Podcast Summary
Eyeglasses industry pricing: Eyeglasses, a necessity and fashion accessory, cost significantly more than their production value due to industry control, selling for over $1,000 despite only costing around $50 to make
Eyeglasses, a device that has improved billions of lives for over eight centuries, are both a medical necessity and a fashion accessory. Despite costing only around $50 to make, they often sell for over $1,000. The eyewear industry, led by companies like Essilor Luxotica, generates around $150 billion annually and has significant market control, resulting in high prices. The history of eyeglasses dates back to around 1000 AD, but early on, they were not widely adopted due to societal perceptions and associations with aging. It wasn't until the French medieval spectacle makers rebranded glasses as a compassionate and caring profession, symbolized by Saint Jerome, that they began to gain wider acceptance. Today, eyeglasses are a crucial tool for maintaining vision, and the industry continues to evolve, offering a range of products from affordable to luxury options.
History of eyeglasses: From simple magnifiers to fashion accessories and technologically advanced products, the history of eyeglasses shows how their function and cost have evolved over centuries.
The history of eyeglasses shows how a functional medical device evolved into a fashion accessory and a technologically advanced product, leading to increased costs. Jerome Cardanus, a scholar from the 16th century, could have benefited from spectacles if they had been more accessible. Early glasses were simple magnifiers, and it wasn't until the 17th century that frames with temples were introduced, making glasses wearable all day. Wealthy individuals could even have their spectacles made of silver. The demand for glasses was high in America, leading to a profitable export market. However, the cost of glasses has increased due to the growth of professional eye care services and the development of more advanced technologies. Today, glasses are not just vision aids but multi-purpose devices, including wearable technologies. The optics industry is dominated by a few vertically integrated players, such as Cedric Rossi of SLR Luxautica, who control the entire value chain. Understanding this history helps explain why glasses have become more expensive over time.
Designer eyewear collaborations: Collaborations between fashion designers and eyewear manufacturers in the 1950s led to the rise of high-end designer eyewear. However, mass production brands like Rayban have higher profit margins due to lower human intervention in manufacturing.
The collaboration between fashion designers and eyewear manufacturers in the 1950s led to the rise of high-end designer eyewear. These collaborations evolved over the decades, with companies like Luxautica creating more intimate involvement and control over the design and manufacturing process. This shift resulted in a more profitable business model for the eyewear industry, with brands like Rayban and Reban becoming industry leaders due to their mass production capabilities and simple designs. However, high-end designer eyewear, such as those from Chanel or Tiffany, have lower profit margins due to the higher human intervention required in their manufacturing process. Despite the profitability of some brands, Luxautica remains the largest eyewear firm in the world, controlling various links in the industry from optometrists to stores. Interestingly, the most profitable brand in Luxautica's portfolio is Rayban, a sunglass brand that is primarily acetate and plastic molds, requiring less human intervention and resulting in higher profit margins.
Luxotic's Market Power: Despite creating the largest eyewear company in the world, Luxotic faces concerns about market power and potential monopolistic practices in luxury eyewear segments. The lack of regulation during the 2018 merger is criticized as a mistake, as it could have solidified Luxotic's market dominance.
The merger between SLR Luxotica and Eszler Luxotica, despite creating the largest eyewear company in the world, raised concerns about market power and potential monopolistic practices. The industry expert, Ryan McDevitt, notes that while there isn't a monopoly on eyeglasses overall, Luxotic does have significant market power in luxury eyewear segments. With a market size of over $100 billion and estimated revenues of $25 billion and profits of $5 billion, Luxotic's market power is substantial. The lack of regulation during the merger in 2018, especially given the pushback against over-consolidation in other industries, has been criticized as a mistake. Law professor Tim Wu, who has worked on competition policy and antitrust in the Obama and Biden administrations, argues that the 2010s saw a period of leniency towards vertical mergers, which allowed tech giants like Google and Facebook to consolidate their power without government intervention. The SLR Luxotica merger, which combined the leading mapping and eyewear companies, should have been blocked, according to Wu, as it could have further solidified Luxotic's market dominance.
Antitrust Enforcement: The Biden administration's push for more aggressive antitrust enforcement has resulted in blocked mergers and a shift in corporate behavior in industries like mattresses and eyeglasses, due to concerns over industry concentration and monopolistic practices.
We are currently experiencing a resurgence of antitrust enforcement in the US economy under the Biden administration. This is in response to growing concerns over industry concentration and monopolistic practices in various sectors. The administration's push for more aggressive enforcement of antitrust laws has led to a significant increase in blocked mergers and a shift in corporate behavior. For instance, the FTC's recent decision to block the merger between the mattress maker Tempere Sealy and the retailer Mattress Firm is a clear indication of this trend. Additionally, the eyeglass industry, with its high profit margins, has been criticized for lack of competition and price gouging. Despite some arguments that the industry is relatively small and the market is fine, the administration's actions suggest a broader concern over the impact of monopolies on consumers and the economy as a whole.
Industry market power: Governments and regulators should monitor industries with significant market power to prevent potential economic and societal issues. Changes in regulations can significantly impact markets and consumers.
Governments and regulators should not overlook industries with significant market power, no matter their size, as they can cause substantial economic and societal issues. The example of the eyeglass industry, where Warby Parker disrupts the market with lower prices due to the government's decision to split the business of eye examinations from selling eyeglasses, shows the importance of competition and transparency. Regulators are now scrutinizing other industries, such as live entertainment, for potential monopolistic practices. Companies like Estolor Laxotica, which have new challengers and aren't as concentrated as other industries, should not be overly concerned about this trend towards increased competition and antitrust enforcement. However, the eyeglass industry's history demonstrates that even seemingly small changes in regulations can have a significant impact on markets and consumers.
Pricing strategy: Offering extremely low prices may not be the best strategy for building a successful business, especially in industries where quality and durability are key concerns. Instead, focusing on quality and offering a home try-on service could lead to a more successful pricing strategy.
Offering extremely low prices may not be the best strategy for building a successful business, especially in industries where quality and durability are key concerns. Warby Parker, a company that revolutionized the eyewear industry by selling glasses online at affordable prices, learned this lesson the hard way. Initially, they planned to sell glasses for $45, but potential customers were skeptical about the quality. After conducting research and receiving positive feedback on the quality of their prototypes, they decided to offer a home try-on service and set the price at $95. This strategy proved successful, and Warby Parker went public in 2021 with a market cap of roughly $2 billion. They have since expanded beyond their online beginnings, opening nearly 300 brick-and-mortar stores in the US and Canada by the end of 2024. Despite their success, Warby Parker still faces competition from industry giants like Luxottica, which controls around 47% of the US eyewear market. To compete, Warby Parker has branched out into manufacturing, vision insurance, and other areas to become a holistic vision care company. The founders of Warby Parker admire Luxottica's business model and vertical integration, but their goal is to make eyewear accessible to everyone, including those who can't afford it.
Eyeglass Industry Disruption: High prices set by traditional eyeglass retailers created a market floor, enabling disruptors like Warby Parker to enter with affordable alternatives and healthy margins
Warby Parker and other disruptors in the eyeglass industry have benefited from high prices set by incumbent companies, allowing them to enter the market with competitive pricing and healthy margins. The speakers discuss how companies like Warby Parker have disrupted the industry by offering affordable alternatives to traditional eyeglass retailers. This disruption was only possible due to the high prices set by these traditional companies, which established a floor for eyeglass prices that was far above production costs. The speakers also touch on the global rise of myopia and China as an eyeglass market, as well as the politics of consolidation and its impact on the industry. Overall, the discussion highlights the importance of disruption in driving innovation and affordability in industries, and the role of pricing strategies in shaping market dynamics.