VERTICAL INTEGRATION - LUXOTTICA

Company presentation
Luxottica S.p.A. is the largest distributor and producer firm in the eyewear market
world-wide. It was founded in Agordo, a small Italian town situated in the Alps, by
Leonardo Del Vecchio in 1961. It operates in a continually evolving and highly
competitive global market.
Companys mission involves the improvement in customers satisfaction, while
simultaneously creating value for its employees and the communities in which the
Group operates.
Production and brand portfolio
Luxottica has adopted an extreme vertical integration, covering all the activities of its
value chain, from the design of the frames to the distribution to costumers.
Luxottica's products are distinguished by the excellent design and the high quality,
and they are known all over the world thanks to a strong and well balanced brand
portfolio. As a matter of fact, the brand portfolio is very differentiated, including both
luxury and non-luxury brand, such as Ray-Ban, Oakley, Persol, Tiffany&Co, Chanel, Miu
Miu, and others. Thus, it is able to satisfy different segments of customers.
The firm is leader in the eyewear market, producing and distributing more than 30
brands in over than 130 countries all over the world. Product design, development and
manufacturing take place in Luxotticas production facilities in Italy, China, Brazil and
United States. Luxottica also has a small plant in India.
Luxottica Group is constantly searching to improve and develop within new markets,
and it could be considered a worldwide integrated leader. However, the geographic
markets in which it has the greatest success are the American and European one (but
Asian market is developing).
Strategy and competition
There are different competitors within the industry, such as Safilo, Marcolin, and
Charmant Group. But, being a leader in such a big market allows Luxottica to define
standards and rules to operate in the eyewear market. However, some competitors
think that Luxotticas strategy is near to monopoly, and that it does not allow to reach
differentiation.
In fact, Luxottica continues its expansion in the market by investing on internal R&D
and, most of all, in acquiring other firms. One of the operation that has most
significantly changed Luxotticas history has been the acquisition of the Ray Ban brand
in 1999. Luxottica moved the production to Italy, lowered the price and started a
massive selling of the product around the world, bringing Ray Ban one of the most
famous and profitable eyewear brand. The success of this operation brought Luxottica
to continue the strategy of acquisition of brands in order to expand in the market.
One of the most important acquisition within the Italian market is linked to Salmoiraghi
e Vigan, an Italian retail store with more than 500 franchising shops. The firm, during
the last years, has suffered from the economic crisis and its debts with Luxottica have
increased. To solve this situation, in 2012, Luxottica acquired the 34% of Luxottica:
thus, it has acquired the firm without any expense.
Vertical integration in Luxottica
A firm is said to have a vertical integration when it expands its business into areas that
are at different points on the same production path, such as when a manufacturer
owns its supplier and/or distributor. It includes every step of the business: from the

concept or design of a product to the final retail to consumers. This management

strategy permits to control every sector of the firm, acquiring more autonomy in the
market but at the same time more responsibilities.
Luxottica past and future success is the result of the adoption of an extreme vertical
structure as business model, together with more than 50 years of experience.
The Groups present structure, covering the entire value chain, is the result of a choice
made by the Companys founder and current Chairman, Leonardo Del Vecchio, who
understood the potential of the vertical strategy.
Vertical integration of manufacturing was gradually accompanied by the expansion of
distribution. In manufacturing, the Company has, over decades, vertically integrated
all the phases of the production process. Direct control of the entire production
process makes it possible to verify the quality of the products, introduce innovations,
and optimize time and costs. Moreover, flow of information is exchanged faster and is
more detailed. Direct control over distribution, instead, enables Luxottica to offer its
products in the major markets and achieve a clear understanding of customers needs
and tastes.
Luxottica has managed its vertical integration development in an efficient way,
reducing the high costs linked to this business model. In addition, it has managed in a
proper way the risks of loss in flexibility and dispersion of competences, by increasing
the control over production process, adopting a centralized decision-making and
defining many rules and standards to be respected.
Coordinating the production of manufacturing plants with precise monitoring of the
market makes Luxottica Group efficient and able to adapt to changing needs and
trends.
Examples of innovation to reach efficiency and effectiveness
In 2006 Luxottica has completed the weekly production programming projects. These
projects aim to significantly reduce production program times.
In 2007 the Matrix has been implemented in order to enhance systematic
measurement of standard production times. It allows to reach a more efficient
production time monitoring. It also helps to calculate standard costs with greater
reliability.
Luxotticas program of strategic integration, instead, aims to improve the planning of
new collection launches.
In order to stabilize finished and semi-finished product prices, the Group conducted an
analysis of suppliers. Some were eliminated, and partnerships were formed with others
that in turn became more closely involved in the model design and development
stages.
A project was launched to integrate the Italian and Chinese procurement structures, in
order to improve their results. Integration also continued in the IT area to further
improve the exchange of data between the two countries. This is particularly vital in
the engineering and product development areas.
Knapp, a logistics project, was started to introduce a new automated warehouse and
shipment system. Thanks to this program, the inventory is tracked using the new
system.