Strategy Analysis of EssilorLuxottica

1. Introduction:

The purpose of this report is to show how companies face the very competitive optical industry. We are going to focus on the group EssilorLuxottica – a merger between the French lenses and optical material manufacturer Essilor and the Italian eyewear firm Luxottica. We will see how they manage to maintain their leader position in the market. More precisely, the report will discuss how the group has matched its resources, knowledge and expertise to the opportunities of the market in terms of innovation and developed new products to answer and anticipate the consumer’s needs.

The optical market weights globally 6.4 billion euros in 2017 in France, with a light decline this year (-1.4%) versus 2016 (source: GFK Retail and Technology). EssilorLuxottica is leader in the global optical industry thanks to its vertical integration, combined with a worldwide structure, and represents 10% of market shares of the retail distribution since the buyout of Grand Optical and Générale d’Optique. In 2019, with the international pandemic Covid-19 and the measures taken to fight against it, EssilorLuxottica lost 7% in the financial markets. Thanks to this report, we will see how the firm faced this pandemic and which impact it has on its business.

First, this assignment help analyze the external environment of the company. Then, we will focus on the internal environment through the resources and capabilities of the firm. We will use the appropriate tools: PESTEL and Porter’s five Forces for these analyses. Finally, we will focus on the business level strategy and how the firm did to implement its differentiation-based strategy. This report is provided with concrete examples and reliable data of the company and of the industry.

1. External & Internal Analysis

This section is divided into two subsections. First, the external environment of EssilorLuxottica will be analyzed in the framework of the application of the following tools: PESTEL and Porter’s five forces. Secondly, the internal environment will be examined by looking at the resources and capabilities of the company that can be linked to the external environment, in order to end up with a competitive advantage. An inquiry will be done by using the VRIN tool.

1. External Environment

In the framework of our external analysis, we will focus on the optical instrument and lenses’ industry. The analysis is split into two parts, first the PESTEL will be tackled then we will go through Porter’s Five Forces to analyze the competitiveness of the industry.

1. a. PESTEL Analysis

The external environment of EssilorLuxottica is qualified as an international industry with plenty of foreign competitors. The industry’s activity is separated into three main regions: Europe, North America, and Asia Pacific. It is a very competitive industry, but very competitive.

The optical instrument and lenses’ industry are in constant growth (+2.3% in 2018). As the market is global, it facilitates exchanges between commercial areas. Therefore, due to process like the Brexit, it may affect the market and performance of EssilorLuxottica with trade barriers or extra fees.

In France, we can get more and more reimbursed by programs established by the Sécurité Sociale in the framework of our optical expenses thanks to a reform named “100% Santé”. It permits to the French population to have facilitate their access to their needs.

Nevertheless, the optical industry may be affected by financial crisis such as the subprime crisis in 2008. This crisis had limited the purchasing power of numerous households1,  but it has also slowed the performance of companies of the optical instruments and lenses industry (reducing their quantity of orders)2

Today we are facing a pandemic throughout the world. A pandemic is also considered a health crisis that affects every industry. All physical shops are closed, only minimum services (care and urgent needs) stay open in Europe and now the factories are also closed.

In Chine, there is one of the biggest production factories of EssilorLuxottica. The good news is, China is beginning to produce slowly again and most of firms can relocate for a while their production in China. Furthermore, Mido, the most important trade exhibition, decided to open a new digital platform to allow the industry to present their new models because they had to cancel the Milan edition.

The industry is victim of a global pressure; new competitors are entering the market with new ways of purchasing, regardless economic barriers throughout countries. Those new competitors are mainly online and threatening deeply physical purchasing. In Europe, an organization regulates new entrants on the market.

On a legal point, it is important for brands and designers to protect their models and their brands. Due to globalization, many frames models are copied by small companies and sold at a cheaper price on their website (most of them are Asian retailers:  Ray-Ban most iconic models are often copied. We have the example of the brand Kenbo sold in Alibaba that is very similar to the round model of Ray-Ban).

Law n° 2015-990 August 6th, 2015:  facilitates the purchasing of optical frames, because people aren’t obliged to go through an ophthalmologist to get a prescription. Therefore, there is an increase of the taxes on optical equipment.

In order to protect designs and brands on a global point of view, it is important to register them on platform as INPI in France.

Final customers are more aware and autonomous in their purchasing process due to online purchasing or because the state is giving them more and more information regarding the prices and reimbursement (ex: in France). Therefore, it is easier to get access to optical product, now that physical retailers can run test and give prescription without consulting an ophthalmologist.

In France, optical products are ranked Top 2 among the ranking of equipment goods. Due our daily usage of screens, people need more and more optical products to preserve their vision.

There is a constant innovation on optical instrument and lenses market (ex: Google glass, clips-on framings). Thanks to the globalization, exchanges are facilitated; it is also thanks to internet that the market is being more and more accessible. Facilitating the access, permits also a better communication between suppliers and clients.

The market tends to follow the trend and preserve our planet. They are developing of eco-friendly framings (in wood for example), while most of them were made in non-recyclable materials.

We do witness a global industry which is constantly growing, and strongly influenced by external factors such as crisis or regulations. Therefore, it is submitted to political restrictions in Europe, for example that can influence the activity of the industry that might need to redefine its logistic. It is also submitted to legal restrictions; all patent must be registered to avoid counterfeiting or copy. The industry knows how to answer the needs and different issues that are involved throughout the decades thanks to innovation. In the following subsection, Porter’s Five Forces will permit us to analyze the competitive environment of EssilorLuxottica and determine threats that might endanger its competitive advantage.

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