Where Is The “profiteering” In The Eyewear Industry?

- Dec 23, 2019-

China has a growing myopia population. In 2012, one in three people was myopia, and by 2020, the number of myopia is expected to reach 700 million, which is half of the total population.

Under this trend, the "semi-medical and half-shanghai" eyewear industry often appears in people's field of vision with the "profiteering" label, and there is even a smooth saying: "20 yuan glasses, 200 yuan sold to you is a human favor, Selling you for 300 yuan is a relationship, selling 400 yuan for you is a market. "

However, Dr. Optics, the only A-share listed company in the eyewear industry, shows another aspect of the industry: the sales gross margin is high, and the net profit margin is surprisingly low.

So, where did the "profiteering" of the eyewear industry go?

01Gross profit margin Wuliangye

Treasure Island glasses, PhD glasses, Daming glasses, Oriental glasses, these larger eyewear sales chain companies, as well as countless unknown glasses shops, opened in the neighborhood, schools or lively streets, closed, It doesn't seem to be very noticeable.

The seemingly bland eyewear industry is expanding.

According to data from the China Business Industry Research Institute, the size of the Chinese eyewear retail market was 73 billion yuan in 2017, and the market size of the Chinese eyewear industry is expected to reach 85 billion yuan in 2020. Some insiders said that the actual market size has exceeded 100 billion.

There are also many mysteries in this industry. In March 2017, Dr. Glasses was listed on the GEM of the Shenzhen Stock Exchange as the "glasses first share", only to let people see some "secrets" behind this industry.

Among them, the most mysterious is probably how much does a pair of glasses cost?

As a chain operating company engaged in retail of eyewear, Dr. Optician sells products such as frames, lenses, sunglasses, reading glasses, contact lenses, and care solutions. It also provides optometry-related services.

According to the data released by Dr. Optics, in 2016, the average unit price of PhD glasses purchased was 89.06 yuan, the average unit price of lenses was 28.82 yuan, the average unit price of contact lenses was 48.82 yuan, the average unit price of invisible care solution was 28.20 yuan, and the average reading glasses The unit price is 28.81 yuan, all within 100 yuan.

However, in the external sales, the price of Dr. glasses is high.

Take the frame as an example, the price is more than 500 yuan, there are also more than 2,000 yuan, the price span is very large. If we look at the purchase price and sales price alone, the "profiteering" seems to be real.

From 2014 to 2018, the gross profit margins of PhD glasses sales were 73.02%, 75.78%, 75.74%, 76.47%, and 74.12%, which averaged over 75%.

Famous financial and tax expert Ma Jinghao once said that if the gross profit rate is above 75%, it can be called a luxury product. According to this theory, PhD glasses can also be included in the luxury category.

The liquor industry is known for its high gross profit margin. Wuliangye, the “king of the Chinese liquor industry” that has a place in the high-end liquor market, has gross profit margins of 72.53%, 69.20%, 70.20%, 72.01%, and 73.80%, with an average of less than 72 %, Inferior to Dr. Glasses.

There are three main sources of profit for Dr. Optics: the difference between purchase and sales, supplier rebates and other business profits. Among them, the difference between purchase and sales is the most important source of profit for PhD glasses. From 2014 to 2016, the ratio of the purchase-sale spread to the gross profit was more than 90%.

From different perspectives, the focus is different. It is often said that the eyewear industry has a huge profit, mostly based on gross margins that are too high. However, Dr. Glasses itself is just rich in appearance.

02Where's the profit?

From 2014 to 2018, the net profit margin of Dr. Optics' sales has been hovering around 10%, and at the highest it was only 11.07%.

Similarly, the net profit margin of Wuliangye, which has the same high gross profit, has been maintained at about 30% per year. The net sales margin of Fuling mustard in 2018 has also reached 35%.

So where are the profits of Dr. Glasses?

This is naturally inseparable from sales expenses, management expenses and financial expenses. In the first half of 2019, the sales expenses of PhD glasses were 155 million yuan, and the sales expense ratio was 50.32%; the management expenses were 30.596 million yuan and the management expense ratio was 10.06%; the financial expenses were 410,600 yuan, which can be ignored.

It can be seen that the main reason for the low net interest rate is the high sales expense ratio.

The sales cost of PhD glasses includes rent, property, utilities, wages, social security, amortization of decoration costs, depreciation costs, freight, advertising business promotion costs, e-commerce platform and agency operation costs, post and telecommunications costs, etc.

Among them, the rent, property, water and electricity costs were 76.233 million yuan, and the wages and social security were 59.353 million yuan. These two expenses are the largest, totaling 136 million, accounting for 87.74% of selling expenses.

The cost of rent and labor is the biggest cost of Ph.D. glasses, and this is also a common problem in the traditional glasses retail industry.

Near the China-Japan Friendship Hospital in Chaoyang District, Beijing, Li Liang runs an optician store that he took over from his parents. There are not only large hospitals around this optical shop, but also many schools, such as Beijing University of Chemical Technology and Beijing University of Chinese Medicine, etc., which have a large flow of people, and there are neighborhoods. This may be an important reason why this optical shop has been passed down for two generations and has been operating for 20 years.

Beijing has a lot of land and gold. If the site is selected in a good location, the rent must be a small proportion of the cost of the optical shop. If you add the labor cost, what would the cost of an optical shop be?

Li Liang told the city that the situation of his own optical shop is similar to that of Dr. Optics. The gross profit margin is indeed very high, but the cost of store rent and labor is also high, resulting in a low net profit margin.

Li Liang calculated a bill: the rent is 300,000 yuan a year; a shop has at least 3 employees, with an average monthly salary of 7,000 yuan; the store decoration fee is 100,000 yuan, which can generally be used for five years and ten years; If you get 200,000 yuan, you can use it for 6 to 10 years. There are also water and electricity fees, Meituan annual fees, logistics fees, after-sales costs, and machine maintenance costs ...

According to Li Liang's years of experience in the industry, if an optical shop has an average of 10 pairs of glasses a day, it is already a good business, but this is rarely the case. The average optical shop is about 4 pairs a day, and the average unit price is 700 yuan. Not low, plus the income of some contact lenses and care solutions, the gross profit for a day is around 2500 yuan.

 

In this way, the net profit of an optical shop for one year is about 260,000 yuan.

The operating efficiency of Dr. Optics' stores is not as high as that of Li Liang.

As of the end of June 2019, Dr. Optics has a total of 409 stores, including 379 directly operated stores and 30 franchised stores, distributed in 20 provinces, municipalities and autonomous regions.

If the net profit of Dr. Optics is averaged to a single store, in 2018, the average net profit contributed by each store to Dr. Optics is 146,500 yuan; in the first half of 2019, the average net profit contributed by each store to Dr. Optics was 61,500 yuan.

Li Liang has been hesitant to open a new store this year. "It is difficult to make a profit in a new store. There are no old customers, only new customers, and no one else knows it. You may only see it when you pass by. It is good not to lose money for the first two years.

03Are e-commerce disruptors?

The optical industry is fiercely competitive, and Li Liang has witnessed the fate of other nearby optical stores. "It's open, it's closed more." Li Liang said, there are already three or four colleagues close the store near his optical store.

In the expansion process of Dr. Glasses, it is also on and off.

In 2018, Dr. Optics opened 74 new stores, including 66 directly-operated stores and 8 franchised stores; in the same period, 46 closed stores, of which 42 were directly-operated stores and 4 joined stores. As of the end of 2018, there were 405 stores, of which 377 were directly operated stores and 28 were franchised stores.https://www.gift-package.com/