Coastal Contacts breaks out from e-commerce with expansion plans

Coastal Contacts Inc., a dominant player in online eyewear sales, is now setting its sights on opening bricks-and-mortar locations in major cities across Canada after a successful test run with a shop in Vancouver.

Roger Hardy, the founder and chief executive officer of Vancouver-based retailer, which claims sales in Canada to one of every five contact lenses and one in every 10 pairs of eyeglasses, says the company’s first physical store has proved to be more successful than just a “short-term lab experiment” and will have two locations in its hometown by this fall.

“The store really initially was all about having a lab to connect us to consumers,” Mr. Hardy said in an interview. “We pretty soon found we were attracting new customers and existing customers.”

That store, located on busy Robson Street in Vancouver with a boutique size of about 1,000-square-feet of retail space, has been ringing in sales of between $2,000 and $2,500 per square foot since it opened in March.

By comparison, Lululemon Athletica Inc. is a an industry-leader with sales cresting $2,000 per square foot, while Hudson’s Bay Co., with its much larger space, has been hoping to boost its sales to about $175 per square foot.

Coastal Contacts, which retails in Canada under the ClearlyContacts.ca banner and Coastal.com in the United States, launched in 2000 on the promise of deeply-discounted rates. It boasts an average price cut of 20 to 50 per cent off contacts and 50 to 70 per cent off glasses compared with optometrists and traditional eyewear retailers, which come with extra rental and labour costs.

The model rankled the feathers of some in the industry who complained consumers should work directly with eye care experts to guarantee service and quality.

According to Mr. Hardy, Coastal’s stores will have the optical professionals on staff and will match the same deals as online. The company hopes to have plans well underway within a year for eight to 10 stores.

The expansion starts at home with a second store on Vancouver’s trendy West 4th Avenue set to open this month, and a replacement store for Robson Street will open this fall when its lease expires at its current location.

“When something’s working this well, it makes sense to look at expanding it to other Canadian cities,” Mr. Hardy said.

The growth to more physical stores surprised some analysts, who didn’t view them as particularly lucrative on their own.

“With Coastal, it’s advertising and education as opposed to we’re going to bring in a lot of revenue,” said Robert Gibson, a retail analyst with Octagon Capital.

The move to traditional retail space began with mall kiosks in Sweden under the company’s LensWay brand, which translated into an online jump in sales.

“The purpose was for old farts like me who weren’t comfortable online,” said Mr. Gibson.
Now, Coastal Contacts has eight permanent storefront locations in Sweden.

Sheila Broughton, a consumer products analyst with PI Financial, said what Coastal is eyeing is part of a trend to return to retailing roots.

“This is not a new concept for online retailers,” she said. “It tends to be part of a number of online retailers' marketing strategies to build awareness and drive sales.”

Canadian online pharmacy retailer Well.ca dipped its toe in the physical world, as has online auction house eBay, which opened a pop-up location and the U.S.-based e-commerce company, Etsy.com, which specializes in vintage and homemade goods.

Investors have watched Coastal’s revenue rise - second-quarter sales grew to $53.7-million for the three months ended April 30, 2013, up 11 per cent from the same period the year before – but profits have suffered from heavy eyeglasses promotions.

In the second quarter, it rang in loss of $6.9-million or 23 cents a share.

But Mr. Hardy views a bright future especially with a balloon in the aging population and the associated eye care needs.

With a current sales mix of about 70 per cent contacts, Mr. Hardy said within the next five years the more lucrative eyeglass market should overtake that.