Monday, July 17, 2006

Remember "Disintermediation"

That was a hot word for the way some online businesses were reshaping value chains in the late 90s by eliminating various links. One might think that arbitrage and free markets being what they are, all of the legitimate disintermediation opportunities were exploited years ago.

But here's a new one -- well, it's not new anymore, but it's a lot more recent. Anyone who has ever bought a pair of eyeglasses retail can't help but wonder what kind of scam is being perpetrated. In an era of $19 MP3 players and $300 PCs, we have $250 for an eyeglass frame that just screams "Made in China, $20 per dozen" Not to mention that in many developing nations, people do buy eyeglasses, and the $250 pricepoint would be unimaginable. Then you pay $40+ for lenses (which are pre "ground" and come out of an envelope), and extra for all sorts of protective magical coatings.

About a year ago I googled for discount eyeglasses, thinking that surely out there on the web someone is importing these $1 frames in bulk and would sell them to me for a modest 1000% markup of $10. No luck. Lots of bogus sites, and the legitimate ones were just selling the same "designer" frames at the same price ($1 manufacturing + $5 licensing + $244 American sucker tax = $250)

Fast forward to today: Google for eyeglasses, and you find a dozen sites selling complete glasses (i.e. frames + prescription lenses) online for anywhere from $15 to $50. I tried a pair from a San Rafael company called Zenni Optical (a.k.a. because at that price, really what was there to lose? I had the glasses in a week, they look great, the optics are fabulous, done. Price including shipping: $28. These guys rock out!

The only mystery left is: how can a business make any money selling a pair of glasses at, say, $25. Unlike the commodity MP3 players, these glasses do need a little bit of handling and custom work (cutting the lenses, inserting into frames, packing, etc.) The fast shipping and one-off ordering suggests that the custom work is being done in the U.S., not overseas. Let's say it takes 20 minutes to process a pair, and there is $20 of margin in the $25 glasses. That's $60/hour. Which isn't bad if you've got a couple of employees, low rent, and your production pipeline is full. But if the pipeline has some slack, or you have a manager in there somewhere or any kind of real estate ... that's brutal! Even Wal-Mart's absolute cheapest non-branded glasses were about $65 (frames + lenses) last time I checked...

1 comment:

Anonymous said...

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