THERE IS A COMPANY AMONG US WHICH DEALS IN SPECTACLES & SUNGLASSES AND YET, ITS MONOPOLY IS STILL INVISIBLE! HERE'S HOW.
Such is the dichotomy of this business that it compelled me to get out of my writer's block & write a sizzling piece on the same. The company in focus today is Italian Giant Luxottica, a barely known name which sells a billion pair of eyewear in a year alone!
The business model of Luxottica is a pure marvel & a prime exponent of something called "Vertical Integration" which essentially means that a company has dominant control over the production cycle of a particular product from the extraction of raw material to the assembly of the finished product. Started by the ambitious Leonardo Del Vecchio, Luxottica had humble beginnings. From starting a frame factory at Agordo to building a global business empire, it seems like we have another Leonardo who will be leaving a dent in the universe.
THE GENIUS MODEL
If there would be one word used to describe Del Vecchio, perhaps the most appropriate would be daring. The guy single-handedly changed the dynamics of an extremely fragmented & unorganized industry through the power of his forward-thinking & execution. He grew his business by simply going on an M&A spree.
Making a spectacle is way more complex than it seems. There are hundreds of different small components which have to manufacture & assembled to create a finished frame. The image below is a very basic explanation. Luxottica went on to acquire all these component makers under one corporation and create manufacturing synergies to produce at mass with greater profiteering. Hence, a frame could be built by a company from scratch!
After establishing its own dominance by supplying specs to all major opticians across the lucrative markets of Western Europe & North America, it bought out retailers around the world like Sunglasses Hut, Apex, Spectacle Hut, LensCrafters, OPM, Pearl Vision and thousands more (arriving to the grand total of over 9000 official company stores worldwide. Thus, it could now load these stores by selling their own frames under the various brand names (more on them later). As per Statista, Luxottica has a market share of 39% in the global sunglasses industry (and a very dominant one in the Western Markets). It also used its retail dominance to slash orders of competing brands & then buying them outright after lowering their valuation (erm, yes this is true, check here).
After that, it bought a host of popular established brands and continued to sell them under their distinct brand name in their retail outlets (which were also named distinctly). Hence, the common man has had little to no whiff of their grand scheme. The picture below is the list of all brands owned or exclusively licensed to manufacture and sell by Luxottica.
(Yes, even Lamborghini sells eyewear :)
After buying the half of retail outlets & most of the eyewear brands, the company made spectacles & sunglasses cool again by joining forces with fashion houses like Prada & Ralph Lauren. It seems like consumers were willing to pay 1000 times the cost price of a product if it was designed by fashionistas.
If that wasn't enough, the company then went further ahead & acquired a health company based on Vision Care (the second largest of its kind in the USA) & other smaller insurance organisations based on eyecare.
To put the icing on the cake, Del Vecchio went on & merged with the company which made the only part of eyewear he couldn't- lenses. And that too the largest lenses maker in the world- Essilor (which has a reported market share of 40% in the global lens market). Crazy isn't it that this deal went through?
This company is a clear monopoly & a money machine. With its slew of retail outlets, owned & licensed legacy brands and regulatory approval of a merger of epic proportions. Luxottica (EssilorLuxottica these days) is all set to loot the consumers for the foreseeable future by charging outlandish prices & finding consumers willing (and sometimes forced) to pay.
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Happy reading!