We all know Ray-Ban, Prada, Oakley. But did you know that they are owned by just one company, called Luxottica?
Luxottica may not ring a bell immediately, but they are a force to be reckoned with. They had an impressive revenue of €9.4 billion in 2019 and drew an impressive 73% of its net retail sales from North America alone. How did this eye manufacturer become so large that it owns nearly all of the top luxury eyewear brands and generates millions of dollars in revenue?
Aggressive expansion across the globe
Eyeglasses go back hundreds of years. The first records of glasses are found in 1268, where philosophers and educational reformers spoke about frames equipped with glass. Glasses to magnify texts, helping people read. In 1784 none other than Benjamin Franklin invented bifocal glasses, enabling the wearer to view close and distant objects. At the time they were spit glasses and held together within the frame. In 1884 the glasses were merged into one single piece. The innovations would spawn new industries and through rapid industrialization those products could now be mass produced. The would go for Luxottica, who during the late second half of the 20th century would become the dominant force in the eyewear industry.
Every company starts small and the same goes for Luxottica. Leonardo Del Vecchio opened his eyewear workshop Luxottica in Agordo in 1961. Leonardo worked as an apprentice, molding medals. In the evenings he learned engraving and design at the Brera Academy. But Leonardo wanted more than just his own workshop where he solely produced the components. His goal was to manufacture the entire frame. 10 years later, the company created its first framed sunglasses. In the same year, Luxottica exhibited its products at the MIDO trade fair in Milan, the epicenter of Italian fashion.
Luxottica began a rapid expansion by buying different brands and manufacturers during the 70s and 80s. Acquiring competitors or complementary companies can be a successful strategy to grow a business. You can purchase the necessary know-how to accelerate your manufacturing or your product features to remain relevant to your current and potential customers. This is something we see today in the technology scene where companies like Apple, Tesla, and Google are buying start-ups that develop technologies they can integrate into their operations. The ethics of this practice can be debated, but to stay dominant in the industry, acquisitions are a viable strategy. Luxottica thought the same. In 1974 they acquired the Italian wholesale distributor Scarrone. In 1981 they paved their way into the international market by opening a German subsidiary and acquired Avant-Garde Optics based in the United States. After going public on the 24th of January 1990, the shopping spree took flight.
In 1990, they acquired Vogue Eyewear, 1992, the Brooks Brothers brand. 1995 Persol. In 1997, Bulgari. In 1999, Chanel and many more. The 90s would also mark the entry into the retail market. In 1995, they would become the first manufacturer in the eye industry that also delivered their products directly to consumers. They managed to achieve this by acquiring LensCrafters, at the time the largest eyewear chain in North America.
During the 2000s, Luxottica obtained more licenses to distribute another batch of luxury brands. In 2003, Prada and Versace were added to the portfolio. Followed by DKNY in 2004 and Dolce Gabbana and Burberry in 2006. In more recent years Luxottica acquired Oakley for $2.1 billion in 2007. An interesting purchase, where they branched out into the sportswear category. Oakley was founded in 1975 by Jim Jannard who started selling hand grips for motocross motorcycles. Nine years later Oakley entered the sunglass market. Twenty years later in 1995, the company went public.
In 2019, Luxoticca finalized its acquisition of Italian-based Barberini. The company was acquired for a modest amount of €140 million. The manufacturer founded in 1963 specializes in high-quality optical glass lenses. Leonardo Del Vecchio, Executive Chairman of Luxottica commented in a press release, ‘Luxottica welcomes to its industrial system worldwide excellence in the production of optical glass lenses. (…) Barberini will allow us to strengthen our technological leadership in the sun and ophthalmic lenses and opens great development opportunities for the future.’
The building of a monopoly
In order to properly place Luxottica into context, we need to define what a monopoly is. We all know what a monopoly is, but what does it truly stand for? Britannica describes a monopoly as follows, ‘A monopoly implies an exclusive possession of a market by a supplier of a product or a service for which there is no substitute. In this situation, the supplier is able to determine the price of the product without fear of competition from other sources or through substitute products.’
As we’ve seen, over the years Luxottica has been acquiring companies within the eyewear industry. Not small ones, but going after the big fish. Luxury fashion brands such as Chanel, Versace, Vogue. Sports brands like Oakley. Wholesalers, manufacturers. They were owning the whole supply chain, from start to finish. The staple definition of a monopoly. But at some point, your capitalist engine is reaching its maximum power and drifting away faster and faster from its competition. Catching headlines with consumers and authorities.
Interestingly enough, in 2017, Luxottica themselves became part of an acquisition. French-based Essilor International bought Luxottica for $24 billion. Bloomberg noted, ‘Four years after talks began, the 81-year-old Italian billionaire said he’s achieving his dream of combining the two businesses, creating one company that’s strong in lenses, frames and eyeglass retailing.’ Bloomberg observed that this would be the biggest acquisition of an Italian business by a foreign company. The company merged into EssilorLuxottica. But it wasn’t enough for this conglomerate.
They were owning the whole supply chain, from start to finish. The staple definition of a monopoly.
In 2019, it sets its sights on acquiring a 76,72% stake in GrandVision. GrandVision has over 7,000 physical stores in over 40 countries, reaching 150 million customers annually. They are best known for brands like Eyewish, McOptic, +Vision, Pearle, and many more. The company is therefore an interesting partner of EssilorLuxottica, which can further capitalize on the eyewear market. Although this merger didn’t go as planned. In June 2020, regulators in the European Union issued a charge sheet concerning the merger. For obvious reasons the regulators were concerned about the growing market share they were obtaining in the wholesale market for eyewear products. In December of the same year, EssilorLuxottica announced it lost interest in the merger due to the decreased performance of the brands within the grand vision portfolio. After acquiring all those companies, it’s not surprising that Luxottica is caught in a firestorm of legalities surrounding its market dominance in the eyewear business. But is a monopoly inherently bad?
When a monopoly goes south
Monopolies come in many shapes and sizes. Investopedia looked at the different monopolies, distinguishing two, the natural monopoly and the government-sanctioned monopoly. A natural monopoly is created to ensure basic utilities such as electricity or water are provided by a single corporation which can be subsidized by the government.
A sanctioned monopoly, as the name implies, a government can force a company to dissolve into smaller ones. History buffs among us will recall the case of Standard Oil in the 19th century.
In 1870 the infamous conglomerate between Rockefeller, Maurice B. Clark, Samuel Andrews came to be called The Standard Oil Company. The businessmen partnered up to combine their businesses and know-how into one oil behemoth. They held key positions in the supply chain, from refining, production to marketing. Combined they controlled up to 95% of the oil production in the United States. Together they possessed enormous purchasing power, able to snatch up competitors. Either by taking them in or bankrupt them into oblivion. In 1899, it became a holding company. They made it impossible for newcomers to enter the market. And even if companies wanted to enter the market, every step of the way, they would encounter Standard Oil. Consumers on the other hand would have no choice but to buy at Standard Oil, may it be knowingly or unknowingly. At this point in time, the federal government wasn’t too happy. Seeing a group of wealthy industrialists capitalizing on a complete market. In 1906, under the Sherman Antitrust Act of 1890, named after the U.S. Senator John Sherman, now in New Jersey-based holding, had to dissolve. They were ordered to divest the 33 companies part of the holding.
Luxottica has the power to rule the market
Luxottica is going the same way as its conglomerate predecessors. It has been acquiring a lot of companies and brands within the supply chain to obtain market dominance. One can argue whether in terms of sunglasses it’s a bad thing. In the market for eyeglasses and sunglasses within the same category, questions can rightfully be raised. Wearers are dependent on them within their daily lives.
A company like Luxottica can raise prices through their retailers and down the line insurers either fork out more money or the consumer has to put down more for a new set of glasses. Luxottica has brilliantly played the game of chess on the capitalist market board game, but sometimes, enough is enough. Regulators will have to split up Luxottica to ensure that competition can thrive and newcomers can enter the market with new and innovative products. If one has all the power, there’s no incentive to change. Only to raise prices to generate more revenue year over year.