If you wear glasses you probably wear a product that is made by Luxottica, a company founded by Leonardo del Vecchio. After growing up in an Italian orphanage, he apprenticed as a tool and dye maker and ended up in the spectacle business.
Del Vecchio built the Luxottica empire by vertically integrating his spectacle business – owning the entire chain from optometrists, to sourcing raw materials, designing and manufacturing the components, marketing them and owning the retail outlets. Then, he integrated horizontally, he pressured competitors by upping his component or design prices, eventually buying them out. Whether you bought from Sunglass Hut or Specsavers or Torga, you bought from Luxottica.
By the 1980s he realised that the market no longer wanted practical frames for prescription lenses, but that it wanted attractive frames to make fashion statements. So, he further innovated by forming partnerships with luxury brands such as Armani, Bulgari, Chanel, and dozens more.
At his death at 87 in 2022 del Vecchio had a personal fortune of 27Bn, and Luxottica owned 80% of the eyewear market.
Now do a rough calculation on the raw materials and labour and your eyes will water when you see the enormity of the mark-up on eyewear. I will save you the time: a pair of Ray Bans (yes, he owns them too) costs $20 to make but costs you $200) and there is nothing you can do about it because Luxottica also owns every retail outlet where Ray Bans are sold. The pain increases when you consider that there have been no essential improvements in spectacle design for over hundreds of years. I bet you, you cannot think of any other everyday object that has not radically been cheapened or improved by technology? (Excluding forks)
Grab the specs off the nearest nerd and google its brand name. You will find a trail of breadcrumbs leading back to Luxottica. Bellissima! Del Vecchio had created an untouchable monopoly which allows Luxottica as incumbent to charge what it likes.
Now that you are acutely aware of that overpriced piece of plastic on your nose, here is something that will ease your pain somewhat. Sometimes technological innovations in a separate field will create an opportunity to disrupt an incumbent’s applecart.
A group of MBA students analysed Luxottica’s empire of overcharging and wondered if and by whom it could be challenged. The answer lay in the uptake of online shopping. No longer was it necessary to compete for bricks and mortar retail space. Add to this the advances in plastics and manufacturing technologies and you had the start of Warby Parker: a spectacle company which slipped into the huge gap between $20 and $200. (Bet you have not heard of them either.)
Warby Parker – which offers a 30-day money back or free exchange if you do not like a frame – has not made a huge dent in Luxottica’s market share but is chipping away. Turnover in 2023 was $669 million, and their success has seen them move into physical retail spaces.
The point of the story is: incumbents do not last forever – cumbersome adaptation to change and unforeseen technologies eventually erode their position of dominance.
National coal-fired electricity grids – who did so much to propel countries into first world status – could not have imagined that a Pretoria-born techie’s obsession with building an electric car would be a disruptor. Elon Musk’s vision and drive was a catalyst in disrupting petroleum-based transportation as well as the electricity supply industry.
The moral of the story is: you never know who or what may disrupt your business, have a plan B and be nimble. For example, Chevron – an oil giant – is investing billions in Natron – a Sodium-Ion battery developer. People vote with their wallets, selecting new energy options or cheaper frames is not necessarily a moral choice, it is a common-sense financial choice.
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