How Luxottica becomes $1T brand

TL;DR

– My Best Holiday Hack. Negotiate Rates

– Taking Luxottica from $100B – $1T

🧠 The Takeaways

We’re buying a piece of Luxottica & riding it up from $100B -> $1T on the back of the device 

phase shift we’re about to take.

Consolidate their hundreds of DTC + Retail brands into core franchises 

Acquire Warby Parker before they can become big enough that they’re a problem.

Scale their Tech division to become too big for Big Tech to acquire them.

+ The secret that big bizs use to buy as much time as possible for payments.

LBAB Community – Go Back and Negotiate Rates

One quick holiday tip that I’ve been giving all the brands that I’ve been working with that I recommend you do as well is going back to all of your suppliers and negotiating better terms for this holiday season.

Even if you can buy yourself 15 more days to pay invoices.

This will be absolutely crucial for your biz and for your cash flow, especially around your inventory + Ads. Ad platforms are vendors too.

The reason why I recommend this so strongly is that you need as much buffer as possible in case anything goes wrong. You’ll have more time to recover and adjust. Cash is the king.

The real secret of big bizs (and how they’re growing so quickly):

They’re growing on other people’s balance sheets as much as possible.

They don’t need outside capital.

They’re leveraging terms with all of their vendors so that they don’t have to pay until after they get paid. Then taking on debt to extend those payment terms even longer. That’s the crucial unlock for how you can scale through this holiday period.

The longer you have to pay your vendors back, the more you can continue to cycle your dollars through things like ads and paying your team. It’s a cashflow superpower.

Go back, negotiate every single bill you can: POs, 3PL, agencies. Wherever you can grab more time.

Then, figure out if you can put any of your payments on float or a credit card after you receive them to continue to extend that timeline further.

Wherever you can, work to extend your payment terms to be as long as possible.

Let’s Examine This Biz

Luxottica, the Sunglasses monopoly & LVMH for your face, is staring down the greatest shift in their biz in the last 20 years. 

Trading at $113.89/share with a $103B market cap, it’s +57% L5. Their strength makes them the perfect acquisition target for Big Tech to harvest their brand + distribution.

This biz is its own economy. Interestingly, it trades almost exactly in line with the S&P 500. A biz this big moves slowly, but profitably. It’s hard to list out all the brands they own but at a high level:

Brands: Ray-Ban, Oakley, Persol, and Costa

Retailers: Sunglass Hut, LensCrafters, Vision Express

eCom Brands: Glasses.com, Frames Direct, Eyebuydirect

Producing for other brands: Burberry, Ferrari, Prada, Tiffany & Co.

If you’re buying any type of glasses, Luxottica most likely owns it.

Financial Summary

TLDR Analysis: Slow Growth but BIG profits.

COGS are slightly outpacing profits. Need to get that in check. 🧐

OPEX + Net Income as a % of Rev are so precise it’s scary. 🫡

They don’t break out OPEX into more specific line items. ☹️

This is what a mega-portfolio done right looks like. There are probably too many brands in this portfolio, but they are printing ~$3B/yr in Income + are able to keep their costs in check at moderate growth.

I’d love to see a deeper break out of their OPEX to see how much their spending on People & Sales/Marketing, but when you’re hitting the numbers that matter, investors won’t push for the smaller numbers.

That being said Luxottica looks ripe for disruption and for a new player to move their $25B in Sales onto someone else’s P&L.

Let’s Scale This Biz!

Here are the 3 ways I’d save this biz from the Tech overlords who are looking to harvest their brands.

1) Consolidate their Brands

Luxottica has 17,589 stores, 80 brands, + owns 20 different eCom eyewear properties. They basically own every way you can buy a pair of glasses/sunglasses.

There is some genius to their strategy. Currently, Luxottica owns every organic listing on pg 1 of Google up until Warby in the 5 spot for “buy glasses.”

But this is the classic concentration vs. long tail game, and they’ve overplayed it. The trend is more obvious with their retail stores.

Sunglass Hut, LensCrafters, and Vision Express make up 30% of their total Retail footprint. I’m not saying they need to consolidate all 21+ brands down to 3, but my guess is you could roll half of these brands into the main brands with little to no impact on sales.

By consolidating into 1-3 core brands it would increase profits.

Marketing becomes more efficient

More stores under few brands driver operational efficiencies.

There can be 50 hamburger joints in a city, but McDonald’s is the most popular because customers know what they expect when they step into each one.

There would need to be considerations by market (EMEA vs. APAC) retailers + by brands (Ray-Ban vs. Oakley stores)

The perfect ex of this concept is Pearle Vision (retail) & Glasses Direct (eCom). Both of these stores are the significantly smaller brands than the behemoths in each category: LensCrafters (Retail) & Glasses.com or Eyebuydirect (eCom). 

Pearle Vision is the most obvious ex to me. It only has 108 stores, all in the US. LensCrafters has 1,014 locations in the US, with another 87 locations in APAC. Adding Pearle Vision stores under the LensCrafters’ brand would add 11% more stores to LensCrafters’ portfolio while reducing the need to support a completely separate brand.

It would require an investment today to consolidate the brands, but the scale would turn Luxottica’s key brands into household names nationally, then internationally. Luxottica already understands this principle with Sunglass Hut, but LensCrafters is the closest brand in eyewear.

They own all of the products you are going to buy in either store. Scale, Scale, and more Scale is the name of the game to create dominant international brands that move as much product as efficiently as possible.

This type of scale will also help their B2B biz. They currently power 574 Target Optical locations (~25% of US Target locations).

If they can continue to consolidate and scale their brands, they’d further their case to become the white-labeled Optical store-within-a-store biz for more large retailers.

Also guess all the brands sold in Walmart Optics?

Takeaway: Consolidate long tail into core brands to hit new levels of Marketing scale.

2) Acquire Warby Parker to protect the down market flank

Warby Parker is the biggest threat to Luxottica’s monopoly. The little disruptor who keeps scaling with the lower cost challenger brand playbook. Warby is running essentially the same customer offering (stylish eyewear, eye exams/fitting), just at a more affordable price point.

Luxottica has a monopoly on the eyecare/sunglasses market. The worst thing for biz with a monopoly stronghold is to get into a pricing/marketing war with a new player.

Every dollar Luxottica spends beating back the Warby brand will only help fuel the David who wants to take down Goliath.

This isn’t a new situation for Luxottica. They were in a similar situation with Oakley back in the early 2000s and basically gave them an offer they couldn’t refuse.

Luxottica could easily acquire Warby Parker ($2B cap) to make it their discount brand. Luxottica brands are known for their luxury, but there are probably more consumers who can’t afford a $300 pair of glasses than those that can.

Plus, Luxottica knows the retail playbook incredibly well and could flip Warby’s unprofitable Retail expansion into an ATM.

It will give them another tent pole brand to anchor their consolidation around. LensCrafters is home to the luxury brands (Ray-Ban, Persol, Versace, Coach). Warby can be the solo-branded affordable option for customers who aspire to buy Prada glasses but can’t afford them yet. 

Takeaway: Take out the competition before they become a problem.

3) Acquire strategic tech. Become too big to acquire.

Luxottica needs to become a Tech biz before Meta/Google become Accessories bizs. Silicon Valley has painted a target on Luxottica’s back, and as everyone looks for the AI-powered wearbale to overthrow iPhone dominance.

Luxottica holds the design key to make these things not ugly.

The most obvious first move here is the Meta AI-powered Ray Bans, which are described as “a Phone on your face”. Currently, they can’t make enough of these to keep them in stock.

And Meta isn’t the only player here:

Google will take another stab at Google Glass.

Apple is making heaving investments into Vision Pro.

We can’t forget the ugly AI-powered jewelry startups (Humane, Friend).

We can argue to the end of time about which form factor will win, but 1 insight is obvious.

The greatest mistake Google Glass made was not focusing enough on making it look cool. Luxottica are the masters of making beautiful eyewear. And you can see them beating that drum. 

Luxottica’s largest areas of focus in their earnings deck was around:

The Meta/Ray Ban sunglasses

Nuance Audio acquisition (Hearing Aid Smart Glasses)

The combination of these 2 focuses makes their strategy clear. They’re moving into the personal device category. The challenge this presents is that their major competitors/partners are all $1T bizs. Luxottica is an impressive biz at $100B, but all of their competition is an order of magnitude bigger than them.

Luxottica’s existential bet is how fast they can roll the tech into all of their products vs. how fast Tech bizs can make a device consumers would actually wear.

While their first iterations will be completely new products like Nuance, eventually they’ll build the tech into any of their products.  Similar to how a car can be customized with different specs.

Eventually you’ll be able to purchase a pair of Ray-Ban Wayfarers with prescription lenses + an AI assistant + enhanced hearing + any other tech that impacts sight and hearing.

It turns Luxottica’s massive distribution network of single-purchase products into a massive service network for routine check-ups + powers their Professional biz unit to bring customers back more frequently.

If Tesla is an iPhone on wheels. Luxottica needs to build iPhones on your face.

The $1T question is: can they build all of that before the Tech players enter the space and someone acquires them for brand + distribution?

Takeaway: Tech wins this war. How fast can a 100+ year old biz move?

Final Thought

As software continues to eat the world, legacy bizs will continue to race to become tech bizs before Big Tech bizs roll out legacy-biz-killers.

The most likely winner will be somebody migrating the most important aspects of a phone (pictures, music, calls, assistant) into a more convenient device.

Luxottica currently holds the monopoly on people’s faces.

My greatest fear is that we miss a more important tech phase shift while everyone clamors to put an LLM on everyone’s face/neck.

To me, the real game changer for humanity isn’t putting an assistant in glasses. It’s creating more wearable tech that actually makes humans better.

Glasses are the first instance of this literally providing sight for those with difficulty seeing that seems so obvious now. But I’m more interested in the wearable hearing aid technology they’re working on.

That’s a considerably more interesting value proposition for humans than making it easier to record what I’m looking at. Luxottica can explore how they can improve the 5 core senses through wearable devices.

The glasses form factor poses the most interesting first iteration because sight + hearing are the most important to humans.

But what if they could more deeply impact our other senses + push the capabilities of our sight and hearing further?

It won’t be as sexy as the current shiny LLM object, but Luxottica has the resources + market share + distribution to make those much longer horizon bets to truly change humanity.

While we may not like that they have a monopoly on the eyeglass market, they can leverage the proceeds from that monopoly to make moonshot investments that they wouldn’t otherwise have the resources and backing to make. 

Those long investments are often where we get our best tech from.