Pearle Vision, Inc.

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Pearle Vision, Inc.

2543 Royal Lane
Dallas, Texas
U.S.A.
(214) 277-5000
Fax: (214) 277-5962

Wholly Owned Subsidiary of Grand Metropolitan plc
Incorporated: 1961
Employees: 4,000
Sales: $601 million
SICs: 5955 Optical Goods Stores; 6794 Patent Owners & Lessors

Pearle Vision Inc., a subsidiary of British food conglomerate Grand Metropolitan pic, is one of the largest optical retailers in the world. In 1994 there were more than 900 Pearle Vision stores operating worldwide, including 720 U.S. outlets and about 180 stores in Canada, the Netherlands, and Belgium. About half of those stores were franchised. After reaching a downswing in profits in the late 1980s, Pearle returned to profitability once it restructured its operations during the early 1990s.

Pearle’s rapid rise to leadership in the optical retail industry began in 1961, when Dr. Stanley Pearle opened the first Pearle Vision Center in Savannah, Georgia. Although the store was among many optical retail stores competing at the time, Pearle’s shop was different and represented a major breakthrough in the eyecare industry. The shop’s distinguishing characteristic was that it offered comprehensive, one-stop eyecare: It combined complete eye exams with an extensive selection of eyewear and convenient store hours. Thus, for the first time, a person could go into a store, get an eye exam and prescription, select a pair of glasses and pick up the finished glasses a few days later. The consumer benefited from not having to visit both an optometrist (eye doctor) and an optician (one that makes and sells eyeglasses and contact lenses). Dr. Pearle profited by providing both diagnostic and treatment services.

Pearle’s innovative store was a hit, and he enjoyed immense growth and profits during the 1960s and 1970s. But his was not an overnight success story. Pearle was born in Pittsburgh in 1918 and graduated from high school in 1936. Because of the severe recession at the time, he was unable to attend college. Pearle was able to find a job, though, and later started optometry school in Chicago. He graduated in 1940 and headed back to Pennsylvania to take the optometry exam, but he ended up in Texas. “I went back to Philadelphia to take the Pennsylvania State Board of Optometry exam. In those days, you had to wait two months before you knew whether you passed—an eternity for a young man waiting to start a career,” Pearle recalled in company annals. “A fellow optometrist suggested we both go to Texas where they announce the test results the next day. So, I scrounged up $100 for expenses and a train ticket to Texas, took the state board exam, and passed. Although I found out that I had passed the Pennsylvania State Board, I just never left Texas.”

Pearle started out in the optometry business, but his erratic career took several turns. He served a tour a duty with the U.S. Navy during World War II before returning to private practice in Corpus Christi, Texas. In 1948, he joined Lee Optical as a junior partner. He worked at Lee for ten years before striking out on his own in 1958. Pearle was still living in Texas at the time he decided to open his own shop. He was drawn to Savannah, Georgia, however, because he believed that the area offered greater opportunity. The move was profitable for Pearle, whose unique concept flourished. “My idea was to create modern-looking optical shops that combined top-quality service and products, convenient locations, expanded hours, competitive prices, and a better selection of eyewear styles,” related Pearle. “Before that, eyeglass wearers had only a few styles to choose from, and all the dispensing was done out of a small area in the optometrist’s office.”

Throughout the 1960s and 1970s, Dr. Pearle added to his chain of Pearle Vision Centers at a rapid clip. In addition to building new outlets, he developed the company by purchasing other optical stores. Importantly, Pearle was joined by two other industry innovators in 1971—Robert Hillman and his partner Larry Kohan. Hillman, the son of an optician, had opened his first eyewear store, in 1966, at the age of 23. Like Pearle Vision, the Hillman-Kohan chain expanded during the late 1960s by innovating. The partners are generally credited with inventing one-hour eyeglasses services and with helping to pioneer the trend toward eyecare superstores. By 1971, the Hillman-Kohan chain had swelled to 17 stores. Pearle became interested in both the stores and their founders. He approached Hillman and Kohan, who agreed to sell their chain to Pearle Vision for $7 million. Hillman and Kohan both stayed on at Pearle Vision and, throughout the 1970s, helped to take the Pearle Vision chain national. Hillman and Kohan left the organization in 1980 and started Eyelab, the first true eyeglasses superstore.

Pearle Vision expanded its one-stop shop outlets across the United States during the 1970s and early 1980s. Throughout the period, Pearle benefited from demographic, legal, and market trends that bolstered overall industry sales and profits. The Federal Government, for example, eased restrictions on advertising by optometrists. In addition, Pearle continued to innovate and create new opportunities. In 1981, for example, Pearle began franchising its stores as opposed to owning all of them: Franchisees paid Pearle a ’fee to use the respected Pearle Vision name and proven business format, and Pearle trained them and helped with purchasing, marketing, lab processing, distribution, and other aspects of the business. Similarly, in 1984, Pearle introduced its successful Managed Vision Care unit, which offered a comprehensive vision benefit service to managed health care providers. The Managed Vision Care plan allowed managed care companies to provide benefits such as prepaid exams and optical materials for as little as $5 per member per year.

After more than 20 years of steady growth, the Dallas-based Pearle Vision was among the largest optical retailers in the world with stores throughout the United States. But it was destined to increase in size even further. Indeed, in September of 1985, Pearle Vision was purchased by Grand Metropolitan pic. Grand Metropolitan was one of the largest international companies in the United Kingdom and was a global leader in the food and beverage industry. Grand Metropolitan considered Pearle Vision a worthy diversification, and it believed that it could use its own financial might to help Pearle dominate the increasingly consolidated retail optical industry. The 68-year-old Dr. Pearle remained active in the company as a consultant and as a representative in Pearle Vision’s government relations.

Backed by Grand’s massive capital base, Pearle Vision executives launched an aggressive expansion initiative during the late 1980s. They engineered the acquisition of a number of smaller chains in an effort to boost Pearle’s market share and increase the company’s economies of scale. By 1990, the Pearle chain had ballooned to more than 1,000 stores, including outlets in Japan and Europe. Unfortunately, an economic downturn, beginning in the late 1980s and dragging through the early 1990s, hurt Pearle’s sales. Augmenting Pearle’s woes was increasing competition from both small and large rivals. Major chains like Precision LensCrafters and Cole Vision Corp. were aggressively competing with Pearle on a national scale, as were a growing number of giant warehouse and club chains. Likewise, a number of smaller regional operations were pressuring Pearle in local markets. For example, former Pearle Executive Hillman was back in the eyecare game with his latest venture, Hillman Eyes, a growing chain of eyecare discount superstores.

Partly as a result of intense competition and the sluggish economy, but also because Pearle had tried to grow too quickly in the eyes of some observers, Pearle’s financial performance deteriorated. Sales rocketed to a record $670 million in 1991 as Pearle’s chain of stores vaulted to 1,054. But profits were elusive. The company’s financial details were buried in statistics reported by its parent, Grand Metropolitan, but the Dallas Business Journal reported that former Pearle executives estimated that Pearle lost money in 1991. Recognizing the urgency of the situation, Grand Metropolitan took bold steps to turn the company around. Grand effectively jettisoned Pearle’s existing management team and brought in a new group. Bob Stetson was named president and chief executive and put in charge of the reorganization. Stetson had formerly served as an executive at Burger King, another Grand Metropolitan subsidiary.

Under Stetson’s direction, Pearle slashed six of its nine layers of management as part of an effort to bring executives closer to customers. Furthermore, each division of the company was set up as a separate business unit, allowing each a greater degree of autonomy. Pearle laid off about 150 employees, including about 15 percent of the workers at its Dallas headquarters and four percent of its field force. Importantly, Stetson devised an ambitious franchising effort. He announced plans shortly after his arrival to begin selling franchises to people other than optometrists, opticians, and ophthalmologists. In theory, any entrepreneur would be considered a franchisee candidate. The strategy represented Pearle’s response to the sweeping industry trend toward discounting. Stetson estimated that the plan could potentially double the number of Pearle outlets within five years and boost system-wide revenues into the $1.5 billion range. An important corollary of the tactic was that in the short term it would bring much needed cash into Pearle’s coffers.

Grand Metropolitan didn’t like Stetson’s strategy. After less than a year, Stetson was replaced by David +Nardle. “It was more of a philosophical difference,” explained Ron Nykiel, senior vice-president at Pearle, in the October 2, 1992 Dallas Business Journal. “Where Bob wanted quantity, David wanted quality.” Nardle sustained Stetson’s cost-cutting drive. He also pursued the franchising effort, although he tweaked it slightly. Rather than focusing on selling franchises to new store owners, Pearle would concentrate on making franchisees out of some of its existing store operators. By doing that, Pearle would enjoy an influx of up-front cash from the new store owners, albeit at the expense of long-term corporate revenue and earnings. The effort was also expected to improve the performance of formerly Pearle-owned stores because the new owner would have a greater incentive to run the business more efficiently.

Augmenting the franchise strategy was an ongoing program initiated by Pearle’s human resource department in 1991. Vice-president for Human Resources, Roy J. Wilson had spearheaded an effort to change the compensation system for the managers of Pearle-owned stores. He was given the go ahead to implement his program after Pearle executives recognized that fran-chised stores consistently outperformed company-owned stores in profitability. To improve the performance of Pearle’s store managers, Wilson and his subordinates devised a system that would empower the managers to make their own decisions and derive greater benefits from their successes. Part of the program entailed an unlimited bonus influenced by profit figures under the store manager’s control. The initial results of the “Opti-preneur” program were impressive. In the first few months, the 14 stores tested increased their profits an average of 185 percent. Some store managers earned bonuses of more than $100,000 in just seven months, and the overall test resulted in hundreds of thousands of dollars in extra profits. Wilson began implementing the program system-wide in 1993.

Grand Metropolitan shook up Pearle’s management again early in 1994 when it hired Glenn E. Hammerle to take the helm. Hammerle left the CEO slot at Crown books to try his hand at hiking Pearle’s performance. Under Hammerle’s hand, Pearle continued to restructure its management and incentive systems during the early 1990s. It also streamlined its organization by selling off stores. By late 1994, in fact, the Pearle Vision chain had been reduced to just more than 900—down from a peak of about 1,100. The number of U.S. stores had fallen from 900 to 720. The remainder of Pearle’s stores were located primarily in Canada, but also in the Netherlands and Belgium. Although Pearle lost its status as the world’s largest optical retailer, in 1994, to LensCrafters, its restructuring paid off. The company reported about $10 million in profit in 1994 from $601 million in sales, which was Pearle’s first surplus since 1990.

Industry trends suggested future growth for Pearle going into the mid-1990s. The business was becoming more competitive, but annual U.S. optical sales had surged from $8 billion in 1987 to $13 billion by 1994. Furthermore, large chains like Pearle had increased their share of the market from less than 30 percent in the late 1980s to more than 35 percent going into 1995. Industry sales were expected to continue rising throughout the 1990s and into the 2000s as the eyesight of aging baby boomers, who are generally willing to spend more for designer eyewear, fades. Pearle’s prospects were enhanced both by its dominant market presence—Pearle controlled more than five percent of the U.S. optical market in 1995 and was one of only three chains with more than 500 stores—and the fact that its reorganization was largely complete.