The Eyewear Market Luxottica’s Leadership, Strategy and Acquisitions

Luxottica may be the largest eyewear company, but this does not imply the company does not face competition or threat of entry. In this section we will explore the threat of new entrants for Luxottica. When looking at companies coming into sunglass market, there are two basic alternatives:

- A new company or brand entering the sunglass market (e.g. fashion and shoe company Converse starts a sunglass line)

- A holding acquiring licenses and house brands enters the market, whicheffectively equals Luxottica's model.

The threat of entry is influenced by two factors: barriers to entry and retaliation by incumbents.

In the sunglass industry, there are several barriers to entry that prevent potential newcomers from entering the market. A brand that decides to license its sunglasses production and marketing to a holding company that is not Luxottica however faces fewer barriers than a company that starts to produce sunglasses itself.
Economies of scale are in this respect important. A company like Luxottica, with 56.6 million pairs of sunglasses and frames produced in 2010, is likely to be more efficient than a start-up company. Also, Luxottica, vertically integrated as it is, has access to distribution channels (the company has 23 distribution centres across the world) and its excellent contact with retailers (not to mention the fact that Luxottica
owns several retail chains) are clearly to Luxottica's benefit. Moreover, one will need significant capital in order to start its own assembly line and Luxottica's knowledge of sunglass production is clearly in the holding's advantage, and hence a barrier to entry for possible newcomers.

Sunglasses are highly differentiated products. By means of marketing companies create brand identities. With its balanced brand portfolio Luxottica gains by this aspect, but with it comes a threat. Consumers buy particular sunglasses because they like the design and help the brand, not because they are made by Luxottica. Chanel and Ralph Lauren are perceived as two different brands, but their sunglasses both contribute to Luxottica's profit. New entrants, with their own brand identity, can decrease Luxottica's market share because they may capture customers from Luxottica's brands. This is further stimulated by the fact that consumers do not have to deal with switching costs when they switch from one brand to another.

When a company coped with the barriers of entry and subsequently enters the market, it may face retaliation by companies like Luxottica. For instance, when a brand enters the market that has the same brand identity of one of Luxottica's brands, Luxottica may react by performing more marketing activities for its brand. Luxottica may intimidate the new brand by doing so. Also, it might increase its contact with the brands currently in the holding's portfolio or offer these brands more money for their sunglass license. In an optimal case, the brand that just entered the market may be incorporated by Luxottica.