Oakley Inc., based in Foothill Ranch, California, is best known as a manufacturer of high-end, avant-garde sunglasses, which it sells to the tune of over $300 million per year. It is also the company that donated sunglasses to all the miners rescued in the Chile mine disaster of 2010. About one third of those sales are made through the almost 2,000 stores of the Sunglass Hut chain of specialty retailers. The channel relationship between Oakley and Sunglass Hut has been a very good one. The slick Oakley sunglasses attract customers to Sunglass Hut, the margins are high, and Oakley has a channel partner through which it could sell literally tons of its sunglasses. But all this changed when Italian sunglass maker Luxoticca Group SA acquired the Sunglass Hut chain. Luxottica, which owns the famous brand, Ray-Ban, immediately cutback orders of Oakley products to be sold through Sunglass Hut stores to less than 20 percent of what they had been prior to the acquisition. Clearly, Luxottica wanted to move more of its own products through Sunglass Hut, and so in the future Sunglass Hut would have much less shelf space for Oakley products. Oakley’s profit projections and stock prices dropped drastically on the news of this channel upheaval. Discuss Oakley’s channel strategy from the possible downside of channel partnerships or strategic alliances that it had with Sunglass Hut. How might Oakley’s channel strategy be changed to mitigate this kind of problem in the future?
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