Luxottica Group SWOT & PESTLE Analysis
ID : 52353353 | Feb 2018 | 15 pagesCOMPANY PROFILE - Luxottica Group
Business Sector : Fashion & Lifestyle
Operating Geography : Global
About Luxottica Group : Luxottica Group is an Italian eyewear corporation serving the customer in premium, luxury and sports eyewear based out of Milan, Italy. It is a market leader in its segment with revenue generated of over €9 billion and a market capitalization of €46 billion. It has over 82,000 employees working all over the globe as of March 2016. The group makes sunglasses as well as prescription frames and boasts off designer brands such as Prada, Chanel, Versace and DKNY. The group also includes brands such as Ray-Ban, Persol and Oakley.
Luxottica Group Revenue : €9,086 million – FY ending March 2016
Competitive Analysis of Luxottica Group
| 1. Strong Financial Performance 2. Diverse brand portfolio 3. Market Leader 4. Strong supply and big network 5. Brand image which gives it the freedom for pricing power. | 1. Frequent changes in leadership 2. Low investment in R&D 3. Lack of scale 4. Overpricing on majority of the products. |
| 1. Expansion in Emerging Markets 2. Merger, Acquisitions and Licensing 3. Launch of new products and services 4. Attracting venture capital | 1. Counterfeit Goods 2. Rise of E-commerce 3. Government regulations 4. Emerging competition and price war. |
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Strength
1. Strong Financial Performance: The revenue stands at €9,086 million with a growth of over 25% over the last five years. One trend which can be observed is the continuous growth of the bottom line i.e. the Net Income over the past couple of years. The net income is €851 million with the growth of nearly 6% year on year basis. This increasing trend shows the immense popularity of the brands under the Luxottica group.Income from operating activities increased to €867.9 million an approximate increase of 10.1% from 788.1 million in the first six months of 2016. This substantial improvement in the first 6 months shows group's growth despite the more challenging macroeconomic environment.
2. Diverse brand portfolio: The brand portfolio which has proprietary brands such as Ray-Ban, Oakley, Vogue etc and also licensed brands such as Giorgio Armani, Burberry, Chanel etc is a right mix of elegance and style. The portfolio appeals to many tastes of people and is well balanced between licensed brands and proprietary brands.
3. Market Leader: In January 2017, the company announced a merger with Essilor forming an entity whose market capitalization stands at €46 billion, making it the largest eyewear company in the world. Before the merger, the global market share of Luxottica was 14% and Essilor 13%. The synergy thus formed of two naturally complementary products, frames and lens will come under one roof and look to serve vision needs of 2.5 billion people all over the world. Also, the market share of the combined entity is expected to reach 30% after the merger is completed.
4. Strong supply and big network: An efficient distribution network helps the company to maintain close contact with its consumer as it maximizes visibility of the brand. The distribution mainly comprises of Wholesale chain and Retail chain network. As of December 2016, there were 7158 stores and 819 franchise stores.
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Weakness
1. Frequent Changes in Leadership: In the past three years, there has been incessant changes at the top level and just before the Essilor merger, the company named Francesco Milleri as their new CEO when the incumbent CEO Massimo Vian parted ways with the company. This is the fourth such instance in less than three years. While the Francesco Milleri is an able leader and longtime employee of the company, such frequent changes at the top management could be detrimental to long-term strategy and growth of the company. In order to have better futuristic growth with clear goals and targets, stability at the top management is needed.
2. Low investment in R&D: The company spends only a tenth on R&D, of what it spends on marketing. This statistic is alarming because the Company in order to thrive needs to continuously invent and innovate and thiscan be achieved through R&D initiatives. Luxottica needs to focus on such initiatives in order to stay ahead of the curve.
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Opportunity
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Threat
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References
1. Luxottica Group Annual Report 2016: http://www.luxottica.com/sites/luxottica.com/files/annual_review_eng_interattivo.pdf
2. Luxottica Group-Half Yearly Report 2017: http://www.luxottica.com/sites/luxottica.com/files/relazione_finanziaria_semestrale_2017_eng.pdf
3. Luxottica Group Annual Review 2016: http://www.luxottica.com/sites/luxottica.com/files/luxottica_group_relazione_finanziaria_annuale_2016_eng_0.pdf
4. Livemint: http://www.livemint.com/Companies/KixA8iLeApfvzDJvyb7GKP/Essilor-Luxottica-combines-share-in-Indias-eyewear-market.html
5. Reuters: https://www.reuters.com/article/us-luxottica-ceo/luxottica-ceo-exits-eyewear-giant-ahead-of-essilor-merger-idUSKBN1E92IB
6. CNN: http://money.cnn.com/2017/01/16/news/companies/glasses-merger-luxottica-essilor/index.html
| 1. Brexit - The UK to leave the European Union | 1. Slowdown in the various economy 2. Dependence on Currency Rates |
| 1. Consumer Preference & consumerism 2. Digitalization 3. Investing in trending technology | 1. Wearable technology 2. Evolving product design 3. Introducing digital displays to build instant customer connect |
| 1. Patents and Intellectual Property 2. Changes in tax laws and regulations | 1. Strict environment restriction on sourcing of raw material 2. Use of biomass as a source of renewable energy |
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Political
1. Brexit - the UK to leave the European Union: After the United Kingdom voted to move out of European Union, there has been an atmosphere of uncertainty in the market. The consequences of the UK moving out of European Union are yet to be seen as this is an unprecedented move; though the changing dynamics are certain to have an impact as the UK being a part of European Union gave it access to tax benefits and ease of doing business. The companies operating in the region may have to opt for different business strategies and thus encouraging businesses to move, prompting a loss of the market. The move also had a negative impact on the currency ie Pound, which can act as a motivator for the business to buy lucrative business established in the UK.
Economic
1. A slowdown in the various economies: In a recent couple of years, there has been a trend of overall world economic recovery coupled with weak economic conditions in Asia. In America, due to Trump protectionist policy, there has been a focus on consumerism which has resulted in moderate economic growth. In Europe, one the main country United Kingdom has shown signs of recovering from Brexit thus leading to overall economy grew in the European region. In the parts of Asia, emerging markets such as China and India are also recovering from slow growth, particularly in China, where the slowdown in the economy has impacted the company’s sales in the various businesses. In India, although due to the various initiative of the government the economy has taken a hit this effect is expected to fade away in medium to long run. Overall the world economy is expected to well in the coming years and IMF has also predicted the world economy to grow at 3.6%.
2. Dependence on Currency Rates: As the Company is present all over the world, it is susceptible to the changes in the currency rates. The effect of these fluctuations can be seen from the difference in Euro/U.S. dollar rates in first six months of 2016 and first six months of 2017. Luxottica also incurs partial manufacturing cost in Chinese Yuan as well as in Australian Dollar which could impact the consolidated profits of the group. Luxottica Group also does not undertake hedging and futures measures which could reduce the impact of currency exchange rates on the bottom line, but the Company avoids these activities which are related to risk factor discussion among the board members.
Social
1. Consumer Preferences and consumerism: The business could be negatively impacted by the availability, accessibility, and acceptance of vision correction alternatives to prescription eyeglasses, like refractive optical surgery. Increase in use of such alternatives could result in decreased use of the prescription eyewear products impacting the sales of lenses which would lead to the reduction in the bottom line and have an adverse impact on the business and future prospects. Changes in the taste of consumer in terms of fashion also could affect the popularity and thus impact the overall business of the organization. Hence it is imperative that company should anticipate the demands of the consumer and respond the changing needs in order to thrive, failure to do so will adversely impact the operations and thus impacting the financial condition of the company.
2. Digitalization: The world is going digital and in order to address the prime segment of millennial, the company needs to give the consumer a digital experience. The online platform provides the consumer with the variety of options from style, material, lens colour etc. Hence Luxottica needs to chalk out an effective e-commerce strategy to tap into additional markets as the legacy business matures. The Company is continuously investing in evolving and improving its ecommerce sites, so that customers get a virtual window into their brand. Ray-Ban.com is the Group's omnipresent channel with its presence in 27 countries offering an expanding assortment of products, Virtual Try-On tool and the popular Ray-Ban Remix tool, which helps consumers customize their eyewear gadgets, right down to the smallest details. Apart from Ray-Ban.com, Oakley.com and SunglassHut.com are the two other Luxottica Group's potent e-commerce channels. The Company is also working on Persol and Vogue Eyewear as their digital channels which are currently in pipeline.
3. Investing in trending technology: A staggering 84% of Eye Care Professionals forecast that blue-light-barring lenses will spike sales in the coming two years as they recommend it to 41% of their patients, specially young and single-vision patients. Statistics show that blue light/digital eyewear sales have far outrun sun wear sales. This is a notable business trend for Luxottica to capitalize. Within sun wear, polarized product continues to lead the pack although sun wear with photo chromic lenses are also highly popular. Polycarbonate with a 74% share rules the roost where lens materials are concerned, followed by high index (45%), and CR 39 (44%). AR coating continues to hold ground as the premium lens treatment, up to 70% in 2016 from 63% in 2015. These are some of the trends Luxottica should investigate and customize merchandise and stocks accordingly.
Technological
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Legal
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Environmental
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References
1. Luxottica Group Annual Report 2016: http://www.luxottica.com/sites/luxottica.com/files/annual_review_eng_interattivo.pdf
2. Luxottica Group-Half Yearly Report 2017: http://www.luxottica.com/sites/luxottica.com/files/relazione_finanziaria_semestrale_2017_eng.pdf
3. Luxottica Group Annual Review 2016: http://www.luxottica.com/sites/luxottica.com/files/luxottica_group_relazione_finanziaria_annuale_2016_eng_0.pdf
4. Livemint: http://www.livemint.com/Companies/KixA8iLeApfvzDJvyb7GKP/Essilor-Luxottica-combines-share-in-Indias-eyewear-market.html
5. Reuters: https://www.reuters.com/article/us-luxottica-ceo/luxottica-ceo-exits-eyewear-giant-ahead-of-essilor-merger-idUSKBN1E92IB
6. CNN: http://money.cnn.com/2017/01/16/news/companies/glasses-merger-luxottica-essilor/index.html
7. International Monetary Fund: http://www.imf.org/external/datamapper/NGDP_RPCH@WEO/OEMDC/ADVEC/WEOWORLD
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Luxottica Group SWOT and PESTLE analysis has been conducted by Pulkit Mittal and reviewed by senior analysts from Barakaat Consulting.
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