EssilorLuxottica will redefine the $100 billion eyewear industry
The $100 billion eyewear industry is ruled by two titans: Essilor, which owns around 45% of the prescription lens market, and Luxottica, which owns around 25% of the frames market. If you wear glasses, you are almost certainly wearing a product designed by one or both of these companies. What’s more, you may be doing so unwittingly – despite servicing 1.4 billion (more people than Apple), the companies are not well-known outside of their relative niches. That may change in the near future, as regulators have given the go-ahead for a merger that will create the world’s most powerful eyewear company by a large stretch. The resultant giant, EssilorLuxottica, has a clear goal in mind: to redefine eyewear.
Essilor and Luxottica’s share prices are both trading up so far this year
SOURCE: Yahoo Finance
The eyewear industry is both huge and growing. The vast majority of people will wear a pair of glasses at some point in their lives – at present, in developed countries, around 70% of adults need corrective lenses either as a result of natural impairments to clear vision, or the degenerative factors that come with age. This pool of the visually impaired is growing – and no one really knows why. Myopia, or shortsightedness, has doubled among young people within a single generation. Commonsense, though not always reliable, seems to suggest our predilection for modern forms of visual entertainment (television, reading, LED lights) has played a part – and in many forms of the world, that modernization process is still underway, suggesting the number of people globally who will need glasses in the future will rise significantly.
Eyesight also declines with age, in the same way muscle mass or bone density does – it’s a natural function of aging. The prevalence of aging populations means that many more people will come to glasses wearing in this way. Not just in the west – where we are currently seeing it happen – but in the east, where it will be a concern for the coming decades. The developing world is already chronically underserved in this area, as an estimated 2.5 billion people (largely concentrated in India, Africa, and China) are already thought to need glasses. They just don’t have easy access to eye tests or retailers. To EssilorLuxottica, these people are customers waiting to be realised.
This increase in glasses wearing has helped to fuel a trend that Luxottica created and has been driving since the 1980s – the fusion of fashion and medicine in eyewear. For years, people wore glasses begrudgingly, because they had to, with few options for highly priced designer frames. But in 1988, self-made Italian billionaire Leonardo Del Vecchio, Luxottica’s founder and chairman, signed a licensing deal with Giorgio Armani. Suddenly, consumers could buy Prada, Gucci, and Chanel glasses – and they didn’t hesitate to do so.
Decades of expansion through acquisition and deal-making – both of-and-with fashion and retail businesses – has led to a point where Luxottica owns of licenses around 30 brands, including Ray-Ban, Persol, Burberry, Prada, Michael Kors, and more. With 9,000 retail outlets, and more than 100,000 contracts with optometrists worldwide, the company has no difficulty getting its goods to market.
This latest deal, however, is special. Combined, Essilor and Luxottica will have economies of scale, global reach, and access to business and industry acumen that are all without parallel in the history of eyewear. They are in the perfect position to capture a market that will expand exponentially worldwide, and which is likely to be unchallenged by the public sector: although poor eyesight is a health issue, it is unlikely to draw public funds and attention away from more dire concerns. In the words of Hubert Sagnières, Essilor’s chairman and CEO: “You know, between 2020 and 2050, governments will not solve all the problems of the world.” EssilorLuxottica has plans to solve one of those world problems all on its own, and, right now, it looks like the only player capable of doing it.
Dominion holds Essilor and Luxottica in its Global Trends Luxury Fund.
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