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  • For the 50 percent of Americans who wear glasses, getting a new pair

  • can be pricey.

  • For the cost of a single pair, they could pay a month's rent in any

  • of these one-bedroom apartments, buy a month's worth of food for two

  • people, or buy a roundtrip flight from New York to Reykjavík, and

  • still have money to spare. And that's without lenses.

  • Add the cheapest lenses available and the price jumps by another 200

  • dollars. Granted, this is the most expensive pair we could find on

  • the LensCrafters website and we didn't input insurance information.

  • Still, the average price of glasses in the U.S.

  • is in the hundreds.

  • $238 for frames, $113 for lenses, and $201 for an exam.

  • Insurance can help bring down the cost, but it's still a lot for a

  • few pieces of plastic.

  • And they don't have to cost this much.

  • Recently, two former industry executives revealed to a Los Angeles

  • Times columnist that quality frames could cost as little as $4

  • to make, and designer frames a mere $15.

  • So why the huge markups?

  • A possible explanation could be the consolidated nature of the

  • industry.

  • According to a 2019 IBISWorld report, the top four companies operating

  • in the U.S.

  • account for over 60 percent of industry revenue following a decade of

  • mergers and acquisitions.

  • The biggest of them, Luxottica, has 40 percent.

  • The Italian company is the largest maker of eyewear in the world.

  • In the U.S.,

  • it captures huge shares of both the prescription eyeglasses and

  • sunglasses retail market, owns several major retailers, has exclusive

  • manufacturing and licensing deals with tons of designer labels, and

  • owns EyeMed, one of the largest vision insurance providers.

  • A Luxottica spokesperson told CNBC that the glasses industry is very

  • diverse, including several discount retailers like Walmart and

  • Costco. This is true.

  • The same IBISWorld report noted that the vast majority of consumers

  • prefer value eyewear from such stores.

  • Still, with such large market shares and diverse holdings, it's worth

  • examining this one company's power.

  • And in 2017, Luxottica announced it would get even bigger by merging

  • with Essilor, a French lenses manufacturer.

  • The 49 billion dollar deal further consolidated the eyewear industry,

  • leading some to ask: Will this help consumers or hurt them?

  • Leonardo Del Vecchio founded Luxottica in Italy in 1961.

  • The name is a combination of the Italian words for light and optics,

  • and the company manufactured components and accessories for the

  • optical industry.

  • But Del Vecchio soon transformed the company from supplier to

  • manufacturer. In 1971, Luxottica debuted its first house-made glasses

  • line. This turned out to be a prescient move.

  • Starting in the 1980s, glasses slowly transformed from a necessary

  • medical device to a fashion statement for the face.

  • Luxottica both drove and capitalized off this trend by partnering

  • with designer brands to make lines of glasses and sunglasses.

  • Under these licenses, the fashion houses send inspiration to

  • Luxottica which designs and manufactures the frames.

  • The company first partnered with Giorgio Armani in 1988.

  • Thirty years later, its roster of partnerships sounds like a fashion

  • week unto itself.

  • Prada. Chanel.

  • Burberry. Michael Kors.

  • Ralph Lauren.

  • Tiffany. Versace.

  • Bulgari. And on and on.

  • Luxottica also purchased several brands outright, like Vogue eyewear,

  • Ray-Ban, and Oakley, and they moved into retailing, buying

  • LensCrafters, Sunglass Hut, and Cole National, which is the parent

  • company of Target Optical, Sears Optical, and Pearle Vision.

  • In total, Luxottica has about 9000 stores worldwide.

  • And that's not all.

  • Their vision insurance company, EyeMed, has a network of 28,000 eye

  • health professionals and covers 39 million people.

  • And that's still not all.

  • We're focusing on the U.S.,

  • but Luxottica has a major presence in the UK, New Zealand, Australia,

  • Latin America, and, of course, its native Italy, as well as

  • manufacturing facilities in the U.S.,

  • Italy, China, Brazil, and two small plants in Japan and India.

  • In 2018, Luxottica had net sales of just under nine billion euros.

  • That's about 10 billion U.S.

  • dollars and an increase of 22 percent since 2013.

  • To put it simply: if a brand wants to sell glasses, they want to be

  • in Luxottica's huge network of stores.

  • And if a store wants to sell popular brands, they'll want to offer

  • Luxottica products.

  • You know Ray-Ban, Chanel, Bulgari and the like.

  • Some argue that Luxottica's disproportionate size and power stifles

  • competition, causing the whole industry to stagnate.

  • The profits in this industry are relatively obscene.

  • There hasn't been any serious innovation in the industry.

  • I mean, Google Glass might be the best example, but they're pretty

  • far from getting into it.

  • And so this this industry just sort of sits there and it makes a lot

  • of money and it is stagnant and extracts the cost of billions of

  • dollars from American and actually just global consumers.

  • Some competitors have managed to succeed.

  • Zenni Optical, an online-only glasses retailer, began in 2003 and

  • sells glasses for as little as $6.95,

  • lenses included.

  • Another company, Warby Parker, began selling glasses starting at $95

  • in 2010.

  • We each had that frustrating experience of losing a pair of glasses or

  • breaking a pair of glasses and then not understanding why they cost

  • several hundred dollars.

  • Dave left a 700 dollar pair of glasses in the seat pocket of an

  • airplane. We thought that was just way too much money to spend on a

  • pair of glasses, technology that's been around about 800 years.

  • And we looked into the market and saw this massive industry that

  • really had been overcharging consumers for for decades.

  • Warby became so popular that it opened its first physical store in

  • 2013, and they've since opened about 90 more.

  • Companies like Zenni and Warby prove that glasses don't have to be so

  • expensive. They also drive innovation.

  • Warby Parker even uses technology that allows consumers to do their

  • own eye exam using a computer and a phone app.

  • The company says these prescriptions are reviewed by an eye doctor

  • within a day, removing an actual eye checkup as a barrier to getting

  • glasses.

  • But some optometrists worry that this method oversimplifies

  • prescriptions and puts consumers at risk of getting a faulty product.

  • The problem with ordering glasses online always comes down to two

  • things and that is patient health and patient safety.

  • And obviously if you can sit down in front of your computer and with

  • a few keystrokes have a pair of glasses ordered, that is going to

  • save you time.

  • But at what expense?

  • Dr. Pierce told CNBC that some glasses ordered online may not conform

  • to U.S.

  • safety standards.

  • Imagine lenses so thin that they shatter under the slightest

  • pressure. And one study by the American Optometric Association found

  • that 29 percent of 154 glasses ordered from online retailers had at

  • least one lens with an incorrect prescription, a problem that can

  • lead to headaches, eye strain, dizziness, and more.

  • The study did not specify from which online retailers the defective

  • glasses were purchased.

  • But worse, Dr.

  • Pierce worries that consumers will take an online prescription as

  • license to not get regular checkups.

  • During the course of an eye exam, a lot of things can be revealed that

  • would otherwise never be detected.

  • For example, the diagnosis of glaucoma, cataracts, macular

  • degeneration, even things like dry eye and allergies.

  • And in very very rare cases, brain tumors have been diagnosed during

  • the course of an eye exam.

  • So that's deceiving to consumers to to have the impression that

  • they've received an eye exam when all they've had is a rudimentary

  • refraction online to determine refractive error, and even then not

  • very accurately.

  • Warby Parker doesn't claim its digital prescription check is a

  • substitute for an eye health exam.

  • They even say so in this video that explains the process.

  • Prescription check is not a comprehensive eye exam and it isn't meant

  • to replace visits to your eye doctor.

  • But we do think that telemedicine increases access and can be a great

  • complement.

  • Often, incumbents in an industry can be resistant to change or are

  • scared of it.

  • At the end of the day, technology is changing.

  • You can either bury your head in the sand and ignore it or embrace it

  • and create ways to increase access to health care.

  • And that's what our hope is.

  • Dr. Pierce's concerns aren't yet too widespread given that a tiny

  • percent of glasses overall are purchased online.

  • The vast majority of consumers buy glasses from large discount chains

  • like Luxottica's Target or Sears; other walk-in chains like

  • Luxottica's LensCrafters or Sunglass Hut; or doctor's offices like

  • one of the 8,000 in Luxottica's EyeMed insurance network.

  • And since 89 percent of the products sold in Luxottica stores are

  • manufactured by Luxottica, the odds are even better that you'll buy

  • frames made by Luxotticaeven if they're branded with Chanel,

  • Tiffany, or Prada.

  • And Luxottica is about to get even bigger.

  • The United States Federal Trade Commission approved the merger in

  • March 2018, but some antitrust experts question if the review was

  • enough.

  • And I see these prices and I still think something's wrong in this

  • market. That competition is not working in the market.

  • And the idea that you could have a merger that brings together the

  • largest manufacturer of lenses and the retailer that makes some of

  • the most best-selling frames, it seems to me that that merger would

  • be entrenching power.

  • Professor Fox and her colleague, Scott Hemphill, told CNBC that the

  • FTC tends to be more sympathetic to vertical mergersthat is,

  • mergers between two companies at different areas of the supply chain.

  • In this case, Luxottica makes and sells frames whereas Essilor makes

  • and sells lenses.

  • Vertical mergers are a tricky area because, on the one hand, combining

  • a customer and a supplier can be pro competitive.

  • It can bring important efficiencies that benefit consumers and

  • society more generally.

  • At the same time, vertical mergers under certain circumstances can be

  • anti-competitive. And so the trick is to figure out which

  • transactions are anti-competitive and which ones are pro-competitive.

  • The FTC uses economic models to guess whether a merger will help or

  • harm consumersbasically, whether prices of the product will go up

  • or down.

  • Maybe that analysis is impeccable, but it's very narrow.

  • And they should at least have considered that the merger might have

  • prevented the firms from lowering prices.

  • It might have entrenched the structure that kept competition from

  • breaking out.

  • As part of their "A Better Deal" policy proposals, Senate Democrats

  • condemned the Essilor-Luxottica merger as an example of corporate

  • consolidation gone too far.

  • It's worth noting that the eyewear industry in the US was riddled with

  • accusations of excessive markups and monopolistic behavior long

  • before Luxottica.

  • Luxottica has not faced the same scrutiny.

  • In fact, its merger with Essilor has been approved by trade

  • commissions around the world.

  • Its size and markups are not an anomaly, but a modern iteration of

  • what's long been an industry standard.

  • Luxottica did not respond to a request for an interview in time, but

  • a spokesperson did speak with CNBC about the company's methods and

  • pricing.

  • The approximately 74 million baby boomers are reaching the years at

  • which the vast majority of individuals need vision correction.

  • And Medicare doesn't cover routine eye exams, glasses, or contact

  • lenses. Maybe their children or grandchildren will cajole them into

  • trying Zenni Optical or Warby Parker.

  • If not, Essilor-Luxottica stands to gain quite a bit in the coming

  • decades.

  • Everybody doesn't have to buy luxury glasses.

  • You don't need Ray-Bans.

  • But there's a lot of room in between where there ought to be

  • competition and you're not seeing it.

For the 50 percent of Americans who wear glasses, getting a new pair

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Why Glasses Are So Expensive

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    joey joey posted on 2021/04/22
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