Luxottica’s North America View

Demographics Favoring Eye Health Exams and a Further $250M Investment in Technology Over Next 3 Years

By

Luxottica CEO, Andrea
Guerra.
MASON, Ohio—Executives at Luxottica Group S.p.A. (MTA: LUX; NYSE: LUX), reaffirmed the strategic and business importance of the North American market to the overall company, as they outlined its achievements and future plans for all of its retail and sun divisions, managed care and wholesale groups to financial analysts at the company’s 2013 Investor Day held here yesterday. North America is Luxottica’s leading region with revenues of $5.3 billion, over 4,800 stores and approximately 40,700 employees as of Dec. 31, 2012.

In his opening remarks to the analysts on site at the company’s N.A. headquarters, Luxottica CEO, Andrea Guerra, referred to North America as “a structurally growing market, the largest market in the world, the largest market for Luxottica” and described eyewear as “a 200-year-old, new industry for many reasons and opportunities.” Guerra noted the “emotional connection” between us and the American consumer about eyewear. “It was a purely functional relationship, but today, in addition to function, there is an emotional component to how we view and choose our glasses, which is completely different.”

He also cited “a huge behavioral change and social revolution, with Baby Boomers as a key market and Millennials, now heavily into sunwear, as a major current and future opportunity and influence.” Thirdly, he pointed to the relevance of the eye examination as a “main window to our health,” and talked of ways that this would be explored further by all of Luxottica’s business sectors. And, fourth, he discussed the “technology revolution” which is impacting “ everything from Rx-ability to the expansion of new platforms including e-commerce and new marketing.”

Guerra cited the “premiumization” of the sun category, boosted by brand strength and the growth of polarized lenses as part of the projections for Sunglass Hut but also sun within Luxottica Retail divisions and among its wholesale business as well. He also pointed to the increased need for vision correction products, an increase in the number of eye exams and the greater penetration of premium eyewear to strengthen the optical market—now estimated to be a $35.5 billion market with the opportunity to grow to $44 billion to $47 billion by 2020, according to The Vision Council and company estimates.

He pointed to the “excellent” successes over the past five years in particular due to the company’s portfolio mix and a renewed emphasis on customer service driving double-digit sales growth in Luxottica’s wholesale brands business, particularly in North America where sales have doubled in five years. Guerra also said that Luxottica Retail Optical North America (RONA), through its multi-brand positioning, serves consumers with different lifestyles and is looking to boost sales from $2.5 billion generated in 2012 to over $3 billion by 2016. Operating profitability is also expected to increase by 200 percent by 2016. To support this growth, he said Luxottica Group plans to make investments of approximately $250 million over the next three years.

Mark Weikel, president of the Luxottica RONA group, talked about optical as a category “ripe for change,” with “omni channel” and emerging research pointing to the increased purchasing frequency among customers who are engaged in store as well as online. Weikel said that online sales were a small percentage of the RONA group’s total sales today, but projected that would increase in the next three years.

Weikel cited LensCrafters as focused on introducing technology into all phases of the optical experience, including a commitment to increasing the technology with the eye exam in a program called AccuExam, which is being tested in several locations now and expected to expand to a number more by next year. He referred to Pearle’s new “genuine eyecare delivered by your neighborhood doctor’ approach and Pearle’s new office/retail environment format and marketing as one which is resonating with patients and will enable the group to expand and consider international franchising opportunities in the future.

Weikel also referred to Target licensed optical operations as thriving and stated, “We are in 331 of their 1,771 stores in N.A. We’ll grow by 400 stores by 2016 and believe we can triple the number by 2018.” Weikel noted that Target is a “pioneer” in online Rx, moving beyond CL dispensing and online appointments to a mix of some frame home try on and in-store adjustments and sales. Weikel discussed Sears Optical as RONA’s way to reach “the value focus consumer, 45 to 65 years old, who trust in Sears.”

Finally, Weikel spoke about the resilience of the overall business. He projected that online sales are collectively less than 5 percent, or $100 million to $150 million of sales, today, but projected that this could increase dramatically by 2016, with a $250 million investment by Luxottica’s RONA to help define “the digital journey and some of the capabilities we want to develop like customer relationship management, mobile, Rx e-commerce and imaging to elevate the game and enhance our relationships with customers to infuse the optical category with new experiences.”