Transcription
Have you bought a pair of glasses lately? Bet your eyes popped when you saw the price tag. If you don't go to places like Walmart or Costco, you could easily be spending hundreds and hundreds of dollars for a pair that cost $30 ten years ago. Talk about sticker shock!
And it's not as though things have changed that much. They're still made of a couple of pieces of plastic or wire, some screws, and glass. Why should a pair of glasses cost more than an iPad? Well, one answer is because one company controls a big chunk of the business.
The story will continue in a moment. Never has there been so much choice: Ray-Bans, Oakleys, glasses for running and skiing, and even reading. Oh no, a staggering variety of colors and designers! You'd think the competition would force the prices down.
Wow, look at that! One reason it hasn't is a little-known but very big Italian company called Luxottica. If you own a nice pair of specs or shades, they're probably theirs. Luxottica is the biggest eyewear company on Earth. It shuns publicity, but CEO Andrea Guerra invited us in for a look, and it was eye-opening.
Do you have any idea how many people in the world are wearing your glasses right now? At least half a billion are wearing our glasses. Now, Luxottica started here as a small tool shop in Agordo, a dot of a town in the Italian Alps, when frames were still made of mountain goat horns. This was the factory in 1961; this is what it looks like today.
Last year, Luxottica made some 65 million pairs of sunglasses and optical frames. They don't make prescription lenses, and we saw mountains and mountains of glasses and boxes headed to China, India, Brazil, and above all, to the U.S. But they're very expensive.
They can be very expensive, but this is one of the very few objects that are 100% functional, 100% aesthetical, and they need to fit your face for 15 hours a day. Not easy, and there's a lot of work behind them. Luxottica's product manager, Isabella Sola, explained that the company revolutionized how we see glasses.
You think I look cool? I think so. I think I look cool too. It wasn't that long ago that glasses were uncool. You only wore them if you absolutely had to. I can remember not that many years ago my mother telling me that men would never ask me out if I wore my glasses. I was to go blind if I wanted dates.
But Luxottica took this medical device and turned it into high fashion by making deals to conceive and create high-quality, stylish specs for nearly every brand and label you can think of. We have Prada, we have Chanel, we have Dolce & Gabbana, we have Versace, we have Burberry, we have Ralph Lauren, we have Tiffany, we have Bulgari.
They're not even called glasses anymore; they're eyewear. Do people really wear this? Yes. Once glasses became face jewelry, Luxottica could charge a hefty markup. But you know something? I know that there are some less expensive glasses that look very similar to the very expensive.
For example, this is your Vogue line, which is not that expensive. Yes, and this is Coach, which is much more expensive. If two women walk down the street with these on, yes, they almost look the same. Almost look the same. Almost. It's not the same. Not the same because of details on the frames, like the little Chanel C's, Polo ponies, or Tiffany blue.
Luxottica wouldn't tell us their markup, but glasses like these can sell for up to 20 times what they cost to make. And all the glasses are designed by Luxottica. So you design thousands of pairs of glasses? That's what I do. Yes. Where does Tiffany come into it?
Tiffany comes in at every stage. Basically, the fashion houses send in sketches of their new collections as inspiration, and down on the factory floor, you can see the work that goes into differentiating the brands. Plain plastic temples go through a painting machine and come out Versace. Stones are inserted one by one into the Dolce & Gabbana, and leather is carefully threaded for that Chanel bag look.
If people begin to know that Chanel glasses were designed by Luxottica, would it change the way they think about Chanel glasses? You know, that would be totally wrong. That would be crazy. But why isn't the Luxottica name a brand name? Are you in any way hiding it?
Hiding it? Yeah, not at all. We're listed on the New York Stock Exchange, where Luxottica shares are soaring. The company raked in $8 billion last year, but their bestseller wasn't a fancy fashion house label; it was a brand they outright own: Ray-Ban.
Originally made by Bausch & Lomb for the U.S. Army, since JFK, nearly every president has worn them—not to mention Tom Cruise in Risky Business. It's like University of Illinois and Top Gun. But the brand was poorly managed, cheapened, and eventually put up for sale. The Italians bought it in 1999 and had a strategy to turn things around.
We stopped selling sunglasses from Ray-Ban for more or less a year. When you bought it, you could buy them for, I don't even know how little money—$29 at the drugstore, at a gas station—and you took them off the market. We refurbished everything and made them upscale.
Today, those $29 pairs can cost $50 and more, and Ray-Ban is the top-selling sunglass brand in the world. When Americans go to buy these glasses, I'll bet 99% think they're buying an American brand. It is an American brand. What's wrong with it? I mean, it's an American brand owned by Italians.
I think the world is the world, and we don't realize it. That's the thing. Before I started working on this story, I'd never heard the name Luxottica. Yeah, which is all the more surprising since Luxottica not only bought Ray-Ban, they also bought LensCrafters, the largest eyewear retail chain in North America.
So now they make them and they sell them. It's great for business, but is it great for the consumer? I asked LensCrafters president Mark Weil how many non-Luxottica brands do you sell here.
We probably have a few brands that aren't Luxottica—mostly Luxottica. Mostly Luxottica, yeah. So since Luxottica owns you, does the consumer get a break on glasses made by them in LensCrafters?
What the customer gets at LensCrafters is a variety of services and products, including this broad assortment of frames. Mark, you're not answering my question. I'm asking if you charge less for frames made by Luxottica since you're the same company.
I think every competitor, every retail optical brand, determines what their price is and whatever their brands are. That's a no. Customers do not get a break at LensCrafters. The average cost for a pair of frames and lenses is about $300.
You may think, well, there's choice in the mall for other glasses, but Luxottica doesn't only own the top eyewear chain in the country; it owns another large chain, Pearl Vision, and Oliver Peoples, and several boutique chains. It runs Target Optical and Sears Optical, and we're not done.
Luxottica also owns Sunglass Hut, the largest sunglass chain in the world. So is there a free market in eyewear? No, I don't think there really is. I think one company has excessive dominance of the market.
Smartmoney.com columnist Brett Ains says the appearance of variety is an optical illusion. The reality is, it's like pro wrestling—competition; it's actually fake competition. Consider what happened to Oakley, the world-famous maker of advanced sports eyewear.
Oakley was a big competitor, and they had a fight with Luxottica. Luxottica basically said, "We're dropping you from our stores," and they refused to sell their glasses in it. It was a dispute about pricing, and they dropped Oakley from the stores, and Oakley's stock price collapsed.
How is Oakley going to reach the consumer if they can't get their sunglasses in Sunglass Hut? There were some issues between the two companies in the beginning of the 2000s, but both of them understood that it was better to go along—better to let you buy them.
I wouldn't say this; we merged with Oakley in 2007. You bought them? They tried to compete, and they lost, and then you bought them. I understand your theory, but they understood that life was better together.
So now Luxottica owns the two top premium sunglass brands in the world: Ray-Ban and Oakley. But Luxottica points out there are other players. Who's your biggest competitor in the United States? You could say Walmart, also Costco, and emerging online companies like Warby Parker.
But other competitors told us Luxottica has them in a chokehold. If you make glasses, you want to be in their stores, and if you have stores, you want to sell Ray-Ban. So Luxottica can set the prices as high as it wants.
Luxottica's dominance is what's called a price maker, which means that essentially it can set prices, and other people will follow in its wake. She says this is why glasses in general cost so much, even at your local optician's.
The whole point of a luxury brand is to persuade people to pay $200 for a product that costs $30 to make. Well, let me show you something. Why is it any different than my shoe? Well, to some extent, there are actually a lot of comparisons.
The difference is actually that the entire shoe industry isn't made by one company, and the same company doesn't also own all the shoe stores. You think, well, surely insurance companies covering vision would complain, but guess what? Luxottica also owns the nation's second-largest vision care plan, iMed, covering eye exams and glasses.
What don't you own? A lot of things, not really. You seem to really. Why not combine everything under one name? I think people love diversity. People love to have different brands. People have to have different experiences.
It's an illusion of choice if you're all owned by the same company. I think this is totally wrong. The question is what kind of choice the consumer has. It's not a question of how many you own; how does the consumer benefit from all of this? Your prices are still high.
If you go to a shoe company, would you say that their prices are high? You're trying to tell me it's all worth all that money? Everything is worth what people are ready to pay. And you know what? He's right. It seems people are ready to pay a lot.
I bet they cost a fortune. They're not too expensive. They cost almost $400. With prescription lenses, the price could jump to $600 or more.