into its fashion-heavy portfolio. Luxottica’s plans for the brand, and its 3,400 international staff, remain unclear although chief executive Andrea Guerra has indicated to financial analysts that Luxottica is not planning to restructure Oakley.
“Luxottica has put a strategy in place to integrate the businesses in continental Europe but because of our performance I don’t see any negatives,” says Lee. “The benefits will be back-office in terms of savings on freight costs and the ability to negotiate better terms with suppliers.”
Looking five years ahead, Lee adds: “Oakley will have a strong independent business, a strong own-retail business and a national account base that is a manageable percentage of our total turnover. I just want Oakley UK to be as well-rounded as it is today.”
2000-present Oakley UK managing director
1997 Launched Eastpak in the UK
1995 Sales manager for Asics
1990 National accounts manager for Umbro
1987 Sales manager for Nike apparel
1985 Sales manager for Nike footwear
1981 Sales manager for Umbro
1981 Short career playing for Everton FC