In the mid-2000s I had (what I thought was) the great idea of establishing a chain of kiosks in major shopping centres selling sunglasses. At the time good quality branded sunglasses cost $150 or more so I was hoping to put together a range of ‘pretty good’ quality, unbranded sunglasses that would sell for $20-$25 per pair. Other than a limited range available at service (gas) stations it was tough to find this product at the time.
I had a few contacts overseas so I travelled to Taiwan and met with some design companies and manufacturers over there. My eyes were opened during that trip. At the first meeting it quickly dawned on me that hitting my retail price point of ~$20 wouldn’t be a problem. I was offered good quality designer ‘knock-offs’ (their words) for about US$2.00 per pair based on a minimum order of only 100 pieces.
The interesting thing was this particular manufacturer was also making the designer equivalent and when I queried what the branded company was paying for the real deal (that looked ‘remarkably’ similar to what I was being offered) the response was $3-4 per pair. These were selling in stores for $150-$200.
This was shocking to me and I quickly lost interest in my sunglasses idea. My reasoning was that if all it took was one overseas trip to organize a 150-style sunglass offering then it was a business with little protection and too easy to replicate. I knew that I could potentially disrupt a sector (at least for a while) but the low barriers to entry, and high potential margins, would quickly attract others and that would make it tough. Due to the increased competition, mall rents would go up and retail prices would fall until the attractive margins were eroded to unviability. So I passed.
Thankfully, for once, my radar worked and I watched this scenario unfold in the malls over the next 2-3 years. These days it is tough to find a specialist operator selling $20 sunglasses in an Australian shopping centre.
I remember thinking that if you could manufacture eyewear so easily and cheaply and trade off the development efforts of the high-end eyewear design firms then sooner or later someone would get their act together and own the discount eyewear sector producing low-priced, reasonable quality eyewear. In the process they would cut a swathe through the incumbents who perpetuated and gorged on the high margins and high retail prices that had existed for many years.
When you can buy 2 pairs of prescription glasses that are of decent quality and style and carry a money back guarantee for just $39, as I did recently, it’s pretty hard to beat in the mass market. A lot of people obviously agree with me too. The business has gone from zero to nearly 40% market share in just six years in Australia.
You can compete on quality and service but when your “low-end” competitor is good at that stuff too then it becomes very difficult. Why would you pay $200 when the $20 alternative does the job?
Where high margins exist it is like moths to a flame for the hungry, disruptive upstarts. They don’t need the margins that the incumbents do. Their cost structure is lower and they know that good (enough) quality at a lower price will always be interesting in a marketplace. Once they get their supply chain working efficiently and their market message tuned up they can be unstoppable, as was the case with Specsavers. Good luck to them. I’m just happy I never got into the sunglasses business…