Strategic Business Analysis of Luxottica Group: A Comprehensive Report

This report provides a strategic business analysis of Luxottica Group, the world's largest eyewear firm, focusing on its market position, competitive advantages, and future strategies. The analysis includes an overview of Luxottica's history, current strategic priorities, and its vertically integrated business model. It examines the company's financial performance, brand portfolio (including Ray-Ban, Oakley, and licensed brands), and distribution network. The report applies Porter's Five Forces to assess the bargaining power of buyers and suppliers, the threat of new entrants and substitutes, and the intensity of rivalry within the eyewear industry. It also explores Porter's generic strategies, recommending a differentiation focus for Luxottica. The report suggests strategies such as producing unique counterfeit products, increasing agreements with luxury brands, and enhancing the company's digital presence. The report is based on the provided assignment brief which required an analysis of the future strategic positioning of Luxottica Group, focusing on a narrow range of the firm's products or brands.

RUNNING HEAD: COMPANY STRATEGY
Strategic Business Analysis of Luxottica Group
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1COMPANY STRATEGY
Luxottica Company Overview and Strategic Position Analysis:
Luxottica is accredited as a leader in the designing, manufacture as well as in distribution of
fashion, luxury and sports eyes wear sector. Its global portfolio includes proprietary and
prestigious brands like Ray-Ban, Oakley, Vogue Eyewear, Persol, Oliver Peoples and Alain
Mikli and over twenty licensed bands like Coach, Dolce&Gabbana, Ferrari, Michael Kors, Prada
and much more. The company dates back to 1961 when Leonardo Del Vecchio in Agordo north
of Belluno, Veneto ("Our History", 2020).
Today the company is attributed s a market leader in its segment with a revenue
generation of over € 9 Billion, a market capitalization of €46 billion with it’s headquarter in
Milan, Italy ("Luxottica Group SWOT & PESTLE Analysis | SWOT & PESTLE", 2020). One of
the distinct competitive advantages of Luxottica is its vertically-integrated business operational
model which the Group has consciously built over the decade that is the brand’s founder
chairman Leonardo Del Vecchio identified the exclusive benefits of vertical-integration in
business hence began producing entire frames rather than just components. Then the business
concentrated on getting a 360 degree view of every minute detail which would impact its
business from design to distribution and from wholesale to retail.
The brand stands strong to its mission and visio which states “To see the beauty of life”
through its business operational strategy which includes: its extreme commitment to excellence
through constant innovation expanding its global presence over 15 countries and approximately a
workforce of more than 82,000 people ("Our mission: to see the beauty of life", 2020). This is
not the end the company proudly proclaims itself to be a company of people and for people
through its long-term sustainable developmental measures ensuring the well-being of the
employees, catering to the needs of the local communities and working to ensure the best for all

2COMPANY STRATEGY
the interest groups associated with the brand. The company is basically guided by a strong
corporate governance framework which is basically resembles to a traditional management and
control system the Board of Directors specifically responsible for the overall management of the
company, a strong sense of ethical complicate backed by ensuring utmost safety and well-being
of all its employees. Hence from the above presented data and statistics it is quite evident why
Luxottica Group is rightfully regarded as the Sunglass Hut and the largest retailer of premium
quality sunglasses across North America, Latin America, Europe, Asia-Pacific, South Africa and
the Middle East ("Corporate Governance in Luxottica", 2020).
Brand Overview:
The Italian eyewear corporation, Luxottica Group is the premium source of serving their
customers a variety of luxury, premium and sports eyewear. The company is regarded as the
market leader in this segment that earns a revenue of 9 billion Euros and a market capitalisation
of 46 billion Euros. Apart from sunglasses it has also the portfolio of prescription frames as well.
The main strength of the company is this range of financial performance. With a standard rate of
growth of about 25% in last five years, the company has been able to develop their growth of the
bottom lines in a continued manner. The net income has been growing in yearly basis of about an
average of 6%. This increasing growth and the financial prosperity hold the proof of its
popularity in the area where they are operating. Thus, they have generated a strong brand image
and in case of their expansion plan, this strong brand name will be beneficial for them. The
company has also the strength of leading a market. Luxottica is a company with a large range of

3COMPANY STRATEGY
market capitalisation and a global market share. This has made them a leading entity in the
eyewear industry. Moreover, its diverse brand portfolio having proprietary brands like Ray Ban,
Vogue, Oakley and also a number of licensed brand like Chanel, Burberry, Armani etc. This
gives the company an effective mix of style and elegance. The portfolio is also effective in
appealing to the taste of a variety of customers. The company’s efficient distribution network is
an added advantage in maintaining a close contact with its consumer and maximizing the brand
visibility. The distribution is primarily comprised of the wholesale chain as well as retail chain
network.
However, one of the major weaknesses of the company is that the leadership within the
organization changes frequently giving the company sometimes a tumultuous position. Though it
has a good combination of the licensed as well as the proprietary brand, their low investment in
the research and development is a weakness that may affect the future scope of growth for the
company. The Luxottica group has an ill reputation of overpricing of the majority of their
products. This often hampers their scale as well as sales. Taking the opportunity of their financial
strength as well as brand reputation the company can expand its operation in the emerging
markets and launch new products and services. However, due to the emerging competition and
the price war the company needs to consider their research and development process and also
their pricing strategy.
Porter’s five-force analysis:
Bargaining power of the buyers
One of the major characteristics of the eyewear industry is large number of individual
customers who has their individual pattern of buying (Toor, 2014). These consumers generally

4COMPANY STRATEGY
tend to buy on an irregular basis that causes them to have a low bargaining power. Eyewear is
generally considered to be a product that has high demand and is highly sensitive in the trends of
fashion. The demand of eyewear is often subjected to very sharp as well as sudden changes
within the fashion trend that may cause an increase in the bargaining power of the buyers.
However, consumers of this category are highly loyal to their brands and focus on the designer
behind the bran rather than the producer. The high loyalty is often seen to be a stake when the
retailers of the eyewear after expiry of the contract period with the designer decide to enter a new
agreement with other producer. This helps the consumer in switching their preferences at a low
cost, which often increases the bargaining power of the consumers.
Bargaining power of the suppliers
The identification of the bargaining power of the suppliers is an essential factor that helps
to create a distinction between the designer brands with which the company is signing an
agreement and the suppliers of the raw materials. The ingredients that are required for producing
sunglasses and common spectacles are more or less common and can be gathered from a variety
of suppliers (CHEONG, & PENG, 2016). Bloomberg supply chain analysis function in the case
of Luxottica helps in revealing the fact that the company has hold off a wide range of suppliers
of which each makes up only a small part of Luxottica’s cost of goods sold. This implies that the
company has no ultimate dependency on a particular suppler. As per the power of the designer
brand is concerned they have medium to high range of power upon Luxottica brand. The
licensing agreement with one of the most sorted after global designer houses has an important
result of depending on the supplier for producers since such agreements procures a large part of
remedy. In 2011,Safilo had a loss of agreement with Armani which was subsequently picked up
by Luxottica.

5COMPANY STRATEGY
Threat of new entrants
It is expected that the eyewear industry will be expanding and prospering in the near
future. With the growth in large extent in the contact less segment and a variety of styles in the
sunglasses influenced by the influencers, this industry will become more attractive for the new
entrants since in this area they will not have t steal away the existing business from any of the
incumbent funds (Tanwar, 2013). However, the scale of incumbent is the major barrier for the
new entrants. On account of the low switching costs that the customers are facing the agreement
based license are becoming the crucial factor for tying the customer with the company. Thus, it is
not always possible for the new entrants in gathering these licensed agreements which posses a
barrier for their entry in the market.
Threats of substitutes
The threat of substitute for the Luxottica group or the eyewear industry as a whole is low.
There are only a handful of possible substitutes for eyewear that too highly depends on the
purpose and product. Spectacles used in the fashion accessories primarily have almost no
substitutes. Prescribed spectacles can be substituted by contact lens. However, the production
and distribution of contact lenses are often done within the same industry. Laser vision
correction surgery is also a substitute for the industry. However, this is used by a very low
segment of customers and the high switching cost decreases the threat of substitute for the
industry.
Threats of rivalry
A large extent of players thrives in the eyewear market. However, only a less amount of
them is actually significant in terms of market share. Luxottica is estimated to have 34% of

6COMPANY STRATEGY
market share and their overall market share is as high as 48%. This has decreased their threats of
rivalry for the company.
Porter’s Generic strategy for Luxottica Company:
The porter’s generic strategy will help the organisation in articulating their mode of
direction they can incorporate in the factors of determining a direction of growth to have a
competitive advantage in the market they are thriving in. The eyewear industry is characterized
by high sense of fashion as well as their changing trends according to the ideas of the designers.
In contrary with any retail industry, this industry does not produce products based n the demand
but creates and influences the customer that results in an increasing demand. Luxottica being an
essentially high range luxury eyewear company needs to focus on their generic strategy in order
to expand their market so that it can prosper in a new market and at the same time can preserve
their image and quality (Delgado, Porter, & Stern, 2016).. Thus for the company it is beneficial
to choose the strategy of differentiation focus. The company generally targets a niche market
where the company is high; however, there are huge barriers for the new entrants which makes a
secured position for the already existing product. The company also has a focussed market and
their products also have unique features. Moreover, with a huge amount of brand loyalty that a
fashion company like Luxottica enjoys, it is advisable that the company carries on with a
differentiation focus where every segment of customers will have their own choice of products.

7COMPANY STRATEGY
Recommendation
 Analysing the brand overview and the external environment it is advisable that Luxottica
focuses on producing rampant counterfeit products, which are unique and far ahead of the
competitors. This will help them in justifying their pricing strategies.
 The company can also focus on increasing the agreements with the globally well-known
luxury brands.
 Luxottica Group should ensure to build a stronger digital presence through it’s newly
launched “Luxottica E-Com & Digital Innovation Laboratory”. This is a digital space for
doctors who wish to offer online eye checkups and provide health tips for all the patients
and altogether enhance their eyewear experience. This is indeed an exclusive initiative
undertaken by the brand and the brand needs to extend larger focus on extending this
service across all its physical stores as well so that the concept of promoting healthy
living for all its consumer is well justified (Luxottica launches new open digital platform
and announces the creation of an Industry Consultancy Panel in North America, 2020)
 There has also been widespread criticism of the pricing pattern on the brand as it enjoys a
monopolistic position in the global eyewear sector and controls over 80% of the major
eyewear stores hence consumers claim that eye wears brands like Ray-Ban and Oakley
are priced sky high with no significant reason. Hence the company should take due
consideration in revising its prices, rather should concentrate of devising special offers or
discounts for increasing consumer loyalty and acknowledging the consumers’ preference
for the brand (Rincones-Rodriguez, 2020)

8COMPANY STRATEGY
References:
Corporate Governance in Luxottica. (2020). Retrieved 19 April 2020, from
http://www.luxottica.com/en/governance/corporate-governance-system/corporate-governance-
luxottica
Luxottica Group SWOT & PESTLE Analysis | SWOT & PESTLE. (2020). Retrieved 19
April 2020, from https://www.swotandpestle.com/luxottica-group/
Luxottica launches new open digital platform and announces the creation of an Industry
Consultancy Panel in North America. (2020). [Ebook]. Retrieved from
http://www.luxottica.com/sites/luxottica.com/files/2014_luxottica_launches_new_open_digital_
platform_and_anncounces_icp_in_north_america_march_25_2014.pdf
Our History. (2020). Retrieved 19 April 2020, from http://www.luxottica.com/en/about-
us/our-history
Our mission: to see the beauty of life. (2020). Retrieved 19 April 2020, from
http://www.luxottica.com/en/sustainability/see-beauty-life
Rincones-Rodriguez, M. (2020). Luxottica’s monopoly disadvantages consumers - PHS
News. Retrieved 19 April 2020, from https://phsnews.com/11158/opinions/luxotticas-monopoly-
disadvantages-consumers
Toor, T. (2014). Competitive analysis of a contact lens market. Strategic Direction.
CHEONG, Y., & PENG, O. Fundamental analysis department consumer industry report on US
luxury goods. NUS Investment Society.[en línea][Consulta 14 de diciembre de 2016].

9COMPANY STRATEGY
Delgado, M., Porter, M. E., & Stern, S. (2016). Defining clusters of related industries. Journal of
Economic Geography, 16(1), 1-38.
Tanwar, R. (2013). Porter’s generic competitive strategies. Journal of business and management,
15(1), 11-17.