The hidden monopoly in eyewear

How EssilorLuxottica, a business uncommon to many investors and consumers, holds over 80% of all brands, and an estimated global market share of over 50%. Yet, no one appears to know or care.

If there is only one key point you should take away from this article, it’s this:

The eyewear industry is dominated by an invisible empire, EssilorLuxottica, which controls nearly 80% of global eyewear production. What you think are exclusive designer glasses from luxury brands like Chanel or Ray-Ban are actually produced by this one company, which has built a near-monopoly through strategic acquisitions and a vertically integrated business model.

This story is something special. We recommend you read it from start to finish!

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Imagine this: You’re looking to buy the most beautiful designer glasses, let's say a pair of Chanel sunglasses (see image below).

You take out your credit card and pay €1550 (roughly $1724).

Your favorite luxury brand, Chanel, designed and manufactured them, making you want to buy them.

But nothing could be further from the truth!

Why? Most people are unaware that a single company, which one man has grown into a monopolistic empire, produces nearly 80% of all eyewear globally.

We’re talking about EssilorLuxottica.

Introduction

Today, we're diving into the incredible story of Leonardo Del Vecchio the founder and former CEO of EssilorLuxottica. We’re going to tell you the story of how he built an invisible empire that dominates the eyewear world, and how you can (potentially) benefit from this company as an investor.

Before we tell you the incredible story of EssilorLuxottica and its founder, Leonardo Del Vecchio, let us explain why we believe they have a monopoly hidden in plain sight.

Here are some stats and facts:

• EssilorLuxottica controls at least 60% of the U.S. eyewear market and has a similar dominance globally, with a 42% market share in corrective lenses.

• The company owns 17.500+ retail locations worldwide, which far exceeds its competitors, with the largest rivals operating a maximum of 500 locations each.

• EssilorLuxottica produces over 1 billion glasses and lenses annually and manages a portfolio of 150 brands, such as: Ferrari, Chanel, Persol, Oliver Peoples, Vogue Eyewear, Giorgio Armani, Brunello Cucinelli, Chanel, Coach, Dolce & Gabbana, Jimmy Choo, Michael Kors, Moncler, Swarovski, Tiffany & Co. and many more!

• The company spends €600+ million on R&D, which is four times more than all its competitors combined.

• Ray-Ban, one of EssilorLuxottica's brands, is the most recognized eyewear brand globally, with 89% brand recognition. They also own the biggest sport eyewear brand, Oakley.

• EssilorLuxottica operates (the only) vertically integrated business model in the eyewear industry, controlling every step from product development to retail, including ownership of 600+ factories and 128 distribution centers around the world.

• The average retail price of a simple eyeglass frame is around $230, with production costs as low as $4-$15 per frame, leading to mark-ups that can exceed 1000%. This is what he said when he was younger (and still alive):

"You get rich by selling $2 sunglasses for $150 bucks and aggressively running out/buying your competition. "

• The merger between Essilor and Luxottica, valued at $32 billion, has made it almost impossible for competitors to operate at the same scale, raising concerns about monopolistic practices.

Sounds like an interesting company and want to know more? We did an entire fundamental analysis covering all aspects for you!

Well, if this doesn’t sound like a monopoly, we don’t know what is.

The birth of an eyewear monopoly

Let’s start at the beginning.

Leonardo Del Vecchio was born in 1935 in Italy, during the harsh regime of Mussolini. His father, a poor vegetable vendor, passed away before Leonardo was born. Growing up in Milan with five siblings, he was the youngest in the family. The war ravaged Italy's economy, pushing the already struggling family into deeper poverty. In a heart-wrenching decision, his mother sent 7-year-old Leonardo to an orphanage run by nuns. According to the nuns, Leonardo cried for a month straight, not surprising for a child abandoned at such a young age. The orphanage was strict but fair, with one rule: everyone had to learn a trade. And it was here that Leonardo discovered his passion and talent for crafting things.

In 1961, with the little money he had saved, Leonardo moved to Agordo, a small town in Italy and the heart of the eyewear market at that time. Back then, glasses were merely medical instruments, but Leonardo found his niche. He wanted to turn eyewear into a fashion statement. Fast-forward to today, and he more than succeeded.

A new way to make glasses

Del Vecchio decided to radically change the production of eyewear. Unlike the traditional method of outsourcing production to small workshops, he wanted to manage every part of the process himself. He invested heavily in research and development (R&D), developed automated machines to speed up production, and used techniques from the jewelry industry to coat frames with durable metals. At the time, competitors found this idea strange and unnecessary, as eyewear seemed to hold little commercial value. But Del Vecchio’s approach gave him a significant cost advantage, allowing him to offer his glasses much cheaper than his competitors.

However, there was a problem. Despite his unique production method, his glasses remained indistinguishable from others. What he needed was a way to position his glasses as premium products.

His solution? Branding. He began approaching fashion houses for licensing agreements to produce eyewear with their logos. Yet, he was met with rejection after rejection, as glasses still carried the stigma of being "ugly" and "medical." Luxurious brands feared that their image would be damaged by having glasses made by an external party. But there was one brand that took the plunge: Giorgio Armani.

The art of branding and selling

This decision marked a turning point. It explains why EssilorLuxottica operates in the shadows of the consumer. The success of Del Vecchio’s business model hinged (and still hinges) entirely on perception.

Why? Customers must believe they are buying Armani, Chanel, or Prada glasses, not Luxottica glasses. Therefore, EssilorLuxottica remains behind the scenes. After all, customers would be less willing to pay $400 if they knew the glasses weren't made by the same artisans who craft luxury fashion items but in a separate factory.

While Luxottica maintained its secrecy in public, Del Vecchio was constantly looking for ways to expand his empire behind the scenes. Not satisfied with merely producing eyewear, he wanted to control the entire supply chain, from manufacturing to retail.

How? In 1995, he made a bold move, offering $1.1 billion to buy the U.S. Shoe Corporation. A shoe company? Not quite. This holding company also owned LensCrafters, the largest optical retail chain in the U.S.

This acquisition was nothing short of genius. By taking over LensCrafters, Del Vecchio gained control over a significant portion of the U.S. eyewear retail market, further solidifying Luxottica's dominance.

Strategic acquisitions build an empire

With the profits from LensCrafters, Del Vecchio began acquiring other retail chains like Sunglass Hut, Pearle Vision, Target Optical, and Sears Optical.

Today, Luxottica owns over 17.500 retail locations worldwide. Still, Del Vecchio wasn't satisfied. He felt he was paying too much in royalties to luxury brands.

The solution? Own the brands himself.

In 1999, he purchased Ray-Ban for $650 million.

The Ray-Ban brand, a household name, had suffered from poor management and low-cost production. Del Vecchio integrated Ray-Ban into Luxottica's production and distribution system, improved quality, reduced supply, and repositioned Ray-Ban as a premium brand. Prices were gradually increased: in 2000, a pair of Aviators cost $79; by 2009, the price had risen to $130, and today, they start at $170.

Through strategic acquisitions, Luxottica built an almost impenetrable moat around its business. Another significant acquisition was Oakley, a former competitor, for $2.1 billion. This hostile takeover further cemented Luxottica’s market position.

The final piece of the puzzle

A crucial part of Luxottica's success that we haven't discussed yet is Essilor.

Essilor was formed in 1972 by the merger of two French optical companies: Essel and Silor. Essel, founded in 1849 as a small workshop for optical lenses, grew into a major player in the optics industry. In 1959, Essel developed the Varilux lens, the first multifocal lens for both near and far vision, earning the company international recognition.

Silor, founded in 1931, started making lenses and introduced the first plastic lenses in 1968. These lenses were lighter and more resistant to breakage than traditional glass lenses. In 1972, Essel and Silor merged to form Essilor, and the new company quickly became the global leader in ophthalmic lenses and optical equipment.

Completing the monopoly

At 81, Del Vecchio needed one final move to complete his master plan: the merger between Essilor and Luxottica. This merger was announced in January 2017 and completed in October 2018. The deal, worth approximately $32 billion, made EssilorLuxottica the most powerful (and practically the only) vertically integrated eyewear company in the world.

It’s fascinating that the Federal Trade Commission (FTC), the European Commission, and other regulators approved this deal. The merger has made it virtually impossible to compete with EssilorLuxottica. Great for shareholders, but less so for competitors and consumers.

Now what?

So the next time you put on a pair of designer glasses, remember: the name on the frame might not tell the whole story. Behind that label is a vast empire built by a man who understood that the most powerful forces are often those that remain unseen.

Want our full fundamental analysis of EssilorLuxottica? Check it out on www.thedutchinvestors.com