Warby Parker v. Luxottica: The 4-eyed David v. Goliath Story, and its economic implications

Glasses – why does it cost $300 to buy a pair of chunky plastic glasses with a little logo on them? The answer is Luxottica, the biggest monopoly you’ve never heard of.

Why Luxottica is a monopoly

Italy-based Luxottica owns and manufactures luxury sunglasses brands such as Ray-ban and Oliver Peoples, in addition to owning retail chains Sunglass Hut, Lenscrafters and Pearle Vision. It even owns a vision insurance business, EyeMed Vision Care. As you can see, Luxottica has all its bases covered.

For comparison, the vertically integrated monopoly is nearly 4x the size of its next biggest direct competitor, Safilo SpA, and is the only one publically traded in the US. So far no competitor of the same caliber has emerged to unseat the firm’s impressive 80% share of the high-end eyewear market. And while hipster glasses upstart Warby Parker grew nearly 500% in the past year and made approximately $23.7 million in sales, Luxottica pulled in nearly $9.17 billion in the same period.

Outlook

Luxottica’s continued financial success will depend on the willingness of consumers to pay hundreds of dollars for a pair of glasses. Its extensive chain of physical retail outlets and heavy branding are a strategy that works in the meantime, but if tastes change and consumers become disillusioned with branded product, Luxottica may find itself highly vulnerable in the face of an emerging e-commerce renaissance.

In recent years, consumer goods-focused startups built on a direct-to-consumer business model and delivered via an e-commerce sales platform have begun to gain traction – Bonobos in menswear or Warby Parker in eyewear, to name a few.

The Warby Parker value proposition is such: vintage-inspired glasses at $95 per pair. And by selling exclusively through its website and limited physical outlets, the startup is able to keep retailing costs low and pass generous cost savings along to consumers. Moreover, for every pair of glasses sold, Warby Parker also donates a pair of glasses to someone in need, à la TOMS Shoes, another consumer goods company in the “conscious capitalism” vein.

Why we should care about $300 glasses

According to Warby Parker’s website, “almost one billion people worldwide lack access to glasses.” Most of this underserved population is located in developing countries, which is where most of the growth is projected to occur in the coming century. And even though companies like Luxottica are racing to move into emerging markets, they’re targeting the upper crust of the population there, not the segment of the population that will be buying and needing glasses the most.

This is precisely why the developed half of the world should care: we’re potentially losing out on untold amounts of economic surplus because the global growth engine can’t see. Put into economist terms: the marginal benefit of introducing better vision care to people who have no access or limited access exceeds the marginal benefit of continuing to sell $300 sunglasses to people who have access to a variety of options. From a business viewpoint, we’re also missing out on a potentially lucrative consumer segment.

E-commerce could go a long way to alleviating this need: with increasing Internet penetration globally and cheaper shipping costs, the direct-to-consumer model is viable and scalable to reach consumers in the developing world. Thus, it remains to be seen if Warby Parker’s business model will be adapted or expanded to fill that need.

Sources

1.     http://www.inc.com/eric-markowitz/3-reasons-warby-parker-is-killing-it.html

2.     http://www.warbyparker.com/our-story

3.     http://www.forbes.com/sites/deancrutchfield/2012/11/27/luxottica-sees-itself-as-king-raising-questions-about-brand-authenticity/

4.     http://www.ssireview.org/articles/entry/better_vision_for_the_poor

Bonobos makes the pants I want my future husband to wear, and this is my love letter/job application to them. 

Cover letter

Bonobos,

My name is Valentina Fung and I’m a rising senior at UC Berkeley majoring in Business Administration. I’m writing to you because I’m interested in the Planning Internship with Bonobos. While most of my peers have interviewed with investment banks, accounting firms or consultancies, my interests in fashion and finance have led me to Bonobos.

At Cal, I’ve taken a variety of classes in finance and accounting and sampled design and computer science in the hopes of becoming an eCommerce ninja someday. And in addition to learning how to read balance sheets, I’ve also taken the time to fill my wardrobe with pieces borrowed from the boys. On the weekends, I’ve also enjoyed educating my confused male friends on the right cut of pant and watching them blossom into confidence. As a result, I decided that I wanted to be a part of a company that is reimagining men’s fashion in a modern, effortless way.

Professionally, I’ve worn many hats. Most recently, I’ve had experience researching and analyzing private equity investments as part of my internship at Partners Group AG, a Swiss private equity fund of funds. Prior to that, I was part of a student consulting team and we worked with a local organic mattress retailer to plan and revamp their marketing strategy to achieve a higher ROI. As a result, I’m skilled in Excel and PowerPoint across both Mac and Windows platforms. I’ve also been a coxswain for the lightweight crew team at Cal and have studied art and design for over a decade.

I’ve followed Bonobos extensively, because it’s the story of how two dudes took their frustration with pants and fixed it, but also built an amazing business out of it. Thus, I’d like to learn from the best when it comes to solving sartorial problems and scaling the solution to reach other sufferers.

Like Bonobos, I’m originally a Silicon Valley product, but I have yearnings to go eastward. And even though I have been guilty of wearing fleece on more than one occasion, I can assure you that I clean up pretty well in chinos and oxfords. Moreover, I can also assure you my experiences at Cal have instilled in me a strong work ethic and that I can add value to Bonobos. I’ve attached my resume and would welcome any opportunity to learn more about Bonobos. Thank you and I look forward to speaking with you.

- Valentina

What do you hope to gain from an experience with Bonobos?

Like the Bonobos founders, I too have sartorial problems, but not of the Khaki Diaper Butt kind. Instead, I suffer from Awkward Chest Gape when I wear button-ups. This tends to be a problem for women and I can’t say that I’ve seen anything out there that has satisfactorily solved my problem. Eventually, I’d like to reach my fellow sufferers with a product that will not only eliminate Awkward Chest Gape, but also induce a change in the way women think about clothes, much like Bonobos has done for menswear. But I need to learn the ins-and-outs of the rag trade before I can do that. And in my mind, there is no better place to earn my bananas than at Bonobos.

For the scale I envision my future endeavors to have, I need to understand what consumers look for in the online shopping experience. I also need to learn how to develop and deliver a product that will have as much appeal online as it does in-person. And finally, I need to understand how to reach the consumers out there who want better options, but have settled for the status quo due to convenience or haven’t quite realized their needs yet.

That’s where experience at Bonobos comes in. Bonobos is the optimal training ground for me: the hectic pace of the start-up environment and the opportunity to work with many different facets of the company will help me gain the best understanding of how to make a young, eCommerce-driven clothing business successful.  

I’d love to work with the Design team to think about how to further refine the derriere-lifting quality of the Washed Chinos and then collaborate with Production and Operations to get those pants to more Khaki Diaper Butt sufferers. I can see myself sitting in on Marketing and Merchandising meetings to brainstorm how our Style Ninjas and Guideshops can help Bonobos.com convert casual clicks to actual sales. 

This is what I’d like to gain from an experience with Bonobos: the knowledge of how to build and operate a successful clothing retail business based on disrupting the status quo.

How do you think you could add value to our team?

I possess advanced Powerpoint and Excel skills from my previous life as an Excelmonkey: if you need someone to make some PivotTables or to make sure every slide is in 12-point Helvetica, I can do that. But my value proposition is much greater than that.

I thrive on challenges: my favorite kind of workplace is the kind that keeps me on my toes; the kind that keeps the cogs in my mind churning. I’ll be the first person to jump on your project and the last one to remain when we’re executing an idea. I like to work with people, not just around them, and I can’t imagine a day where I’m only interacting with spreadsheets in Excel.

I’m easygoing and straightforward. I’m also unafraid of early mornings and late nights, courtesy of my crew days and nights in the library. You won’t regret working with me until 2 am in the morning, I promise. I take a careful, analytical approach to whatever I’m doing, even when I shop for clothes. As a result, my wardrobe is carefully curated with classic pieces that I’ll wear for years to come.

Lastly, I have mad drawing skills.

Twitpitch

I’m a girl who loves menswear, loafers over heels, and Excel above all. My humor is best served shaken, not stirred. Printed pocket linings excite me, and I’m Awkward Chest Gape’s worst nightmare.