Do you know where your glasses are coming from ?
Most people already have enough to do with the reflection of the headlights at night on the highway, than to care who made their glasses. The confusing words on the page and all the money they are sometimes forced to spend by the optician, sometimes they stop to ask themselves who created their glasses.
Glasses are a special thing: it is difficult to imagine other objects that are a medical device that you would like to do without and at the same time a fashionable product that you like. Buying them, at least for me, is always a complicated experience, even if in a certain sense exciting.
It starts in a dark room, where we contemplate confused letters and take note of the degeneration of your visual apparatus, and ends in a bright space, where you feel the cold touch of your frame, you listen to what they tell us, you pay more than you expected and you ca not wait to live a new, slightly sharper version of reality.
The global eye-wear industry, which is worth 120 billion euros, is built on these sensations. In the jargon of the sector, the choreography that takes us from the ophthalmologist to the seductive display of three hundred euro frames is called “product romanticize”. The number of eye exams that turn into sales is called capture rate, and most ophthalmologists (or rather optometrists) fix it around 60%.
Throughout the 20th century, the eye-wear industry has worked hard to turn a physical defect into a touch of style. In the meantime, sellers have learned that, strangely enough, to have an object that has a production cost of a few tens of euros (even the best lenses and frames put together do not cost more than fifty euros) we are happy, indeed very happy, to spend a sum ten or twenty times higher. “The profit margins are scandalous”, said some experts.
Sooner or later you will end up wearing glasses. In developed countries 70% of adults need corrective lenses to see well. In the U.S.A. there are 35 million people. But this is not a frequent topic of conversation. In the eyes of a common observer, the optical market is far from clear. In the U.S.A., thousands of independent opticians’ stores are flanked by a small group of large chains. Even in smaller local stores, hundreds of spectacles, posters advertising a range of vaguely scientific lenses (free-form, photo-fusion, reflex vision) and names so insignificant that it is hard to remember them even as we look at them. But what you see hides the structure that supports the optical sector.
During the last generation, two companies have overpowered all the others and today they dominate the market. The lenses of many glasses – and probably yours as well – are made by Essilor, a French multinational that controls almost half of the world’s graduated lenses sales and has bought 250 companies in the last twenty years. It is also very likely that your frame was manufactured by Luxottica, an Italian company with a unique combination of factories, design labels and retail outlets. Luxottica has been a pioneer in the use of luxury brands in the industry.
One of the functions of brands such as Ray-Ban (owned by Luxottica), Vogue (owned by Luxottica), Prada (whose glasses are manufactured by Luxottica) and Oliver Peoples (also owned by Luxottica) or retail outlets such as Lens-Crafters, the largest chain in the United States (owned by Luxottica), John Lewis Opticians in the United Kingdom (managed by Luxottica) and Sunglass Hut (owned by Luxottica) is to make the market appear more diverse than it really is.
Essilor and Luxottica play a key role in the lives of many people. About 1.4 billion people use their products to drive to work, read on the beach, see what is written on the blackboard during a biology class, write messages to their grandchildren, land planes, watch old movies, write theses and glance around the restaurant in the hope of looking smarter and more interesting than they really are. In 2017 the two companies had a number of customers halfway between Apple and Facebook, but without the hassle of being equally famous.
Now they are one. On March 1, 2018, the antitrust authorities of the European Union and the United States granted the two largest optical companies in the world permission to become a single multinational company, which will be called Essilor Luxottica. Technically it is not a monopoly: Essilor controls 45% of the prescription lens market and Luxottica 25% of the frame market. But since glasses have existed, that is, for seven hundred years, there has never been anything like it.
For thousands of years human beings have lived in more or less advanced societies, read, write and do business without the help of glasses
The new company is worth around sixty billion euros, sells more or less one billion glasses per year and got at least 140 thousand employees. Essilor Luxottica intends to control what its managers call “the visual experience” for decades to come.
Its birth was not a small thing. It will have huge consequences for opticians and eye-wear manufacturers around the world, from Hong Kong to Peru. But it will also be the answer to an unprecedented phase. For millennia human beings have lived in more or less advanced societies, read, write and do business with each other, mostly without the help of glasses.
Now this era is coming to an end. No one knows exactly the reason: the time we spend indoors, the screens, the color spectrum of LED lighting or the ageing population, but in modern urban societies around the world we are becoming a spectacle-wearing species. This need varies from place to place because different populations have different genetic predispositions to vision impairment, but it is a widespread reality. In Nigeria, an estimated 90 million people (almost more than half the population) need corrective lenses.
In practice, two things are happening. The first is an epidemic of myopia of which little is spoken about but which among young people has doubled in the space of a generation. For a long time scientists thought that myopia was largely determined by our genes. But ten years ago it was discovered that the way children grow up can also damage their eyesight. This effect is most evident in the Far East, where myopia has always been more widespread.
In the 1950s, Chinese nearsightedness illness made up 10-20 percent of the population. Today, it is almost 90 percent among adolescents and young adults. In Seoul, 95% of 19-year-old children cannot see from afar, many suffer from a more severe form of myopia and risk losing their sight as adults. But throughout the developed world a slower and more complex process is taking place because people are aging, urbanizing and working more and more indoors. The history of glasses confirms that if people start wearing them it is usually not because at some point they realize they are seeing badly. They do it to participate in new forms of entertainment and work. The mass market for eyeglasses did not emerge when they were invented in Italy in the 13th century, but two centuries later, with the birth of the press in Germany, because people wanted to read.
Today, there are 2.5 billion people in the world who would need glasses, but do not have the means to undergo an eye exam and to buy them. Some NGOs call the “visual gap”. Throughout the developing world, short-sightedness and presbyopia due to aging have been considered among the causes of various problems, from road deaths to poor results in school and poor productivity in factories. According to some, it is the largest untreated disability in the world.
But it is also an incredible earning opportunity, and Essilor and Luxottica know this well. In 2012, it was Essilor that spread the word about the 2.5 billion people who need lenses. “For two thousand years, people have lived essentially outdoors”, Hubert Sagnières, Essilor’s president and CEO, told to press. “Today we live indoors and use this”, he added, pointing to the telephone on the table. Defining the legal and technical details of the merger between Essilor and Luxottica will take a few years, but Sagnières has not hidden the fact that its mission is to provide glasses to the planet for the coming decades.
Currently Luxottica has about nine thousand stores and has signed contracts with a further one hundred thousand optical stores worldwide
Then he immediately divided the group, which had been founded in 1879, until only the LensCrafters stores remained, the ones he wanted from the beginning, and began to fill them with his frames. “That’s the formula they have been using ever since,” says Jeff Cole, the former CEO of Cole National, another major optical store chain bought by Luxottica in 2004. “When they buy a company, they spend some time trying to figure out how to kick out all the other suppliers. This formula means that when we enter a LensCrafters, Sunglass Hut, David Clulow, Óticas Carol in Brazil, Xueliang Glasses in Shanghai or Ming Long in Hong Kong, about 80 percent of the frames are Luxottica. Since it has its own designers, technicians, factories, warehouses and points of sale – it currently has about nine thousand stores and has signed contracts with another hundred thousand optical stores around the world – it can get its products to market earlier and in larger quantities than any competitor. Consequently, it also has a larger share of profits”
The agreement with fashion
Del Vecchio’s second great idea was the one that changed the very nature of the industry: to associate it with fashion. Designers like Pierre Cardin and Christian Dior had been trying to launch frames since the sixties, but it was Del Vecchio who found a way to introduce their creations and, above all, their brands to the mass market.
In 1988 he signed an agreement with Giorgio Armani, another billionaire starting from scratch, who started as a window dresser in a department store in Milan. That agreement revolutionized the entire optical sector. Until that moment, European and American consumers who wanted a little bit special glasses had to rely on companies with great traditions such as Zeiss, Rodenstock or Silhouette. After the agreement with Armani they could buy Prada, Gucci and Chanel, and were willing to pay for it.
At the beginning of the 1990s, Luxottica’s representatives who supplied the stores in London earned enough to drive around (Armani himself was on the company’s board of directors and owns just under 5 percent of its capital). Today Luxottica has about thirty brands, some completely owned by Luxottica, such as Ray-Ban and Persol, and others it produces under license (Michael Kors, Paul Smith, Dkny, Burberry).
Luxottica bought Ray-Ban from Bausch & Lomb, one of the great optical companies of the 20th century, in 1999. At that time the brand was worth nothing (in the United States you could buy a pair of Aviators in a gas station for 19 dollars). Del Vecchio paid 645 million dollars for it. During the negotiations he promised to keep thousands of jobs in his four factories in the United States and Ireland.
Three months later he closed the factories and moved production to China and Italy. In the following year and a half Luxottica withdrew the Ray-Bans from thirteen thousand stores, increased the price and significantly improved the quality, taking the lacquer layers of the Wayfarer model from two to 31. Today, the Ray-Ban is the most valuable eye-wear brand in the world. It invoices over two billion dollars a year and contributes 40 percent of Luxottica’s profits.
How did only two companies conquer the almost monopoly of a generic and trivial market sector like eye-wear? It is like if there were only one manufacturer of pens and another of ink in the world. The conditions that allowed the rise of Essilor and Luxottica are deeply linked to the way glasses are sold. Until the end of the nineteenth century you could buy a pair of cheap glasses in a department store like Woolworths, from a jeweler or on a stall on the streets of New york. Optics was still the art of inventors and tinsmiths.
It was the advent of optometry, around 1900, that changed things. A new category of respectable professionals was born (not very different from pharmacists), who wanted to standardize eye examinations and allow to sell glasses only to those who were authorized to do so. Their aim, in general, was to improve the quality. In the 18th and 19th centuries, street spectacle sellers were famous for their defective lenses. But there was also another important reason to take a cheap and easily available product and put it in the hands of authorized sellers: profit.
The first opticians did not have it easy. They were despised by ophthalmologists, the real eye doctors who worked in hospitals and considered themselves superior to the unrefined lens market. In the United States, the first optometry course was established by the physics department of Columbia University, because the medical faculty did not allow it.
But the new professionals did not give up and, in a way, for most of the 20th century optometry would have been limited to defending their own garden. Throughout Europe and the United States, laws and regulations were passed to control the prescription and sale of glasses. Many of these had a “doctoral” appearance, but they also had the effect of creating an opaque market. For a long time, for example, opticians rejected any form of advertising because it would force them to display prices and allow customers to compare them.
Limiting the number of spectacle sellers gave optical manufacturers more opportunities to try and monopolize the market. As early as 1923, the U.S. government investigated a scam on the price of Kryptok bifocals, the country’s best-selling bifocals.
After World War II, investigators at the Department of Justice discovered a large round of bribes (estimated at $35 million a year and involving about three thousand ophthalmologists) in which the American optical company and Bausch & Lomb paid doctors to prescribe their lenses. At one point the two companies manufactured about 60% of the glasses sold in the United States, but in 1966, after another scandal, they were banned from opening new retail and wholesale stores for twenty years.
It was then that Essilor entered the scene. In 1972 Essel and Silor, two French optical companies, merged and immediately attacked the U.S. market. Essilor specialized in plastic lenses, which were replacing glass ones, and also had a magical product, the Varilux, the first progressive lenses in the world, invented by an Essel technician, Bernard Maitenaz, in 1959. Progressive lenses allow short-sighted and farsighted people – usually older people – to wear only one pair of graduated lenses. The company made sure that the Varilux and its other products arrived all over the world (Essilor’s current sales manual has about four hundred pages).
Lenses are the magic powder of the optical industry. Almost nobody knows what they are made of, how they are manufactured and, above all, how they work exactly. In the last fifty years convincing opticians to prescribe Essilor lenses instead of Hoya or Zeiss, the company’s main competitors, has been a laborious job based on interpersonal relationships.
And when that does not work, Essilor uses economic incentives to retain customers. The opticians and industry analysts I spoke to to write this article told me that Essilor offers shopkeepers the so-called “rewards”: “Essilor wants to dominate the world industry,” a salesman told me. “It is a well managed company. It is not ruthless. But they allow it to do things that in any other sector would be considered contrary to the interests of consumers”.
Essilor boasts of supplying from three to four hundred thousand stores around the world, three or four times those of Luxottica
The system satisfies both Essilor and its customers. The profit margins of the optical industry are a well-kept secret, but those who work there explained to me that even though opticians can sell frames at twice or more than twice their wholesale price, it is mainly on the lenses that they earn, charging 700 to 800 percent. The biggest margins are those on progressive lenses and protective coating – anti-scratch or anti-glare – which costs Essilor a few cents, but it sells for tens of euros.
Essilor boasts of supplying from three to four hundred thousand stores worldwide, three or four times those of Luxottica. And it doesn’t just produce lenses. It owns more than eight thousand patents and finances university chairs of ophthalmology in various countries. Economic newspapers hardly ever mention it, but Essilor buys optical laboratories in Belgium, resin factories in China, instrument manufacturers in Israel and e-commerce sites.
The first rumors, almost fantasies, about the merger between Essilor and Luxottica had begun to circulate about ten years ago. The idea of combining lenses and frames had its charm, but there were some significant obstacles. The first was cultural. Even though it is a large company, Essilor has always maintained the spirit of a traditional French company: 55% of its employees are also shareholders. Luxottica, on the other hand, functioned more or less like a monarchy, without any of the management structures that characterize most billionaire companies. “Decisions were made in Del Vecchio’s dining room”, recalls a former manager of the U.S. headquarters, referring to the early 2000s. “We would take a flight to Italy, go to his home, show him our annual plan and he would say: Go ahead”.
In the summer of 2004, with his seventieth birthday approaching, the founder of Luxottica gave the management of the company to Andrea Guerra, a young manager who had snatched from Indesit, an Italian manufacturer of household appliances. With Guerra’s arrival, Luxottica rationalized production, moving part of it to China. It also became more stable and predictable. The price of its shares tripled.
But in 2014 Del Vecchio went back to work. He was 79 years old. “We were all quite surprised,” said a former Italian executive. Del Vecchio was clearly worried about what would happen to Luxottica after his death. “This company is his favorite daughter,” said the former US office manager. Del Vecchio has six children born from four marriages to three different women (in 2010 he remarried his second wife, Nicoletta Zampillo), but he always said they will never be his successors. According to some senior executives of the company, it seems that he was convinced that the merger with Essilor was the best way to make his work last, and he started talks.
In many ways the last chapter of Del Vecchio’s reign at Luxottica was chaotic and disorienting. Guerra was forced to leave, and throughout the period of his stormy return Del Vecchio continued to keep his eyes fixed on his goal, meeting in secret with Sagnières, the CEO and president of Essilor, until, in the summer of 2016, Sagnières himself said that “it was obvious” that the deal would be concluded. The two entrepreneurs announced the birth of the new company in January 2017.
In the coming decades Essilor Luxottica will have the power to decide how billions of people will see and how much they will have to expect to pay for it. Public health systems usually have more urgent problems to solve than those of sight: before 2008 the World Health Organization did not even measure short-sightedness and presbyopia rates.
The new company is choosing to interpret its mission more or less as it wishes. It could share new technologies, screen people’s vision problems and flood the world with good quality glasses at affordable prices. Or it could exploit its commercial dominance to eliminate competition, raise prices and earn billions. It could really go one way or the other.
The main reason, according to many, is the reduction in time spent outdoors. Sunlight helps regulate dopamine levels, which in turn affect eye development. With an excess of dopamine the eyeball grows too much and takes on an oblong shape, focusing the light in front of the retina instead of on it. Researchers in the field predict that the epidemic of short-sightedness will put the health systems of developing countries, which are already unable to provide an invention of the Middle Ages, in great difficulty. “Health care systems can barely provide eye care,” said a doctor. Then it is corrected. “In fact, they can’t do it at all. And imagine what will happen when the people who need it are double or triple the number of people who need it”.
In 2016 Essilor opened a branch office in China, a village with 78 million inhabitants and only two hundred optical stores
In April, Essilor pledged to provide two hundred million prescription lenses to the nine hundred million people living in Commonwealth countries who do not have glasses. In some of the least served markets in the world Essilor is practically the only presence. In 2016 it opened an office in the Democratic Republic of Congo, a country with 78 million inhabitants and only two hundred optical stores.
Last year it bought a laboratory in Ethiopia, where there is on average one ophthalmologist for every million people (in European countries the ratio is one for every ten thousand). In places like these activists can do nothing but watch and hope.
In the role of titans
The managers of the French company are generally much more nerdy and less well-dressed than their Italian colleagues, but they are much more comfortable in their role as titans in the global optical industry. Sagnières is 62 years old and the naive cheerfulness of a high school geography professor whose class has just passed the exams with flying colors. “I won!” he says when talking about his agreement with Luxottica. “Whatever happens, I have already won. You have won, and your children have won! Seriously, that is just the way it is”.
As Sagnières explained to me, the company has calculated (assuming that a pair of glasses costs five euros) that it can supply the world with lenses for about five hundred million euros a year for the next thirty years. But the equally important thing is that any investment Essilor Luxottica will decide to make in the lower end of the market will probably eventually pay off. “We know that in three, five or ten years those people’s lives will change and they will be able to afford to pay fifty euros for better lenses or the same for a signed frame, we can wait”.
“I don’t know if we are starting a revolution, if we are witnessing a change as important as five hundred years ago, but I think we are working in the right field at the right time”.
The question is whether there is anyone, apart from its shareholders, who can force Essilor Luxottica to account for what it does…