Luxottica built an eyewear monopoly through an aggressive acquisition strategy.
Luxottica has grown to become the largest eyewear conglomerate in the world. In 2016, before its merger with Essilor, Luxottica owned 39 percent of the entire global sunglass market. The driving force behind Luxottica’s rapid growth to market dominance has been its founder’s relentless commitment to capture the entire supply chain, cutting out all middlemen and removing any bottlenecks that could threaten its position and reduce its revenue generation. Through decades of acquisitions, Luxoticca has effectively captured the entire eyewear industry with little competition left.
Luxottica acquisition strategy
A key thread in Luxottica’s rise to dominance has been its aggressive acquisition strategy across the entire eyewear supply chain. From manufacturing to retail. There can be a multitude of reasons why a company would consider an acquisition. The primary reason for a merger or acquiring another organization is to generate new growth opportunities, gain a competitive advantage, capture additional market share or get more control over supply chains present in the market. Merging business activities can improve business efficiency, which results in cost reductions. Having control over the supply chain, gives bargaining power, which allows a reduction of costs significantly. In doing so, profit margins are improved.
We will see that a lot of those strategies have been employed by Luxottica across its many acquisitions. In April 1995, Luxottica announced it would acquire the owner of the Lenscrafters optical chain, the United States Shoe Corporation for $1.4 billion. The New York Times noted that the acquisition of Lenscrafters would deliver a strong strategic advance to Luxottica in the United States, where it could expand deliveries and simultaneously expand the brand awareness for its products in the region. Through the acquisition, Luxottica would capture another 5.4 percent of the total retail sales for optical products in the U.S., the news outlet pointed out.
Lenscrafters was a pivotal company in shaping the optical industry, Luxottica noted. In 1983, the fledgling optical retail that opened its doors in Florence, Kentucky, introduced a revolutionary new model for operations. Lenscrafters promised its customers quality prescription eyeglasses within an hour. The unique concept helped the company gain enormous popularity across the U.S. Through the acquisition, Luxottica would become the first eyewear manufacturer to deliver directly to consumers.
In 1999, Bausch & Lomb, home to Ray-Ban, said it would sell its sunglass business to Luxottica for an all acquisition of $640 million. Ray-Ban would join other major brands under the Luxottica umbrella, including Giorgio Armani, Anne Klein and Brooks Brothers. Bausch & Lomb, CNN noted, were looking for a potential buyer for its eyewear business so that it could refocus on its other businesses, including hearing ads and laboratory operations. Six years after the acquisition of Lenscrafters, Luxottica agreed on purchasing Sunglass Hut International in an all-cash acquisition of $462 million to accelerate and solidify its growth in the U.S. market.
In January 2004, Luxottica said it agreed to the purchase of Cole National Corporation, owner of Pearle, for $401 million in an all-cash deal. The acquisition meant that the United States would see a consolidation of the country’s largest optical chains. In August 2007, Luxottica announced it would acquire American sports eyewear brand Oakley for $2.1 billion. The acquisition would serve a vital role in increasing economies of scale and expand Luxottica into new eyewear categories. Oakley meanwhile had been scaling down its clothing operations, Reuters noted, while investing into its eyewear product category.
A year later in 2008, Luxottica acquired Satisloh from Swiss company Schweiter Technologies AG, for $340 million in cash. Satisloh is a global leader in turnkey solutions and machine manufacturing for ophthalmic and precision optics lenses. The company is a major supplier for prescription laboratory equipment. Additionally, the company is debt-free, hence generating profit from the moment it becomes part of the Luxottica group. Through the acquisition of Satisloh, the company further solidified its hold on the global eyewear supply chain.
Del Vecchio’s vision
The mastermind behind the rapid rise and dominance of Luxottica was its founder Leonardo Del Vecchio. In October 2012, CEO of Luxottica Andrea Guerra reflected on what made the company’s founder such a successful businessman. Guerra said that Del Vecchio, born in 1935, grew up poor as the sixth child in a large family. With his mother unable to take care of him, he was sent to an orphanage as a young child. For several years he stayed at the institute. Afterward, at the age of 14, he started as an apprentice. He learned the trade of becoming a metal engraver where Del Vecchio proved to be a skilled worker, having a knack for tinkering.
An eyewear manufacturer, who one day visited the workshop, saw the potential in Del Vecchio. They invited him to come work at the factory up in the northeast of Italy. At the factory, Guerra explained, he helped create the molds for the intricate parts of the glasses. This sparked within him a desire to become the largest eyewear company in the world. Guerra continued that Del Vecchio’s belief that glasses were crucial for one’s vision served as proof for a viable business model. Not only were they beneficial to our daily lives. Glasses also represented a lifestyle. A reflection of our personalities.
Del Vecchio’s belief was solidified over the second half of the 20th century. Before the eyewear market would become as massive as it is today, sunglasses were primarily worn by celebrities during the 1920s. Sunglasses allowed superstars of the day to become anonymous and it hid the red eyes actors had due to the bright klieg lamps present in the studios. Back then the majority of sunglasses weren’t worn for protection from harmful UV-rays. Adversely, these celebrities created a new market for fashion items. Over the 1930s millions of sunglasses were sold. Glasses still had to experience their Renaissance.
Sunglasses were experiencing their mass market debut and Del Vecchio believed glasses could be a fashion statement as well. Hence it was he, Guerra said, who drastically changed how fashion houses looked at glasses, starting with Del Vecchio reaching out to Armani. Prior to Luxottica’s vision taking off, the wearing of spectacles was primarily considered a healthcare affair. While their initial purpose hasn’t changed since their introduction, spectacles were given to troops in the First World War. In 1948, shortly after the Second World War, the National Health Service made spectacles freely available to those who needed them. This launched spectacles well into the mainstream for decades to come.
Luxottica’s dedication to acquiring as many competitors and suppliers continued well into the 2010s, which saw the company expanding beyond established markets such as the United States and Europe. In January 2017, the conglomerate purchased the Brazilian optical chain Oticas Carol for $117 million. The acquisition came shortly after its $50 billion merger with Essilor. Reuters noted that Luxottica was already present in Brazil through Sunglass Hut, a manufacturing facility and wholesale business. By acquiring Oticas Carol, however, it would unlock an additional distribution network of 950 outlets, significantly improving its direct-to-consumer strategy in the country.
Vertical integration
Del Vecchio’s conviction has always been to remain as independent as possible, not relying on anybody for success. This was a driving force behind the company’s relentless pursuit of vertical integration. This tipping point came in 1974 when Del Vecchio realized that the company had to change course in order to become the most powerful and largest eyewear conglomerate. Del Vecchio believed this vision could be achieved by selling its products directly to consumers, skipping middlemen who acted as a limiting factor to Luxottica’s growth.
The strategy for vertical integration started with the acquisition of Italian wholesale distributor, Scarrone S.p.A, who possessed unique know-how about the country’s eyewear market. A little over a decade later, in 1988, Del Vecchio closed a licensing deal with Giorgio Armani, knowing that eyewear would go beyond its medical purpose, as highlighted by Guerra during the 60 Minutes interview. These initial steps served as the precursor for the many strategic acquisitions that followed in the decades to come, becoming a hallmark for Luxottica’s signature growth strategy.
Vertical integration has been a tried and tested strategy to optimize operations. By taking ownership of the entire supply chain, organizations can improve efficiency, reduce costs and maintain control over the distribution process. Vertical integration has been a staple strategy laid out by Apple’s CEO Tim Cook who has been working on operational excellence to reduce costs in order to increase profit margins. In practice, adjusting business operations through vertical integration sounds very straightforward, however, Investopedia notes that rolling out this strategy requires high upfront costs. Luxottica spent billions on solidifying its supply chain.
Profit margins are known to be staggeringly high in the eyewear industry, with Luxottica being able to charge inflated prices to end-users through its hold of the market, including the industry’s supply chain. In May 2019, former executive at one of the leading frame suppliers of LensCrafters, Charles Dahan, revealed to the L.A. Times that Luxottica ensured there was no competition left in the market, allowing it to markup prices for frames by up to 1,000 percent. By acquiring LensCrafters, and its competitors, Pearle, Sears, Sunglass Hut among others, it captured the majority of the designer frame market.
Vertical integration is not without its drawbacks. There are several disadvantages apart from the upfront costs. A company can lose its ability to anticipate market changes. We’ve seen this at organizations such as Sony who’ve grown so large due to early successes that have been unable to reorganize for a rapidly changing global market, primarily in the smartphone market where Apple set in motion a disruptive recalibration of the mobile devices industry. Additionally, by needing to oversee so many operations, a company can lose sight of its primary customer.
Mega-merger
In January 2017, Europe’s largest cross-border merger was about to take place with Luxottica and ophthalmic lens and optical equipment manufacturer Essilor agreeing upon a merger worth $49 billion, consolidating the company’s to an annual revenue generating operation of $16 billion. Through the merger both parties would establish a global dominance, capturing the entire supply chain, from prescription eyewear to fashion sunglasses. Analysts at JPMorgan Cazenove, cited by Reuters, said the merger made a lot of strategic sense as it would end the rivalry between two opposing forces, as two companies were eating into the same market.
This was made apparent through Essilor’s online retail acquisitions and Luxottica’s investment in lens manufacturing, both tapping into each other’s business models. Reuters noted that both companies struggled to maintain growth, seeing competition increase from e-commerce vendors and cheaper alternatives. Luxottica and Essilor were both looking at Asia and Latin America for new growth opportunities. The news of the merger led to unrest and reluctance among industry players, who feared the newly formed company would threaten many existing parties.
In February 2017, Gordon Ilett from the Association of Optometrists told the BBC that merger would increase the control of both parties over the worldwide eyewear supply chain, including a stronger bargaining position over the terms and conditions set for its customers. Adding that consumer choice would be impacted, as few players would remain, ultimately leading to a reduction in product quality. This sentiment was shared by a leading U.K wholesaler who said the merged entity would be able to push competitors out of the market. If they decide to create a branded frame, he warned, they would control the product offering to opticians and to end-users.
The merger, while successfully completed, wasn’t finalized without some hurdles along the way. In July 2021, Luxottica received €125 million ($135 million) from the French Competition Authority for price-fixing and forbidding retailers from selling products online. The French market authority examined practices from Luxottica between 2005 and 2014, finding that the company was offering retailers recommended prices for its licensed brands, including Armani, Burberry, Chanel, among others, preventing them from receiving discounts or promotions.
In August 2023, Associate Competition and Antitrust Practice, Elif Naz Semercioğlu and Of counsel, Barış Yüksel at Balcıoğlu Selçuk Ardıyok Keki Attorney detailed how LuxotticaEssilor had breached several commitments when applying for merger approval according to the Turkish Competition Authority (TCA). The authority concluded that both entities had violated competition laws by combining its ophthalmic lens and ophthalmic machinery business, which caused an environment that would exclude competitors from the market.
The merger, which was admitted in 2018, received approval from the TCA, while pointing toward the possible negative market implications as Essilor was operating in the production of ophthalmic lenses, machinery and equipment, while Luxottica acted as a wholesaler for retailers of optical frames and sunglasses. An approval of the merger would close the supply chain for active and new entrants in the eyewear market. Both companies would make concessions that would ensure the merger wouldn’t disrupt the Turkish optical market.
LuxotticaEssilor would not create tied sales where it would not combine the sales of Essilor’s product offering with the retail activities from Luxottica to Turkish opticians. Additionally, both entities would not add exclusivity clauses on opticians for purchasing its products, not allowing them to make purchases at competitors. However, into 2018, exclusivity clauses were found in contracts designated for opticians. Furthermore, the entity offered bundled purchases, which went against one of the merger approval commitments. Violating of the commitments eventually led to the TCA giving LuxotticaEssilor a fine of €17 million ($18.38 million).
The myopia market
The deal would prove beneficial for Luxottica and Essilor, both being aware of the rising need for prescription glasses as levels of myopia, better known as short-sightedness, started to grow exponentially around the world. While Luxottica’s strategy has been marked by aggressive acquisitions, they were all calculated moves based on global trends. Myopia can and is a burden to many, but Luxottica, by acquiring Essilor, was perfectly positioned to tap into this growing market. In October 2024, the World Economic Forum warned that in 2020 around 2.4 billion people were short-sighted, referencing data collected by the World Health Organization (WHO), with researchers estimating that the number of people with the eye condition would increase to 3.4 billion by 2030, primarily affecting children.
Furthermore the cases of high myopia, a debilitating form of short-sightedness that can have multiple adverse health effects. The increase in myopia not only affects the people suffering from it, but it can also lead to an increased financial burden for countries, who will experience a productivity loss of over $200 billion. Without the proper intervention, the World Economic Forum notes, quality of life can be impacted and lead to lower academic performance in children. The rise of myopia can be ascribed to children growing up indoors for longer stretches of time, spending more on screens than previous generations.
This trend has only been amplified by the CODIV-pandemic, which forced many children to follow courses indoors. While further eye degradation can be prevented by promoting outdoor activities, much of the damage cannot be reversed, explained pediatric ophthalmologist at Children’s Eye Care in Kirkland, Wash, and member of the American Academy of Ophthalmology, David Epley, during an interview at the NPR in July 2023. Epley detailed that myopia cannot be reversed as the eye had already grown. Eye degradation can be slowed down however, by ensuring children engage in outdoor activities for at least an hour a day.
In an interview with the Guardian back in 2012, Essilor’s chairman and chief executive, Hubert Sagnières, he already noted the change in our lifestyles, which were taking place inside more and more. During the interview, Sagnières pointed toward his smartphone, showing the modern times we had found ourselves in. He and his profitable company wanted to equip the planet with eyewear for decades to come, commenting that governments alone won’t be able to solve all problems.
The global revenue of Essilor proved Sagnières was right on the mark. At the time of interview, Essilor had a revenue of €4.98 billion ($5.38 billion). This figure started to grow steadily, exceeding €6.71 billion ($7.25 billion) by 2015 and peaking in 2019 with €7.75 billion ($8.37 billion). Essilor was on a steady trajectory, proving a worthy candidate for Luxottica. Additionally, Essilor wouldn’t unlock a direct connection to the end-user through Luxottica’s vast distribution network. Essilor didn’t need to worry about the increased competition from the ever expanding eyewear behemoth that Luxottica was becoming. The merger was dubbed as a category killer an investor in the sector told The Guardian.
Becoming a monopoly
Luxottica’s rise to become an eyewear monopoly has been the dream of its founder Del Vecchio, who proclaimed market dominance as its raison d’etre. In the early days of the company’s formation, Del Vecchio was focussed on abolishing all hurdles that could threaten Luxoticca’s position. Reliance on others was a weakness and they could eventually turn on the company and push it back into the nothingness it had come. Del Vecchio’s went on a relentless, aggressive acquisition spree to purchase every part of the eyewear supply chain. Acquiring manufacturers, distributors and retailers across the entire product value chain. The company took hold of the most valuable consumer brands, linking them to the manufacturing experts, who now couldn’t bring their own rivaling product to market.
By aggressively expanding its operations, Luxoticca, before the merger with Essilor, captured large chunks of the eyewear market. In 2016, Luxoticca held 26 percent of the global sunglass market, while Essilor held a modest 8 percent. Another twenty percent was operated by the following top 10 companies. Since the turn of the millennium, Luxottica’s market cap has been growing exponentially. On the 31st of December 2004, the company held a market cap of $7.98 billion. The capitalization dropped to $7.33 billion by 27 February 2009, a period where the global economy entered a deep recession.
As years progressed and Luxottica started to acquire more companies, including behemoths such as Oakley and Pearle, the conglomerate saw its fortunes turn for the better. By April 2011, Luxottica’s market capitalization had doubled from its 2004 figure, reaching $17.51 billion. As the merger with Essilor was completed, forming EssilorLuxottica, the company’s market capitalization skyrocketed to $48.98 billion in October 2018. From this point onward, EssilorLuxottica market cap kept growing, sitting at a comfortable $106.55 billion in October 2024 with little signs of slowing down.
