The global eyewear market, which is primarily driven by demographics, lifestyle and the ageing population, stood at USD 102.7 billion in 2015 and is expected to reach USD 141 billion by 2020. Spectacles hold a major share in the eyewear market with over 55% of the total volumes. However, the market for contact lenses and sunglasses is expected to grow substantially at a CAGR of 12% and 9% respectively (source: Allied Market Research), owing to fashion consciousness. The rising population and their awareness of eye care is helping the industry to thrive, furthermore, the environmental and genetic health hazards have led the demand for prescription glasses to increase manifold. In addition, the dependence of people on gadgets like laptops, smartphones and tablets will put the eye vision at further risk.
The key players in the industry are Luxottica, Essilor, Fielmann and Bausch & Lomb. Essilor estimated that out of the 7.2 billion people in the world, 63% need vision correction and everyone should protect their eyes from UV rays. The below diagram portrays, how eyewear manufacturers can tap into a sizeable consumer market.
In terms of the regional market share, Europe tops the chart with a market of around 35%, while North America amounts to 30% of the market. The major eyewear players such as Luxottica, Safilo and Fielmann are all based in Europe and therefore have a fairly visible presence. This coupled with the ageing population and their preference towards premium products are the key drivers of revenue in the European region. In the Asia-Pacific, the market share is around 20% and is expected to grow tremendously due to a large ageing population, especially in Japan, South Korea and Singapore (lower average number of births per woman), rising disposable incomes and urbanisation.
Luxottica with the revenue of €8.8 billion in 2015 was clearly the global leader in the eyewear industry back then. It not only manufactures, but designs and distributes its products as well. In addition, through its vertical integration model, it has been able to reap benefits of lower costs in the supply chain. All major brands like Ray-Ban, Vogue, Oakley, and retailers like Sunglass Hut, LensCrafters and Pearle Vision are owned by Luxottica. The list does not end here, it too manufactures frames for Prada, Ralph Lauren, Tiffany, Burberry, etc. This has made the eyewear market more monopolistic in nature. However, any further growth by Luxottica through acquisitions can put it into antitrust radar. It has been saved due to more involvement in vertical mergers rather than horizontal.
The production costs are not as high as the operational costs, Televisory drew this inference from the cost structure of the eyewear industry. Secondly, operating expenses, comprising selling and administrative costs account for more than 50% of the revenue.
Luxottica has large scale operations and caters to more than 150 countries, while Fielmann, a market leader in Germany operates mainly in the European region. Fielmann, thus need less staff and assets to sustain its business. Its higher operating expenses were a result of a reorganisation of the IT processes and structure. Both the companies had similar EBITDA margins, however, Luxottica’s drop in EBIT margin was more due to its depreciation charges at 5.4% of revenues. Fielmann’s percentage of depreciation has been just 3% of its revenues. Luxottica’s net margin was further pulled down due to its net financial expenses of €95.2 million while Fielmann had a net financial income of €376 million.
Luxottica which is an international player has high currency risk exposures as compared to Fielmann. Fluctuations in the foreign exchange rates had a massive impact on its results in the previous financial periods. In 2013, it faced a currency translation loss of €286.6 million as opposed to a gain of €267 million in 2015 (strengthening of USD against Euro). Marcolin, on the other hand, has been suffering losses due to its financial indebtedness. It went through a reverse merger in 2013 to improve its operational efficiencies and financial stability, which was visible in its results of 2014. Additionally, the integration with Viva has improved Marcolin’s distribution and logistics systems in the American market. The restructuring of the North American market led to the closure of several plants and facilities, yielding cost synergies of €10 million annually. Marcolin may continue to benefit from these synergies and move towards positive results.
Fielmann’s efficiency and profitability ratios were on a higher side as depicted through above charts (average of the last 3 years). Although Luxottica is a leader in terms of volume and size, Fielmann has been managing its finances effectively to gain better returns. Luxottica’s asset base was 10 times that of Fielmann’s, though its revenue was only 7 times higher, thus manifesting a better asset utilisation for Fielmann. Additionally, there was a scope for Luxottica to reduce its stock in warehouses as its inventory turnover was 3.4 times, implying fewer sales being generated with the quantity of inventory on hand (Fielmann-10.2 times). Fielmann is also restructuring its pricing to achieve higher sales volume. It has a huge potential to expand its operations internationally by raising debt as depicted by a small equity multiplier of 1.3x. This may initially put a dent in its margins, but if it manages cost-effective distribution and licensing agreements, it is expected to seize a large market globally.
The eyewear manufacturers have a great opportunity to exploit the prescription sunglass market since only 45% of the spectacles wearing population wear prescription sunglasses. Therefore, the market is substantially untapped. The prescription sunglasses segment serving the dual purpose is expected to grow at a CAGR of 4%. At the same time, the growing acceptance of an alternative, in the form of optical laser surgery could pose a serious threat to the eyewear manufacturers by reducing the sales of prescription eyewear products.