Luxottica SpA History

Address:

Localita Valcozzena
32021 Agordo, Belluno
Italy

Telephone: (39) 0437-6441
Fax: (39) 0437-63223

Website: www.luxottica.it

Public Company
Incorporated: 1961
Employees: 24,636
Sales: EUR 3.06 billion ($2.73 billion) (2001)
Stock Exchanges: New York Milan
Ticker Symbol: LUX
NAIC: 339115 Ophthalmic Goods Manufacturing

Company Perspectives:

Mission: We at Luxottica aim at protecting the eyes and enhancing the faces of men and women all over the world, by manufacturing and selling ophthalmic eyewear and sunwear characterized by their high technical and stylistic quality, in order to maximize our customers' wellbeing and satisfaction. Our eyewear and our collections are the result of a continuous research and development process, aiming at anticipating and interpreting the needs, wishes and aspirations of people around the world. Our technical and manufacturing expertise, a result of 40 years of experience and our commitment, allow us to reach high quality standards. Our business is based on a continuous innovation of our manufacturing technologies, the research of style and design, the analysis of the evolution of people's lifestyles, and the interpretation of fashion trends. Our widespread distribution network and our sales chains have been organized to offer a high-quality before and after-sales service, at all times and anywhere. A service that is homogeneous, yet nonstandardized, because it is designed and suited to meet the specific local needs. That's why millions of consumers in 115 countries in all five continents have chosen, and keep choosing us.

Key Dates:

1958:: Leonardo Del Vecchio starts up a business making tools and parts for eyeglasses in Milan.
1961:: Del Vecchio and two financial partners launch Luxottica in Agordo.
1967:: The company begins production of its own Luxottica branded eyeglass frames.
1971:: Luxottica ends its contract manufacturing operations to concentrate on its eyeglass manufacturing wing.
1974:: The company buys up Scarrone, its Italian distributor, in the first move to become a vertically integrated operation.
1981:: The company launches a German sales subsidiary.
1982:: The company acquires a U.S. distributor to begin sales operations in the United States.
1984:: The company launches subsidiaries in England, France, and Canada.
1988:: The company starts to produce Armani-branded eyewear under a licensing agreement.
1990:: Luxottica goes public on the New York Stock Exchange.
1995:: Luxottica acquires Lensmasters, formerly part of United States Shoe Corporation, and becomes a retail optical leader.
1999:: Luxottica acquires the sunglasses division of Bausch & Lomb, including Ray Ban and other brands; the company launches the managed vision care subsidiary EyeMed Vision Care.
2001:: Luxottica acquires Sunglass Hut International and becomes the world's leading eyewear retailer.

Company History:

Luxottica SpA is the world's largest manufacturer of eyeglass frames and sunglasses, and is also one of the world's leading optical retailers through subsidiaries LensCrafters and Sunglass Hut. Based in the remote village of Agordo, Italy, Luxottica produces more than 130,000 eyeglass frames each day from six factory sites. The company's frames and sunglasses are sold under a variety of company brand names, including Luxottica, Ray Ban, Vogue, Persol, Arnette, Killer Loop, Revo, Sferoflex, and T3. Luxottica also manufactures eyeglasses and sunglasses under license for such brands as Armani, Chanel, Ferragamo, Bulgari, Byblos, Genny, Ungaro, Tacchini, Moschino, Web, Anne Klein, and Brooks Brothers. In addition to its retail distribution network, Luxottica has built up an internationally operating wholesale distribution network of 29 company-owned branches, as well as 90 independently operated branches, which supply the company's products to more than 115 countries. Luxottica's quest for vertical integration has even extended to its customer's eyes--the company controls the EyeMed Vision Care group, one of North America's leading vision care providers with more than 30 million members. Luxottica is controlled by founder and Chairman Leonardo Del Vecchio, who owns more than 70 percent of the company's stock. Luxottica is quoted on both the New York and Milan stock exchanges. In 2001, the company posted more than EUR 3 billion ($2.75 billion) in sales.

Eyewear Craftsmanship: 1960s

One overriding theme has distinguished Luxottica's history: eliminate the middleman. In the 1950s and 1960s, Del Vecchio honed his own skills, meticulously learning every facet of the ophthalmic frame manufacturing process. In the 1970s, he worked to automate the process with machinery of his own design, then linked every stage of production, from design to inventory, via computers. In the 1980s, Del Vecchio began acquiring Luxottica's formerly independent international distributors. The 1990s have seen what may be the culmination of Luxottica's drive for vertical integration, the acquisition of retail outlets. Each of these steps has resulted in increased efficiency, paving the company's route to profitable, rapid growth.

Born in 1935 in Milan, Luxottica founder Leonardo Del Vecchio has been called "Italy's version of Horatio Alger." His father, a street merchant who hawked vegetables, died five months before Leonardo was born, leaving the family so destitute that the youngster spent seven years of his childhood in an orphanage. As a youth, Del Vecchio apprenticed as a designer in a tool and die factory specializing in small metal components. After studying drawing and engraving at the Brera Academy of Art, the young designer struck out on his own in 1958, manufacturing molded plastic eyeglass components in Milan. With financial backing from two key customers, he moved his 14-man shop in 1961 to Agordo, a picturesque mountain town in a region of northern Italy known for its handcrafted jewelry.

Although he had no formal training in economics, the young entrepreneur soon realized that he could retain more profits through vertical integration. Del Vecchio renamed the business Luxottica and set out to expand its capacity to include the full range of eyeglass components. Over the course of the decade, he added metalworking capabilities, plastic milling, and other processes to his company. In a 1991 interview, Del Vecchio told Financial World's Stephen Kindel that "by mastering all the technologies, we [became] very competitive on price, without having to compromise our quality." This process culminated in the 1969 launch of Luxottica's first complete set of optical frames.

Luxottica had a brush with oblivion in 1971, when the company's two outside investors called in their L 190 million in loans to Del Vecchio. But Del Vecchio's fortunes quickly reversed when the entrepreneur brought in a new partner, Scarrone; he then bought out this former competitor within the year.

Drive for Integrated Production in the 1970s

Del Vecchio continued to systematically integrate his eyeglass business, focusing on technological advances throughout the 1970s. Noting that it was not materials, but retooling to accommodate fashion changes, that drove cost increases, Del Vecchio began to tackle that side of his business. Having taken courses in advanced machine design in 1969, he began to devise automated molding and milling equipment. He also adopted techniques from allied industries, borrowing specialized electroplating procedures from local jewelers, for example. Ample funding for research and development in plastics compounding, metallurgy, and basic chemistry ensured the quality of future products.

Perhaps most important, Del Vecchio guided Luxottica's implementation of computerization. By the end of the decade, the company had integrated all facets of its process, from design to manufacturing and inventory control. This early application of computer technology not only gave Luxottica a significant cost advantage over its competitors, but also helped make small production runs more efficient. This factor would become increasingly important as the influence of ever-changing fashion trends impacted the eyewear industry.

Geographic Consolidation Through Acquisition in the 1980s

Luxottica concentrated on consolidating its international distribution network in the 1980s. International sales have always been vital to Luxottica's success. In fact, the very first sets of the company's frames were not sold in Italy, as one might expect, but in the United States. In 1970, the company assigned exclusive rights to distribute its eyewear in the United States to Avant Garde. The Luxottica line was not offered in Italy until 1975. After taking control of Avant Garde in the early 1980s, Luxottica increased its U.S. market share from less than 2 percent to more than 7 percent, enough to lead this highly fragmented industry.

Under the direction of Leonardo Del Vecchio's son and expected successor, Claudio, revenues from the American division--which constituted more than half of the Italian firm's total sales--increased from $28 million in 1982 to $143 million by 1990. Over the course of the decade, Luxottica acquired nine of its 12 international distributors and took significant equity positions in the remainder with an eye toward full ownership. The company applied its own finely honed standards to its new affiliates, winning opticians' and retailers' loyalty by offering computerized ordering, inventory services, and just-in-time delivery. In the early 1990s, Luxottica found itself in the unusual position of increasing brand awareness and penetration in Europe, where it only had about 5 percent of the market.

Fueled by acquisitions and continual economizing, Luxottica's revenues increased from L 16 billion in 1979 to L 194 billion in 1985. But in spite of this spectacular financial and geographic expansion, Leonardo Del Vecchio remained "Signor Nessuno" (Mr. Nobody) among Italy's leading businessmen.

Designer Lines Spark Late 1980s Growth Spurts

Three principal trends converged in the late 1980s to jump start Luxottica's sales and earnings growth. Prescription eyeglasses evolved from a fashion liability into an important accessory, to the point that even those who did not need to correct their vision might wear frames with noncorrective lenses just to complete a particular "look." Luxottica capitalized on this trend by amassing a collection of designer labels in the late 1980s and early 1990s. To its own Luxottica and Sferoflex ophthalmic frames and Sfersol sunglasses, the company added Giorgio Armani, Genny, Byblos, Giugiaro, Valentino, and Yves Saint Laurent. Del Vecchio correctly reasoned that people who might not be able to afford a Giorgio Armani suit might opt instead for the designer's eyewear.

As the share of company sales generated by designer glasses increased from nil to more than 38 percent, Luxottica's revenues and earnings mounted. Sales increased from L 194 billion in 1985 to more than L 460 billion in 1991, by which time net income exceeded L 60 billion. By the early 1990s, designer eyewear drove the company's gross margins to an astonishing 70 percent.

Luxottica went public on the New York Stock Exchange with a January 1990 floatation of 23 percent of the company's equity in the form of American Depositary Receipts (ADRs). Luxottica was the first Italian company ever to bypass the Milan Stock Exchange to list on the New York Stock Exchange. Company executives treated financial analysts to their stylish sunglasses to help promote the initial public offering (IPO). Luxottica Chairman Roberto Chemello told Lisa Bannon of WWD, "We want to show the financial world our image is international, not just Italian, which is in line with the international nature of our business." Del Vecchio elaborated in a 1991 interview with Forbes's Katherine Weisman: "If we listed [on the Milan Exchange], we would have been a piccolissima cosa [teeny thing]. On the NYSE, c'e rispetto [there's respect] for everybody, piccolo e grande." The founder retained the $80 million proceeds of the IPO for himself. Debt-free Luxottica did not need the money, and he had certainly earned the reward. By 1994, the shares had quadrupled in value.

Acquisitions Bringing Integration Full-Circle in the Early 1990s

In 1995, Del Vecchio and Luxottica took its largest single step toward vertical integration with the hostile $1.4 billion takeover of United States Shoe Corporation. This initially surprising development was precipitated by heightened competition in the frame industry and reduced reimbursements from third-party payers such as insurers and health maintenance organizations. Luxottica had traditionally sold to individual opticians, and had more than 28,000 clients in the United States by the early 1990s. But at that time, the company increasingly found itself squeezed between shrinking insurance allowances for frames and its competitors' price cuts to match those limits. Del Vecchio knew he could not rely on the designer market alone for continued profitable growth, but he also did not want to start chasing the industry's lowest common denominator. He found an oblique solution to the dilemma in United States Shoe Corporation.

Luxottica was not interested in the target's shoe manufacturing business or its retail apparel subsidiaries. Instead, Del Vecchio was eager to capitalize on its chain of nearly 700 LensCrafters optical stores and that operation's $767 million in annual sales. Established in 1983, LensCrafters was one of the first businesses to combine vision professionals, eyeglass frames, and prescription lens processing in one easily accessed mall location. The company's "about an hour" turnaround time completed the convenient package. Anticipating the immense potential of this new concept, United States Shoe acquired the budding three-store chain barely a year after it was founded. The financial backing of this billion-dollar conglomerate helped LensCrafters become the largest retail eyewear chain in the United States by 1988. It achieved global sales leadership in 1992.

As part of the 1995 transaction with Luxottica, United States Shoe sold its footwear group to Nine West Group Inc. for $600 million prior to its own acquisition. But Luxottica was unable to find a buyer for United States Shoe's 1,300 money-losing apparel retailers, which included Casual Corner, Petite Sophisticate, August Max, Casual & Co., and Capezio chains. As a result, the parent transferred this division to La Leonarda Finanziaria Srl, a separate Del Vecchio interest. The addition of LensCrafters more than doubled Luxottica's annual revenues from L 812.7 billion in 1994 to L 1.8 trillion in 1995.

Global Eyewear Leader in the 21st Century

Luxottica faced the end of the 20th century with an array of growth strategies in its arsenal. The company hoped to further increase sales of designer eyewear, which had already topped 50 percent of annual revenues, by placing stronger emphasis on these more expensive lines in LensCrafter stores. At the same time the company sought to boost its sales of its own brands in the U.S. market. Previously, Luxottica's brands had represented only a tiny portion of LensCrafters' business. Taking control of that company enabled Luxottica to step up its presence in the retail chain, eventually increasing its share of LensCrafters' stock to some 70 percent.

Luxottica continued its diversification into sunglasses and sports eyewear with the 1995 acquisition of Italian sunglass manufacturer Persol SpA. By that time, sunglasses constituted more than one-third of annual sales. In addition, in a radical shift from its traditional trade-only promotions, Luxottica planned to boost its consumer advertising with an image-oriented campaign.

Through the late 1990s, Luxottica continued to build up its strong brand portfolio, adding licenses from such designers as Bulgari in 1996, Ferragamo and Ungaro in 1998, and Chanel in 1999. Meanwhile, Luxottica's revenues were growing strongly, jumping from EUR 419 million in 1994, nearing EUR 1.25 billion in 1996, and climbing to EUR 1.9 billion in 1999.

The year 1999 marked a new milestone for Luxottica. In that year the company reached an agreement to acquire the sunglasses division of optical maker Bausch & Lomb for $640 million. That purchase brought the company one of the world's strongest stables of sunglasses brands, notably, the famed Ray Ban brand, and others, including Killer Loop, Revo, and Arnette. By then, Luxottica had taken its quest for vertical integration into another direction, setting up EyeMed Vision Care to group managed vision care provider operations in the United States, with a network of some 19 million members and 8,000 practitioners.

Luxottica finally listed on the Milan stock exchange in 2000. The company then sought new expansion opportunities, including planning a move into Poland, as a first point of entry into the Eastern European market. Luxottica struck again in 2001 when it announced that it had succeeded in acquiring Sunglass Hut International, the world's leading sunglasses retailer with nearly 2,000 shops worldwide. The purchase price, hammered out after a year of negotiations, reached $690 million, including nearly $200 million in debt. Following the Sunglass Hut acquisition, Luxottica merged its two North American retail businesses headquarters, helping to cut costs. The company also convinced its largest suppliers to cut their prices--in part by replacing a strong percentage of Sunglass Hut's stock with the company's own sunglasses brands. With sales topping EUR 3 billion at the end of 2001, Luxottica global leadership in the eyewear market stood on a solid, vertically integrated foundation.

Principal Subsidiaries: Luxottica S.R.L.; Avant Garde Optics Inc. (U.S.A.); Luxottica Sun Corporation (U.S.A.); Luxottica Fashion Brillen (Germany); Luxottica Portugal Sa (Portugal); Mirari Japan Co., Ltd.; Luxottica Hellas Ae (Greece); Luxottica France S.A.R.L.; Luxottica Iberica Sa (Spain); Luxottica U.K. Ltd.; Luxottica Canada Inc.; Luxottica Belgium N.V.; Luxottica Do Brasil Ltda; Luxottica México S.A. De C.V.; Luxottica Sweden A.B.; Luxottica (Switzerland) Ag; Luxottica Nederland B.V.; Oy Luxottica Finland Ab; Luxottica Vertriebs G.M.B.H. (Austria); Luxottica Australia Pty Ltd.; Luxottica Argentina S.R.L.; Luxottica South Africa (Pty) Ltd.; Luxottica Optics Ltd. (Israel); Luxottica Gozluk Tic. A.S. (Turkey); Luxottica Norge As (Norway); Luxottica Gulf L.L.C. (U.A.E.); Luxottica Malaysia Sdn Bhd (Malaysia); Mirarian Marketing Pte. Ltd. (Singapore); Luxottica Poland Sp.Zo.O.; Rayban Sun Optics India Ltd.

Principal Competitors: B Braun Melsungen AG; Essilor International S.A.; Bausch and Lomb Inc.; Allergan Inc.; Cristaleria Espanola SA; Cole National Corporation; Instrumentarium Corporation; Lantis Eyewear Corporation; NCH Corporation; SAFILO SpA; Sola International Inc.; Fielmann AG; Oakley Inc.; Halma p.l.c.; Optische Werke G Rodenstock; Krys Vision Originale Vision Plus; OPSM Protector Ltd.; Bacou USA Inc.; EganaGoldpfeil Holdings Ltd.; Marchon Eyewear Inc.

Luxottica SpA History

Company Perspectives:

Key Dates:

Company History:

Further Reading: