TRACKING INFLATION: FRAME PRICES AND THE CPI
Most sectors of the economy have been impacted by rapidly rising costs following the COVID-19 pandemic, and concomitant supply chain and labor issues. Eyewear providers are not immune from these inflationary factors. For example, faced with a rise in frame costs, we must make tough choices on how to maintain profit margins without alienating our patient consumers. Simply raising prices across the board might harm patient perceptions, relationships and possibly weaken sales. Yet ignoring increased costs will hurt margins.
To investigate how the recent inflationary environment has impacted consumer frame pricing we analyzed GPN aggregated data from more than 2,200 ECPs geographically spread across the US. We focused on average list price for frame sales before returns, discounts or allowances. We compared this transaction level data to US Bureau of Labor statistics on inflation over the past three years (2020-2022).
For the same period, we tracked monthly change for three measures as reported by the U.S. Bureau of Labor Statistics, all of U.S. city averages, for all urban consumers, not seasonally adjusted:
- Consumer Price Index (CPI) – measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. This index is also known as top-line inflation or headline inflation.
- As energy prices and food prices can be volatile, excluding these items gives a more basic measurement of core inflation with less economic noise.
- CPI for Eyeglasses and Eyecare – this measure of change over time is derived from diary entries by a small sample of consumers reporting to the US government Consumer Expenditures survey, which includes a question inquiring about recent expenses limited to services and goods provided by opticians, optometrists, and ophthalmologists.
The unadjusted CPI rose 6.3% percent through 12 months ending December 2022, and 6.7% through the prior 12-month period. The CPI for all items less food and energy through 12 months ending December 2022 was 5.4%, up from 5.1% for 12 months ending December 2021. Including energy and food, the 12-month average increase in CPI peaked in June 2022 at 8.7%, and in September 2022 at 6.2% when energy and food are excluded.
The CPI for eyeglasses and eyecare as reported by the Bureau of Labor Statistics rose 1.7% for 12 months ending December 2022, down from 1.9% for 12 months ending December 2021.
GPN transactional data shows an average list price for eyeglass frames of $227.33 in December 2022, up from $218.13 in December 2021. Over the two years, the one-month average list price for frames rose to a high of $227 in December 2022, up from a 2-year low of $205 in January 2021. The rolling 12-month average frame price peaked at $215 by the end of the 2-year period, from a $201 beginning price.
The 12-month rolling average list price for frames as of December 2022 was up 4.27% compared to 3.07% for the year earlier period. The percentage increase in the 12-month rolling average peaked in April 2021, at 9.81%, and was lowest in November 2021 at 2.16%. The April 2021 12-month percentage peak was the result of the low starting point a year earlier: the bottom of COVID induced depression in sales.
While for the 9-year period 2012- 2020 the December unadjusted CPI for all items averaged 1.6% change from prior year, the past 2 years (2021 and 2022) showed rapid price increases, averaging 6.5% per year. Removing food and energy this 2-year average is 5.25%, still inflationary compared to recent past years. Similarly, the GPN tracking of eyeglass frame list prices also shows inflationary increases over the past 2 years, averaging a 3.67% annual increase for 12-months ending in December.
Only the CPI data for eyeglasses and eyecare fails to show similar increases. However, the veracity of this diary, self-reported survey data has been questioned. Unlike transaction data, this metric is subject to memory recall errors and bias.
Frame prices, like virtually all consumer goods, are in an inflationary cycle over the past 2 years. The implications for ECPs are protecting profit margins without loss of sales. Balancing these opposing forces requires careful and comprehensive business review. For example if there is a surplus of frames in inventory purchased at lower costs, margins can be maintained on those items without passing along price increases. In inflationary times its critical to review price setting on an SKU level rather than across the board.
This is also a good time to review other costs to maintain margins, and to consider less discounting and promotions. Review customer segments for end-to-end profitability, their willingness to pay relative to a comparable peer set, and the margin impact expected from a price change. Bundled pricing tiers may be attractive for price-sensitive for consumers while allowing consumers who can absorb the price increases to purchase premium frames.
Be aware that we have to strike a delicate balance when it comes to raising prices enough to offset higher costs— without making products too expensive for consumers, who could always trade down to cheaper alternatives like private-label brands, or worse – switch providers.
Be sure to use your data and analytics to track prices, pay attention to customer reactions, and respond efficiently to competitors’ price moves, and watch your stock levels closely. Review your offerings to see if a value frame line is needed to meet patient expectations. Its critical to train your staff to clearly and confidently articulate your pricing and explain any noticeable increases with options to finance purchases or help in offsetting the cost pressure.
 Bee, Adam, Bruce D. Meyer, and James X. Sullivan, ‘The Validity of Consumption Data: Are the Consumer Expenditure Interview and Diary Surveys Informative?‘, in Christopher D. Carroll, Thomas F. Crossley, and John Sabelhaus (eds), Improving the Measurement of Consumer Expenditures (Chicago, IL, 2015; online edn, Chicago Scholarship Online, 21 Jan. 2016)