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Teaching note for case study

Luxottica: Excellence in eyewear distribution
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The case can be used to discuss and understand variety in distribution channels, and how

they affect cost and efficiency in marketing and the overall company growth. Also, the

association between distribution strategy and market selection or the vertically integrated

business model could be illustrated.

The class discussion could be organized from a general discussion on the case to a more

detailed presentation on an international distribution strategy. Students, organized in small

groups, might start to work with the two following topics:

 Advantages and disadvantages of a vertically integrated business model in the

fashion/luxury industry could be discussed comparing the Luxottica approach with

competitors (eg Safilo) or fashion firms that have followed a similar/different

approach.

 Pros and cons of alternative distribution strategies. For example, a discussion on

why franchising, a heavily used distribution strategy in the fashion industry, has not

been pursued could be a good starting point. Also, e-commerce as an alternative

and (complementary/conflicting) channel in the industry could be illustrated.

Answers to questions:

1) Luxottica mainly internationalizes through acquisition and subsequent extension of

retail chains and direct wholesale operations.

o Do you think this is an adequate strategy also in the future?

 Yes. There is still much room to move and to exploit organic growth in retail and the

powerful portfolio of own and licensed brands in wholesale (see the response to

streamlining/commercial actions in recent years). However, the dependence of

Luxottica on relatively mature markets that are now going through many years of

recession would require a more speedy internationalization process in emerging

markets which requires not only the identification and availability of suitable

acquisition opportunities, but also huge investment to develop and ”educate” the

customers. These investments and their expected return must be evaluated in the

overall company financial context and with much attention paid to retail margins.

o Which alternative distribution modes could be evaluated in order to

accelerate international expansion and penetration of markets? Discuss pros

and cons.

Franchising – mainly to expand in emerging markets and Internet, mainly to

increase penetration in mature markets and/or to phase out last-year collections at

a discount; might be considered for both segments, optical (lenses) and

sunglasses. Franchising allows fast coverage of markets jointly with acceptable

levels of control, is less risky and resource binding; might be requested by the host

country (eg. India).

2) Would you recommend to enter the European market through direct retail? Discuss.

No, Luxottica in Europe is wholesale-centred (about 90 % of sales in this region is

generated by the wholesale division; the division accounts for almost half of the

group’s wholesale net sales) . A step into retail has therefore to be evaluated

carefully, since this would lead to negative reaction of existing clients (mainly

opticians) and a downturn in wholesale revenue. Also, the region does not show

signs of economic recovery and is already highly penetrated in both the

 prescription and sun segments. Additionally, the market and its retail structure is

highly fragmented.

3) Prepare a region/division roadmap and a related “action plan” .

In all markets: increase wholesale business penetration through the STARS

programme and pre-and after sales services; carefully watch segment changes

(prescription and sun) and adjust the mix of collections; add powerful new licenses

which also provide synergies for retail market: must-haves attract customers and so

indirectly boost wholesale revenues.

Retail in North America: enhance organic growth in both divisions and keep on

expanding alternative distribution channels (such as department stores); evaluate

travel retail; differentiation of optical retail chains seems to be critical;

Retail in Europe: see above

Retail in Emerging Markets: push both, the optical and the sun segment; with

regards to the sun segment, priority should be given to areas with a high number of

sunny days per year; invest in consumer education and in building brand awareness and

loyalty; entry modes: see question 1 above.