Opinion

Network Retailers Make Moves

D_Strom.jpg (7967 bytes)Announcements were recently made by each of the three largest, publicly-owned, national retail network consolidators during the past two months. These announcements have followed a succession of events that, to some degree, reflect these organizations’ desires to expand and the manufacturers’ need to gain more distribution in order to improve their scales of economy and continue to develop new technologies.

In late April, HEARx announced that it committed to purchase up to 90% of its hearing instruments to a hearing instrument manufacturer (reported to be Siemens Hearing Instruments). In exchange, the manufacturer has provided a $7.5-million line of credit, and 20% of the indebtedness (principle and accrued interest) under the line of credit will be forgiven each year as long as the 90% commitment is achieved (see May HR News, p. 64).

In May, HEARx and Helix announced their intent to merge companies (see this month’s HR News, p. 14). If the agreement is approved by all the involved parties (shareholders, etc.), the newly formed company would have annual sales of 80,000-100,000 hearing instruments, according to HR and industry analyst statistics. HEARx has approximately 80 company-owned offices and annual revenues of about $56.7 million, with offices in CA, FL, NY and NJ. Helix has 138 offices and revenues of about $24 million (U.S.), with offices in MA, PA, NY, OH, MI, WI, MN, WA and AZ.

Additionally, as this issue of HR was going to press, Sonus Corp. announced that it had obtained a $20 million line of credit from an affiliate of GN ReSound Corp. for the purpose of making strategic acquisitions of hearing care centers. In return, Sonus reportedly modified its existing non-exclusive hearing instrument supply agreement with the hearing instrument manufacturer. The line of credit and agreement have seven-year terms. Sonus owns 103 centers and has 687 franchised offices in its Sonus Network.

Other announcements have been made within the past 6-8 months regarding network retailers. William Demant Holding A/S, parent company of Oticon and Bernafon, announced a distribution agreement with AVADA Audiology and Hearing Care Centers in which William Demant became a minority shareholder (47% ownership). AVADA is comprised of 163 offices that had reported revenues of $36 million in 1999 (see Dec. 2000 HR News, p. 16). Recently, Helix purchased HEARUSA which has several Internet domain names (e.g., www.hearingaids.com), and HEARx purchased HEAR PO in 1999.

The network retailers mentioned above account for approximately 1200 offices and $180 million in corporate sales. Add to this the other major dispensing groups (Newport Audiology, etc.), the hearing instrument manufacturer networks of Beltone and Miracle Ear, and recent agreements with private offices reportedly initiated by Starkey, and it’s clear that network/affiliated dispensing is alive and well. The independent dispensing networks have also been making gains. For example, AHAA announced last fall that the company signed its 1000th associate to its network of independent hearing care professionals, and estimates that their network now has about 1500 offices nationwide. Audiology Co-op, Marcon and other dispensing groups are also well represented in the field.

Lest dispensing professionals become apprehensive about these trends, a number of things should be remembered. First, at least 80% of hearing instrument dispensing is still performed by privately-owned, non-affiliated offices. For example, the combined market share of Helix and HEARx, should they merge, would be around 4-5% according to HR statistics. This year’s HR Dispenser Survey indicates that less than one-quarter (25%) of offices have an affiliation with a nationwide dispensing network (see pg. 37).

This is not to deny the influence and importance that these dispensing networks—whether public or private companies, or loose affiliations/groups—hold on the hearing care field both now and in the future. However, virtually everyone (including the chain retailers themselves) agrees that as long as a dispensing practice/office—private or otherwise—provides quality care and services, that office will almost certainly prosper and grow.

Karl Strom
Editor-in-Chief