Luxottica aims to double its revenues to some €15 billion in 10 years' times through organic and external growth. The new management, which is currently working on the company's business plan for the coming five years, unveiled some of its assumptions while commenting on the group's 2014 results.
The company believes that the global eyewear market will grow by about 30 percent in terms of volume to 1.2 billion frames a year from 900 million over the next five years. One of Luxottica's two new joint chief executives, Adil Mehboob-Khan, noted that the increase corresponds to the growth registered over the past 10 years.
Emerging markets are expected to represent nearly half of the eyewear demand ten years from now, against about 30 percent currently. In 2020, Luxottica expects to have an additional 500 million potential clients for prescription eyewear, partially due to the sight problems caused by the increasing amount of time spent by people in front of all kinds of screens and hand-held devices.
Another driver of revenue growth will consist of clients trading up to more expensive products. The company estimates that 80 percent of U.S. customers buy sunglasses worth less than $50 each, and some data show that 60 percent of Americans buy eyewear below $35 a piece.
In North America, the eyewear industry could grow to $44-47 billion from $35.5 billion in 2013. The company continues to consider the region as its core business, representing 56 percent of sales in 2014 or $5,705 million. Luxottica predicts that it will grow at an average annual rate of 5-8 percent in North America over the next couple of years, adding $600 million in revenues.
This year, Luxottica launched Michael Kors as part of its efforts to beef up its portfolio of “American brands for Americans.” The label is expected to generate €70 million in revenues in its maiden year, or nearly one percentage of the group's expected revenues. Massimo Vian, joint chief executive for product and operations, described the launch as the group's “best ever planned.” The company had half a million frames in inventory at the end of 2014 in view of the shipment of the line from Jan. 2.
In emerging markets, Luxottica plans to grow by between 15 and 25 percent a year until 2016 from the €1,168 million recorded in 2014, when such markets totaled 15 percent of its total revenues. The company expects to boost the number of wholesale subsidiaries in emerging markets to 23 in 2016 from 17 in 2014. The number of stores should increase to some 2,000 from 1,340.
In 2016, 46 percent of Luxottica's production is due to be generated in China and India, against 43 percent in 2014, while Italy's share will slip to 39 percent from 43 percent. The U.S.' share will remain stable at 10 percent and Brazil will also be steady at 4 percent.
The group pointed out that there are no plans to reduce the actual volumes manufactured in Italy. The volumes will be rising elsewhere to support the projected sales increases.
The product mix will continue to change, yielding more space to plastic injected frames. The group will continue to expand its logistics platform to 18 distribution centers in 2016 from 14 currently, lifting the number of direct shipments to clients by an estimated 86 percent over the next two years. The company has started building a new distribution center in China, located about one kilometer from the group's manufacturing site in Dongguan, in the province of Guangdong. The existing distribution center will be transformed into a production site.
The company has been adding on average a new production site every year, either by expanding existing facilities or building new factories, and plans to do the same in 2016.
Mehboob-Khan stressed that mergers and acquisitions “will continue to be an integral part of the growth model going forward.” Regarding the possibility of a tie-up with Essilor, which Luxottica explored about two years ago and decided to drop because the conditions were not met for a deal, Mehboob-Khan said that the French lens manufacturer is one of Luxottica's biggest suppliers and the companies talk together all the time. “What happens in the future, we will see.”
The new senior management, which stems from a chaotic reshuffle in the second part of last year, includes two co-CEOs because Luxottica's founder, main shareholder and chairman, Leonardo Del Vecchio, believes that the company has become too complex to manage for a sole manager.
In an effort to reassure investors that the two CEOs will not tread on each other's toes, Mehboob-Khan said that the split in powers for the 16 areas of delegation was “very natural” because the two managers have different skills and will cover different businesses. He added that he and Vian have been working well together.