By: Sam Sutcliffe and Timmy Robinson
Who is Luxottica?
Currently, 64% of the adult population is in need of vision correction, of that, 63% of those who need vision correction, use glasses as opposed to contacts or vision correction surgery. Eyeglasses seem to be a near inelastic good, with Luxottica providing the supply for the ever constant demand of society.
(America, 2006 )
One of the reasons that Luxottica has created a near monopoly over the sunglass industry is due to its licensing agreements with sunglass designers. The firm began by producing and selling complete eyeglass frames under the Luxottica brand. In 1988, the company began negotiating licensing agreements for designer brands like Oakley to Ray Bans. Luxottica was the first sunglass company to sign licensing agreements with designers, giving them a significant advantage over the competitors.
Luxottica expanded on this strategy and began aggressively seeking out and negotiating licensing agreements with many major sunglass designers. Currently, the company has a host of house brands, including Arnette, K & L, Luxottica, Mosley Tribes, Oakley, Oliver Peoples, Person, Ray-Ban, Revo, Sferoflex and Vogue. Whilst the company creates eyewear under license for designer labels, such as Brooks Brothers, Bulgari, Burberry, Chanel, Chaps, Club Monaco, D & G, DKNY, Miu Miu, Ralph Lauren, Prada, Tiffany & Co., and Versace. Luxottica’s contracts with the major designers give it a dominant position in the market.
Competitive pricing strategies
Luxottica has worked to maintain an effective degree of monopoly over the sunglass industry through its use of pricing strategy. The effective pricing strategy can be attributed to two key characteristic, vertical integration and computerization. Convinced of the need for vertical integration, Luxottica began purchasing distribution companies while setting up international subsidiaries and retail stores in order to expand internationally. This gave Luxottica complete control over the product from production to retail.
Del Vecchio pushed the implementation of computerization, resulting with the integration in all facets of the industry’s process, from design to manufacturing to inventory control. This early application gave Luxottica a significant cost advantage over its competitors, allowing it to reduce prices and undercut its competition. A second attribute to the computerization was its ability to make small production runs more efficient, this helped the company adapt to the ever changing fashion trends that govern the industry. Their ability to quickly adapt to the market defines them as an elastic supplier, allowing them to take advantage of changes in the markets demand.
Economy of Scale
Luxottica is an international giant, with sales of over $900 million in 2011 and a profit of $237 million. Luxottica uses its size to lower its production costs to levels that very few other firms can compete with. The industry is nearly a monopoly because it’s virtually impossible for new firms to enter the industry and compete with the low costs of production costs and established infrastructure. Luxottica has 256 million in PPE in 2011, which it uses to specialize production and increase efficiency. Luxottica’s large market share of the glasses retail market also increases their control of the market and price.
Extent of Monopoly
The following is a break down between Luxottica and its closest competitor. Luxottica has a share price that is $30 higher, nearly four hundred million more shares and a much larger market capital.
(Finance, Safilo Group SpA , 2012 ) (Finance, Luxottica Group SpA (ADR) , 2012 )
# of Shares
Does Luxottica still hold a monopoly?
Luxottica still holds a monopoly over the sunglass market, unfortunately due to an increase in cheap overseas labour, their effective pricing strategy has lost its competitiveness. They still hold a strong grasp on the licensing agreements with individual designers, giving them a strong hold over the market. With their size and financial power, they are the most formidable force in the sunglass market.
America, V. C. (2006 ). Vision facts and statistics . Retrieved April 8 , 2012 , from Medical Eye Services : https://www.mesvision.com/includes/pdf_Broker/MESVision%20Facts%20and%20Statistics.pdf
Finance, G. (2012 , April 08). Luxottica Group SpA (ADR) . Retrieved April 08 , 2012 , from Google Finance : http://www.google.com/finance?q=NYSE:LUX#
Finance, G. (2012 , April 08). Safilo Group SpA . Retrieved April 08, 2012 , from Google Finance : http://www.google.com/finance?q=BIT%3ASFL
Group, L. (2011, June 30 ). Financial Statments as of June 30, 2011 . Retrieved April 09 , 2012 , from Luxottica : http://www.luxottica.com/export/sites/default/shared/files/governance/governance_documents/SITUAZIONE_PATRIMONIALE_SRL_300611_ENG.PDF
Group, L. (n.d.). Comapany History . Retrieved April 8, 2012 , from Luxottica : http://www.luxottica.com/en/company/history/