Eyewear in Latin America: A Unique Competitive Landscape – Part 1
In 2015, the eyewear industry in Latin America, valued at US$12.0 billion, recorded a decline of 16%. Brazil is the single largest market, accounting for 45% of Latin American eyewear value sales. The region’s poor performance in 2015 is due to high inflation rates, pushing up the average retail price of eyewear, which forced consumers to switch to economy options or postpone purchases, keeping their current pair of eyewear instead.
Despite the poor 2015 performance, this is a growing region for eyewear sales due to its population growth, as most individuals require some type of visual correction at some point in their lifetime. According to Euromonitor International, the population in Latin America is forecast to exceed 600 million by 2020, with the number of over 45-year-olds exceeding 110 million, creating a large potential target market for visual corrections, such as progressive lenses.
A more even playing field
Globally, it is not uncommon to pay a higher price for a pair of spectacle frame or sunglasses made by international manufacturers, often carrying brand names from fashion houses such as Gucci or sports brands such as Oakley. The same applies to spectacle lenses, where more often than not, we see well-established international brands such as Essilor, Carl Zeiss and Hoya widely publicised within an optical shop.
Latin America, on the other hand, offers a good mix of international and local players, which provides more product and pricing options to consumers. Latin America will continue to enjoy this healthy mix of local and international brands due to tighter import restrictions introduced in 2015, resulting in prolonged product availability delays and high trading costs for imported products. Consequently, this restriction has resulted in a shortage of imported eyewear brands in the region, while, at the same time, creating more shelf space for domestic players to grow their market share.
Growth strategies adopted by international players
When international players enter a new market, two main strategies are often adopted to promote success. The first strategy is expansion through acquisition of retailers. Luxottica, the spectacle giant, is globally known for its huge appetite. One example is that of Oakley Inc, an influential global brand in sunglasses, which had a dispute with Luxottica. Luxottica retaliated by dropping Oakley’s products from all its retail stores and was eventually acquired by the Luxottica Group in 2007.
In Latin America, Luxottica has employed this same strategy to build its competitive advantage in the region. The company has actively acquired retailers to build distribution superiority. The acquisition of Multiopticas Internacional gave Luxottica immediate access to 470 optical stores under the Opticas GMO, Econopticas and Sun Planet names in 2009. In 2010, the company acquired Stanza and High Tech, retailers focusing on sunglasses, with over 70 retail stores in Mexico. This move resulted in a somewhat monopolistic supply chain. Sunglasses-focused retail stores in the region were later renamed Sunglass Hut, Luxottica’s global sunglasses retail brand, thus further strengthening the company’s brand name and retail network.
Sunglass Hut in Cancun, Mexico
Another example of expansion through acquisition in Latin America saw Luxottica acquire Tecnol Group in 2011, a manufacturing plant which focuses on the investment of licensed production in mid-priced brands. This price segment targets low to middle-income consumers. The acquisition has allowed Luxottica to locally produce brands such as Ray-Ban, thus avoiding high import barriers and costs. The company also launched the Ray-Ban “Made in Brazil” campaign in 2012 to grow brand awareness, thus encouraging purchases of locally manufactured Ray-Bans.
The second strategy commonly embraced is to expand in the region through partnerships and acquisitions with local distributors, building distribution networks to better serve retailers. Unlike Luxottica, Essilor is seen as less aggressive due to its focus on eyecare services and building sustainable relationships with retailers. For example, Essilor started its expansion into the region as early as 1985, setting up a manufacturing plant in Mexico. This allowed it to produce ophthalmic lenses at a lower cost and react at a faster pace to the demands of the domestic market.
Essilor SOFI plant in Chihuahua, Mexico
Essilor has sought to expand its presence in the region, leveraging on the success of its existing line of brands (Crizal, Varilux and Transition). The company has expanded its distribution network in the region through partnerships and acquisition, adopting a strategy of downward integration. Essilor acquired GBO in 2010, a major distributor of finished and semi-finished lenses in Sao Paolo. In 2011, Essilor acquired its first laboratory in Brazil and, to reinforce geographic coverage, the company signed a partnership agreement with Comprol; a prescription laboratory located in the federal district in Brazil, and acquired three local prescription laboratories.
These partnerships and acquisitions have enabled Essilor to build a wide distribution network in the region, allowing the company to deepen relations with local retailers by providing a speedy service and a platform to present and grow its product portfolio, without eliminating existing retailers from the supply chain.
In a follow-up opinion, we take a closer look at the role of domestic player and their strategies in staying competitive