ROME, Oct. 30 (UPI) -- Ask Luxottica, the one-time Italian metal parts producer that has earned billions transforming itself into the world's leading sunglass maker, and it will say its future has never looked so bright.
But others are less sure: some analysts think that the company's already deep market penetration and the loss of key clients limit its chances for rising sales, and its planned push beyond the core eyewear market it knows could prove difficult.
Luxottica has used a risky growth-by-acquisition strategy to become one of the most important companies most people never heard of. Its stable of brands includes Ray-Ban, Revo, and Persol, plus long-term production deals with well-known designers such as Anne Klein, Bulgari, Chanel, Prada, Sergio Tacchini, and Gianni Versace.
"Leonardo Del Vecchio (Luxottica's founder and chief executive) has done things his own way, and that has paid off for him," Claudio Tessanti, head economist and a long-time fashion sector analyst with ABS Securities, told United Press International. "The company is classic Italian success story: ignoring the rules and still ended up smelling like a rose."
It couldn't have worked any other way: if Del Vecchio had played by traditional rules, he wouldn't have even ended up in the eyeglass business.
Del Vecchio started out in the 1950s with what became a successful metal working concern in Milan. When one of his biggest clients asked him to make metal pieces for sunglasses, he obliged and liked the sector so much that he moved to a village called Agordo, where just about all the eye glasses in Italy were made. That's where he carved out a niche by buying out struggling rivals and resellers. By 1967, Luxottica began producing its own line of eye wear, and four years later parts production all together.
"In those days, nobody bought out a struggling company: people would say 'they are struggling for a reason, just wait for them to fail,'" Roma Tre University business and political historian Renato Iacomelli said in an interview. "But if he had done that, Luxottica would still be making parts for sunglasses and the company would employ 50 workers."
Instead, it employs 35,000, and its products are sold at 200,000 different sales points in 140 countries. In 1990, Luxottica became the first-ever foreign company to list shares on the New York Stock Exchange before listing on its domestic exchange, and since then its shares have doubled in price an average of once every 15 months.
Now, by some counts, the company produces or sells (or both) more than two-thirds of the name brand eyeglasses in the world.
"The last decade has been like a fairy tale for Luxottica," said Tessanti, the economist.
Now, some are wondering if the fairly tale stage of the company's development may be drawing to a close.
Last year, Luxottica lost its contract to produce designer eye wear for Giorgio Armani, which was its first big client in 1988. It was the first time the company lost an established client, and the loss hurt the company's bottom line, which could decline this year compared to 2002 -- the first year-on-year drop in a decade.
Additionally, experts say, Luxottica's past success might make the future more difficult.
"The company already owns so much of the world's eyewear market that getting even more of it could be tough," Andrea d'Angelo, a Turin-based business consultant, told UPI. "They've already picked all of the low-hanging fruit in terms of acquisitions and niches to expand into."
Not that the company isn't trying. In 1995, Luxottica made its first acquisition outside the area of eyeglass production, taking control of the U.S.-based LensCrafters retail chain. It followed that deal with the acquisition of lower-end rival Sunglass Hut International two years ago, and now much of its future expansion is expected to come from reselling rather than production. It recently took over Australian distributor OPSM, and has been linked to takeover talks for U.S. chain Cole National.
But it is its first foray outside of the eyeglass sector that is showing the limits of the company's expertise. Del Vecchio's son Claudio in 2001 paid $225 million for control of the U.S. fashion brand Brooks Brothers that previous owner Marks & Spencer paid $750 million for in 1988, but the brand has continued to struggle. The younger Del Vecchio's Luxottica-controlled company, Retail Brand Alliance, also owns several lower profile women's apparel stores such as Casual Corner, August Max, and Petite Sophisticate. But the businesses have so far failed to live up to the high expectations inherited from success in the eye glass sector, and analysts say that success may be continue to be hard to come by in the future.
"The company really doesn't have a choice but to look beyond its core businesses in order to thrive," d'Angelo, the consultant, said. "But I think it's been clear that outside the industry it knows so well, the Midas touch is harder to make work."
