What's going on?
$54 billion French-Italian company EssilorLuxottica – the world’s largest eyewear company – saw its shares rise on Monday after announcing clearer leadership.
What does this mean?
Ever since their companies combined a year ago, executives from lens grinder Essilor and frame designer Luxottica (of Ray-Ban and Oakley fame) have been battling for supremacy. Both sides promised an equal marriage – but have since accused one another of trying to dominate. And investors’ eyes glazed over: EssilorLuxottica’s stock has fallen 15% since the merger.
But management has finally seen the light. Agreeing to appoint a new CEO without blood ties to either side should help EssilorLuxottica get on with cutting duplicate costs and delivering the $675 million in annual “synergies” it promised investors when it merged (tweet this).
Why should I care?
The bigger picture: Standing tall in vertical integration.
Essilor and Luxottica merged two parts of the eyeglass industry: Essilor’s optical expertise and Luxottica’s frame distribution and branding. Owning two links in the supply chain lets EssilorLuxottica offer retailers more attractive prices if they agree to sell its frames and lenses together. Selling two items at once boosts sales and makes distribution easier. And the combined company can sell a polished package of frames sporting their requisite lenses directly to its customers, cutting out the retail middleman altogether – and keeping rivals’ ecommerce threats out of sight.
For you personally: Look forward to more glasses – and higher price tags.
EssilorLuxottica sells around a billion pairs of frames and lenses each year. And that’s set to grow: by 2050, half the world will be myopic. Huge market share (45% of prescription lens and 25% of frame sales pre-merger) and growing demand amid limited competition may eventually see EssilorLuxottica focus on raising its prices, however – resulting in more expensive glasses for (half of) you. That could eventually prompt the competition authorities to get involved: speaking of expensive glasses, brewing giant AB InBev was on Monday fined over $200 million by the European Union for artificially inflating Belgian beer prices.