Luxottica (LUX) plots retail expansion, investing $250 million in Mason-based business unit

Mason Mayor: Their strategy is paying off

MASON, Ohio -- The Italian eyewear giant Luxottica will invest $250 million in its North American business units, headquartered in Mason, over the next three years.

Plans were disclosed at an investor day event in Mason Oct. 8, where the company’s top executives told analysts they plan to open hundreds of new Lenscrafters stores, triple the size of Luxottica’s Target Optical retail business and upgrade its Sunglass Hut offerings inside Macy’s stores and shopping malls.

“Real estate, quality, quantity, mega cities, outlets, it's a tremendous opportunity still out there,” said Fabio d’Angelantonio, chief marketing officer of Luxottica’s retail, luxury and sun business units.

The Milan –based company generates about 60 percent of total sales - or $5.3 billion - in North America, where it has about 4,800 stores. It employs  more than 40,000 workers, including more than 3,500 in the Cincinnati area and 1,400 at its 42-acre headquarters near the intersection of I-71 and Western Row Road.

While it’s not immediately clear how the $250 million investment will impact local employment, a search of job postings on Indeed.com found 56 open positions at Luxottica in Mason.

“Any expansion they do in North America, the results will be felt in Mason,” said David Nichols, a former CEO of Interlott Technologies Inc. who became Mason’s mayor in 2009.

“We feel that their strategy is paying off,” Nichols said. “They’ve got a very good management team in place and we feel it’s going to pay off for them in a big way.”

Luxottica is one of the world’s largest eyeglass companies, operating as Lenscrafters, Pearle Vision, Sears Optical and Sunglass Hut in the U.S. Its in-house brands include Ray-Ban, Oakley, Vogue and Oliver Peoples. It also sells premium-priced eyewear through more than a dozen licensing deals with companies like Tiffany, Chanel, Versace, Coach and Prada.

Company executives said at the Mason event that they’re looking to grow Luxottica’s U.S. retail business by 20 percent to $3 billion by 2016. They outlined several strategies for accomplishing that growth, including an aggressive real estate expansion.

Luxottica will open 69 new Target Optical locations inside Target stores by 2016. That would bring its total to 400 out of 1,770 Target stores in North America, said Mark Weikel, president and general manager, Luxottica Group. Weikel said Target brings “the busy, financially comfortable 30-something female” to Luxottica, a customer who “knows value is more than just the lowest price and she wants a simple and fun environment to purchase her optical and Sun products.” Target is also helping Luxottica grow its online presence.

Target Optical has done a great job in pioneering our prescription.com for us,” Weikel said. “In fact, they're now the third largest volume prescription optical retailer in the United States.”

'You Shouldn't Be Driving A Minivan In Bulgari'

At Macy’s Inc., Luxottica is “relocating and remodeling” many of its Sunglass Hut locations inside the roughly 700 Macy’s department stores where a licensing deal allows Luxottica to operate stores within a store.

“When you look at leased or licensed operations in Macy’s, take the biggest one they have, multiply it times three, that's us. We are three times bigger than their next biggest license operator,” Weikel told analysts. “So, we do this business very well. In fact, in the last four years, we have quintupled the business.”

Luxottica saw 50 to 110 percent sales gains when it remodeled Macy’s locations in Las Vegas, South Beach and Tampa. At the end of this month, it will open its first luxury boutique inside Herald Square, a flagship Macy’s store that is in the middle of a $400 million renovation. And it is rolling out Macy’s Men boutiques, now in a dozen stores.

“We will continue to develop product for the Macy's,” Weikel said. “We develop what we call Capsule Collections two times, three times a year, and they do very well; they're only available at Macy's.”

Weikel said Luxottica is talking to other U.S. retailers about licensing deals and it’s looking to expand its retail presence in the nation’s top malls and biggest cities.

“Manhattan, we have 19 doors in a city of 8 million people,” he said. “We think there is tremendous opportunity there.”

Weikel described real estate as the company’s biggest and most strategic marketing expense.

“It allows hundreds of millions of people to walk by our stores every single day,” he said. “It is a fight to make sure that we have the best locations in the mall, one store, two stores, one mall, we have six stores. When we add a store in a mall, we get incremental business always, always, always accretive to our business.”

Luxottica is hoping to expand sales of its premium products by urging women to think of sunglasses as a wardrobe accessory.

“Women on average have 21 pair of shoes and 10 handbags, and four watches and only three pair of sunglasses; what is wrong with you?” said John Haugh, president of sun and luxury units at Luxottica Retail. “We think there is a big opportunity to build the sunglass business. If you think about sunglasses and if you think about wardrobing, we want every customer to have a bling pair; think Bulgari, think Chanel.

"Then you'd better have your minivan pair, right? Because you shouldn't be driving a minivan in Bulgari … Then you have to have a cool pair, Ray-Ban, cool. Then you're going to do something sporty and you're going to walk. You're going to go to Lululemon. You're going to play tennis. And what else would you wear besides Oakley? At a minimum, you need to have four pair of sunglasses. And we think as the category leader, we have an opportunity to build this wardrobing, to build this accessorizing of the business.”

Lenscrafters growth relies on innovation

Luxottica’s real estate expansion is not limited to sunglasses. The president of Luxottica’s Lenscrafters division outlined plans to add 400 new stores in North America. CEO Andrea Guerra added that the expansion will be concentrated on the ten biggest cities in the U.S. Lenscrafters currently has 1,000 stores serving more than 4 million customers in North America.

Anderson said Lenscrafters is rolling out two new innovations that should fuel future sales growth. One is a new technology for making antireflective lenses in one hour, boosting sales of premium prescription lenses. That technology is now available at 410 Lenscrafters locations and will expand to 500 by next June. The second new innovation is AccuExam, a digital scanning procedure that makes eye exams less painful for patients and allows Lenscrafters to “record the unique fingerprint of every eye we look at.”

In its initial 34-store test, Lenscrafters “saw an increase in sales, units, exams and, best of all, patient satisfaction,” Anderson told analysts. It’s expanding the offering to 90 stores this year, 170 by next year.

Luxottica sees huge potential in getting consumers to embrace regular eye exams because its research shows 70 percent of those who get an eye exam end up buying glasses.

“There are 183 million adults in United States that require vision correction today,” Weikel said. “You know what percentage of those adults received an eye exam last year? Forty one percent. This is incredibly low when you compare it to other categories. Well, if we increased – think about this scenario – if we increased that just from 41 percent to 50 percent, the eye exam category would grow by a $1.4 billion every year.”

View Luxottica's 76-page Investor's Day Presentation here:

 
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