For the 50 percent of Americans who
wear glasses, getting a new pair can be pricey. For the cost of a single pair, they
could pay a month's rent in any of these one-bedroom apartments, buy a
month's worth of food for two people, or buy a roundtrip flight
from New York to Reykjavík, and still have money to spare. And that's without lenses. Add the cheapest lenses available and
the price jumps by another 200 dollars. Granted, this is the most
expensive pair we could find on the LensCrafters website and we
didn't input insurance information. Still, the average price of
glasses in the U.S. is in the hundreds. $238 for frames, $113 for
lenses, and $201 for an exam. Insurance can help bring down the cost,
but it's still a lot for a few pieces of plastic. And they don't have
to cost this much. Recently, two former industry executives
revealed to a Los Angeles Times columnist that quality frames could
cost as little as $4 to make, and designer
frames a mere $15. So why the huge markups? A possible explanation could be
the consolidated nature of the industry. According to a 2019 IBISWorld report,
the top four companies operating in the U.S. account for over 60 percent of
industry revenue following a decade of mergers and acquisitions. The biggest of them,
Luxottica, has 40 percent. The Italian company is the largest
maker of eyewear in the world. In the U.S., it captures huge shares of
both the prescription eyeglasses and sunglasses retail market, owns several
major retailers, has exclusive manufacturing and licensing deals with
tons of designer labels, and owns EyeMed, one of the
largest vision insurance providers. A Luxottica spokesperson told CNBC that
the glasses industry is very diverse, including several discount
retailers like Walmart and Costco. This is true. The same IBISWorld report noted that
the vast majority of consumers prefer value eyewear
from such stores. Still, with such large market shares
and diverse holdings, it's worth examining this one company's power. And in 2017, Luxottica announced it
would get even bigger by merging with Essilor, a
French lenses manufacturer. The 49 billion dollar deal
further consolidated the eyewear industry, leading some to ask: Will this help consumers or hurt them? Leonardo Del Vecchio founded Luxottica
in Italy in 1961. The name is a combination of the
Italian words for light and optics, and the company manufactured components
and accessories for the optical industry. But Del Vecchio soon transformed
the company from supplier to manufacturer. In 1971, Luxottica debuted
its first house-made glasses line. This turned out to
be a prescient move. Starting in the 1980s, glasses
slowly transformed from a necessary medical device to a fashion
statement for the face. Luxottica both drove and capitalized
off this trend by partnering with designer brands to make
lines of glasses and sunglasses. Under these licenses, the fashion
houses send inspiration to Luxottica which designs and
manufactures the frames. The company first partnered with
Giorgio Armani in 1988. Thirty years later, its roster of
partnerships sounds like a fashion week unto itself. Prada. Chanel. Burberry. Michael Kors. Ralph Lauren. Tiffany. Versace. Bulgari. And on and on. Luxottica also purchased several brands
outright, like Vogue eyewear, Ray-Ban, and Oakley, and they
moved into retailing, buying LensCrafters, Sunglass Hut, and Cole
National, which is the parent company of Target Optical, Sears
Optical, and Pearle Vision. In total, Luxottica has
about 9000 stores worldwide. And that's not all. Their vision insurance company, EyeMed, has
a network of 28,000 eye health professionals and covers
39 million people. And that's still not all. We're focusing on the U.S., but Luxottica has a major presence
in the UK, New Zealand, Australia, Latin America, and, of course, its
native Italy, as well as manufacturing facilities in
the U.S., Italy, China, Brazil, and two small
plants in Japan and India. In 2018, Luxottica had net sales
of just under nine billion euros. That's about 10 billion U.S. dollars and an increase of
22 percent since 2013. To put it simply: if a brand wants
to sell glasses, they want to be in Luxottica's huge
network of stores. And if a store wants to sell
popular brands, they'll want to offer Luxottica products. You know Ray-Ban, Chanel,
Bulgari and the like. Some argue that Luxottica's disproportionate
size and power stifles competition, causing the whole
industry to stagnate. The profits in this
industry are relatively obscene. There hasn't been any serious
innovation in the industry. I mean, Google Glass might be
the best example, but they're pretty far from getting into it. And so this this industry just sort of
sits there and it makes a lot of money and it is stagnant and
extracts the cost of billions of dollars from American and
actually just global consumers. Some competitors have
managed to succeed. Zenni Optical, an online-only glasses
retailer, began in 2003 and sells glasses for as
little as $6.95, lenses included. Another company, Warby Parker, began
selling glasses starting at $95 in 2010. We each had that frustrating experience of
losing a pair of glasses or breaking a pair of glasses and
then not understanding why they cost several hundred dollars. Dave left a 700 dollar pair of
glasses in the seat pocket of an airplane. We thought that was just way
too much money to spend on a pair of glasses, technology that's
been around about 800 years. And we looked into the market
and saw this massive industry that really had been overcharging
consumers for for decades. Warby became so popular that it
opened its first physical store in 2013, and they've since
opened about 90 more. Companies like Zenni and Warby prove that
glasses don't have to be so expensive. They also
drive innovation. Warby Parker even uses technology that
allows consumers to do their own eye exam using a
computer and a phone app. The company says these prescriptions are
reviewed by an eye doctor within a day, removing an actual eye
checkup as a barrier to getting glasses. But some optometrists worry
that this method oversimplifies prescriptions and puts consumers at risk
of getting a faulty product. The problem with ordering glasses online
always comes down to two things and that is patient
health and patient safety. And obviously if you can sit down
in front of your computer and with a few keystrokes have a pair of
glasses ordered, that is going to save you time. But at what expense? Dr. Pierce told CNBC that some
glasses ordered online may not conform to U.S. safety standards. Imagine lenses so thin that
they shatter under the slightest pressure. And one study by
the American Optometric Association found that 29 percent of 154 glasses
ordered from online retailers had at least one lens with an incorrect
prescription, a problem that can lead to headaches, eye
strain, dizziness, and more. The study did not specify from
which online retailers the defective glasses were purchased. But worse, Dr. Pierce worries that consumers will
take an online prescription as license to not
get regular checkups. During the course of an eye exam, a
lot of things can be revealed that would otherwise never be detected. For example, the diagnosis
of glaucoma, cataracts, macular degeneration, even things like
dry eye and allergies. And in very very rare cases,
brain tumors have been diagnosed during the course of an eye exam. So that's deceiving to consumers to
to have the impression that they've received an eye exam when
all they've had is a rudimentary refraction online to determine refractive
error, and even then not very accurately. Warby Parker doesn't claim its
digital prescription check is a substitute for an eye health exam. They even say so in this
video that explains the process. Prescription check is not a comprehensive
eye exam and it isn't meant to replace visits to
your eye doctor. But we do think that telemedicine increases
access and can be a great complement. Often, incumbents in an industry can
be resistant to change or are scared of it. At the end of the
day, technology is changing. You can either bury your head in the
sand and ignore it or embrace it and create ways to increase
access to health care. And that's what our hope is. Dr. Pierce's concerns aren't yet too
widespread given that a tiny percent of glasses overall
are purchased online. The vast majority of consumers buy
glasses from large discount chains like Luxottica's Target or Sears;
other walk-in chains like Luxottica's LensCrafters or Sunglass Hut;
or doctor's offices like one of the 8,000 in
Luxottica's EyeMed insurance network. And since 89 percent of the
products sold in Luxottica stores are manufactured by Luxottica, the odds are
even better that you'll buy frames made by Luxottica — even
if they're branded with Chanel, Tiffany, or Prada. And Luxottica is about
to get even bigger. The United States Federal Trade
Commission approved the merger in March 2018, but some antitrust experts
question if the review was enough. And I see these prices and I
still think something's wrong in this market. That competition is not
working in the market. And the idea that you could have
a merger that brings together the largest manufacturer of lenses and the
retailer that makes some of the most best-selling frames, it seems
to me that that merger would be entrenching power. Professor Fox and her colleague, Scott
Hemphill, told CNBC that the FTC tends to be more sympathetic
to vertical mergers — that is, mergers between two companies at different
areas of the supply chain. In this case, Luxottica makes and
sells frames whereas Essilor makes and sells lenses. Vertical mergers are a tricky area
because, on the one hand, combining a customer and a supplier
can be pro competitive. It can bring important efficiencies
that benefit consumers and society more generally. At the same time, vertical mergers
under certain circumstances can be anti-competitive. And so the trick
is to figure out which transactions are anti-competitive and
which ones are pro-competitive. The FTC uses economic models to guess
whether a merger will help or harm consumers — basically, whether prices
of the product will go up or down. Maybe that analysis is impeccable,
but it's very narrow. And they should at least have
considered that the merger might have prevented the firms
from lowering prices. It might have entrenched the
structure that kept competition from breaking out. As part of their "A Better
Deal" policy proposals, Senate Democrats condemned the Essilor-Luxottica merger as
an example of corporate consolidation gone too far. It's worth noting that the eyewear industry
in the US was riddled with accusations of excessive markups
and monopolistic behavior long before Luxottica. Luxottica has not faced
the same scrutiny. In fact, its merger with Essilor
has been approved by trade commissions around the world. Its size and markups are not an
anomaly, but a modern iteration of what's long been
an industry standard. Luxottica did not respond to a request
for an interview in time, but a spokesperson did speak with CNBC
about the company's methods and pricing. The approximately 74 million baby boomers
are reaching the years at which the vast majority of
individuals need vision correction. And Medicare doesn't cover routine
eye exams, glasses, or contact lenses. Maybe their children or
grandchildren will cajole them into trying Zenni Optical
or Warby Parker. If not, Essilor-Luxottica stands to gain
quite a bit in the coming decades. Everybody doesn't have to
buy luxury glasses. You don't need Ray-Bans. But there's a lot of room in
between where there ought to be competition and you're
not seeing it.
Simple solution is to shop somewhere not owned by Luxx and don't buy name brand frames. Source:. I work for NVI, competitor of Luxx
In Korea at the moment. Had an eye test, got nice frames and good quality transition lenses for less than $100 and picked them up before 6pm same day.
1000x better service and speed than found in UK and I imagine USA
Its about how much consumers are willing to pay for fashion over functionality
My dad works for them so I’ve been lucky enough to get some of the different designer brands from him:)
Yeah the quality in glasses isn’t so much in the frame I would say it’s more in the car put into crafting the lenses. China doesn’t put care into really anything its more for fast product frames copied over and over