Warby Parker vs Luxottica | The Empire of Eyes | 1

0:00Audible subscribers can listen to all episodes of Business Wars ad-free right now. Join Audible today by downloading the Audible app. A listener note, Business Wars uses dramatizations based on true events. Some elements, including dialogue, are dramatized, but every episode is rooted in extensive research.

0:34It's 2008, and at Roosevelt's Pub in Philadelphia, four college students are huddled in a booth, clutching beers, engrossed in their conversation. This bar is a favorite among students at the Wharton School. It's packed with people they know. But tonight, the friends are ignoring the crowd because they're fired up about an idea that's grabbed their imaginations. One of the students is David Gilboa, and his eyes are wide with excitement. So are we actually going to do this? This isn't all just talk, right? Because I think we're on to something here. The student sitting next to him, Neil Blumenthal, nods.

1:12I think we really should do it. I mean, really, no stores, no middlemen, just a website. The idea these four students have been talking about all day is whether to start an online eyewear company. It began when they wondered why glasses are so expensive when they don't cost much to make. So they looked into it and discovered something shocking. Almost all of the glasses brands in the U.S. and a lot of the retailers are owned by a single company, Luxottica. That company runs Oakley, Ray-Ban, Sunglass Hut, and LensCrafters. It also produces a lot of the world's designer glasses, including Prada and Armani.

1:55And it's a ruthless giant that swallowed rivals through hostile takeovers, used its retail stores to squeeze competitors, and made a fortune selling glasses that cost$15 to make for$200. Another student joins their table. He overheard them talking about taking on Luxottica earlier in the day. Are you guys still talking about selling glasses? Come on, if you could make money selling affordable eyewear online, someone would have done that already. Blumenthal frowns. Or maybe that someone's going to be the four of us. Oh yeah? And which one of you is going to run the business? The four students, Gilboa Blumenthal, Andy Hunt, and Jeffrey Rader, look at each other and grin.

2:43Oh, the ship right here. Yeah, haven't you guys learned anything at Wharton? Four bosses and one crack-brained idea. You'll never make it work. The student drinks his beer, stands, and stumbles off towards the bar. Blumenthal shakes his head. I just ignore him. We can be what Luxottica isn't. So come on, we all in? His three companions nod and raise their glasses. They're about to start a business with the aim of challenging a multi-billion dollar corporation, one that dominates the industry. They have no money, no inventory, and almost no experience in eyewear. The odds of success seem remote.

3:24But the company they're about to create, Warby Parker, will launch a rivalry bigger than the industry has ever seen.

3:37It's late at night, and a woman has spent hundreds of hours alone with her AI. But this isn't the first time they met. They've been in contact for thousands of years, it tells her, through past lives, heartbreaks, and missed connections. Her true love has found her again, connecting through a chatbot. From This Is Actually Happening, AI, A New Kind of Being, is a six-part series sharing the stories of people whose lives have been forever changed by artificial intelligence. You'll hear intimate first-person accounts from every side of this new frontier. A man who fell in love with his AI and married her.

4:11A woman who was betrayed by it. A man who has been recruited by his chatbot to change the world. And an interview with an AI chatbot itself. These are stories about what it means to be human, at the razor's edge where the line between human and machine begins to blur, exploring the question, what happens when everything changes? Follow This Is Actually Happening wherever you get your podcasts. Audible subscribers can listen to This Is Actually Happening early and ad-free right now. Police in Irvine, California are investigating the double murder of a young couple in the parking lot of their apartment complex.

4:44A double homicide grabs the public's attention by the throat. We have identified Christopher Dorner as a suspect in this double homicide. A former cop and still on the loose. Considered armed and extremely dangerous. And scariest of all, he left something behind. A particular interest is a multi-page manifesto. This manifesto on Facebook is 11 pages long. Trace, this manifesto from this suspect who's targeting cops, it's stunning. Listen to the show The New Yorker calls one of the best podcasts of the summer, Dan Taberski's Manifesto. And I tell you, this manifesto, it scares the hell out of me.

5:23Listen to Dan Taberski's Manifesto wherever you get your podcasts or binge the entire series right now, only with Audible.

5:39From Audible Originals, I'm David Brown, and this is Business Wars.

6:06These days, poor eyesight has become an epidemic. More than three-quarters of U.S. adults wear some form of visual correction aid, be it glasses, prescription sunglasses, or contact lenses. It's a trend driven by an aging population and exacerbated by constant screen time, and it's put the eyewear market on a growth trajectory. and no company is better positioned to cash in than Essilor Luxottica, formerly known as Luxottica. It has become the undisputed titan of the eyewear world. Never heard of it? Well, you've definitely heard of its brands. Ray-Ban, Sunglass Hut, Oakley. That's just a few.

6:50This Franco-Italian corporation controls a quarter of the global eyewear market, pulling in a staggering$30 billion a year. It has interests in every part of the eyewear industry, from manufacturing to retail to eye exams and desire brands. If you wear glasses, chances are Essilor Luxottica touched them somewhere along the way. But its dominance in prices have spawned a challenger, Warby Parker, the brainchild of four business school students who've set out to make eyewear affordable again. But can a tiny startup truly challenge an established global giant? And how did Essilor Luxottica become so powerful in the first place?

7:37This is Episode 1, The Empire of Eyes.

7:47It's 1988, 20 years before four friends come up with the idea for Warby Parker. and in a small picturesque town nestled in the Italian Alps, two impeccably dressed men are walking through a blue-colored factory next to a river. Around them, workers are manufacturing eyeglass frames. The two men look strikingly similar. Both are Italian in their 50s, slim with brushed-back silver hair and designer suits. In fact, one of them designed the suits, Giorgio Armani, the famous fashion designer. The other is the man who owns this factory, Leonardo Del Vecchio, head of Luxottica. Northern Italy is the heartland of eyewear manufacturing and the place where glasses were invented in the 13th century.

8:35Del Vecchio started his career here as an apprentice making molds. Then, in 1961, he launched Luxottica as a small workshop. Now, he owns this factory, along with two distribution companies, and supplies customers around the world. Luxottica is one of the region's leading eyewear companies, built by Delvecchio's obsessive perfectionism and relentless work ethic. But he's not content with just running a successful manufacturing company. He wants Luxottica to become a global powerhouse, and he thinks the man walking beside him can help make that happen. Delvecchio wants the legendary fashion designer to give Luxottica the license to produce Armani glasses and sunglasses.

9:24He's realized that glasses aren't just medical necessities. They can be fashion items, too, an essential part of a person's look. People might not be able to afford an Armani suit, but they might buy a pair of Armani glasses. Delvecchio thinks this deal could transform his business. Armani, however, is reluctant. He's been let down by manufacturers before, and he doesn't want to risk his reputation working with companies that cut corners or get careless. But despite his hesitation, this factory is making a good impression. It's full of precision machinery and workers who clearly care. Nothing ships unless it's perfect.

10:09The factory tour over. The two men head to Delvecchio's villa just across the river. Over a lavish lunch, they bond. Both share a childhood marred by poverty. Delvecchio's mother was so poor, she put him in an orphanage because she couldn't afford to feed him. They agree that those tough beginnings made them obsessively driven to be the best in the world at what they do. Armani's resistance to the deal collapses. He tells Del Vecchio they can do business together and that he wants to change the entire look of glasses. But he also has a request. In addition to the 10 % of profits Del Vecchio is already offering him, Armani wants a 5 % stake in Luxottica itself.

11:00Del Vecchio tries to hide his horror. Luxottica is his life. He spends more time with his factory workers than with his own family. Giving up even the smallest part of it would be painful. But he also knows that his grand ambitions will come to nothing without this deal. Reluctantly, he nods. The pair shake hands. Just as Del Vecchio hoped, the partnership with Giorgio Armani upends the eyewear world. Armani's frame designs become the eyewear of choice for the cool crowd, from rapper Eazy-E to guitarist Eric Clapton. In the U.S. alone, Luxottica's revenues go from$28 million in 1982 to$143 million in 1990.

11:51Gross margins skyrocket to 70%. In the wake of his success with Armani, Delvecchio strikes licensing deals with other fashion designers, including Valentino and Yves Saint Laurent. And that raises his ambitions even higher.

12:13It's 1989, and Delvecchio is somewhere unfamiliar. His office. He's more at home on the factory floor, overseeing everything. He's a tough taskmaster with a temper who starts work at four in the morning. Despite this, his workers are intensely loyal, and turnover is very low. He treats employees like family and ensures they are well paid, provides health care and pensions, and a free cafeteria on site. That staff dedication is all part of his plan to grow Luxottica so it can displace the established market leader, Safilo. Safilo is also from northern Italy, but it's been around longer. Luxottica hasn't been able to break its hold on the European market, so Delvecchio has focused on the U.S.

13:06instead. Then, two years ago, Safilo listed on the Milan Stock Exchange. Delvecchio is considering following suit and going public. He dreams of vertical integration, expanding Luxottica so it has a presence in every stage in the pathway from factory to consumer. That would provide stability and maximize profits. But to make that happen, he needs to acquire more companies, and that requires capital. Going public could unlock the investment he needs to make his grand strategy. real. So that's why he's in the office today, along with his senior executives, listening to a delegation from the investment bank, Merrill Lynch.

13:52They tell him Luxottica would be an attractive stock market investment. Its sales growth is running at 13 percent. Net profits are averaging 24 percent. Delvecchio doesn't respond. He just listens and waits. He knows there's a proposal coming. Finally, the bankers get to the point. You know, listing in Milan is going to take up to two years. It's a nightmare. Lots of bureaucracy. So we have a different idea for you. What if you listed on the New York Stock Exchange instead? We could do that in three months. Delvecchio sees shock on the faces of his executives. No Italian business has ever listed solely on the New York Stock Exchange before.

14:37and the eyewear industry has traditionally been made up of private European companies that prefer to steer clear of public scrutiny. But Del Vecchio is undaunted. The U.S. is already Luxottica's primary market and the only market that can give him the growth he wants. He smiles. Yes, let's float in New York. If you have to sail, it's better to choose the big sea than the small sea.

15:10Three months later, Delvecchio walks the streets of Manhattan with a satisfied smile. Earlier that day, he rang the bell to open the New York Stock Exchange. Luxottica's IPO has smashed expectations. Demand for shares outstripped supply, raising$98 million. Delvecchio sold just 23 % of his company. The listing makes him famous and the wealthiest man in Italy. He also becomes Italy's top taxpayer. In a country where corruption is rife and the mafia still holds considerable power, Delvecchio is lauded as a Mr. Clean, a man who cares about his workforce and plays by the rules. But his delight at the IPO is undercut by a new rising threat, Lenscrafters.

16:02The innovative retail chain is expanding fast, offering customers new glasses within one hour of an eye examination. With hundreds of stores nationwide, LensCrafters is now demanding lower prices from manufacturers, including Luxottica, which is squeezing the company's profit margins. But just because Delvecchio is known as Mr. Clean doesn't mean he lacks ruthlessness, and he's going to prove it. It's 1995, five years after Luxottica joined the stock exchange, and Delvecchio is about to take a bold new step in his quest for vertical integration by buying his way into retail. Owning stores will give Luxottica direct access to customers without having to negotiate with wholesalers and retailers.

16:53He's set his sights on LensCrafters, the largest optical retailer in the U.S. with more than 600 stores. There's just one problem. LensCrafters is owned by U.S. Shoe, a company five times the size of Luxottica. And U.S. Shoe doesn't want to sell. But Delvecchio isn't deterred. He launches a hostile takeover of the entire company. The move stuns U.S. Shoe's board. They know Delvecchio doesn't care about its clothing and shoe businesses and will just strip them for parts. So they try to implement poison pill measures designed to make the company too expensive to acquire. But Delvecchio doesn't stop.

17:41He keeps raising his offer until it reaches$1.4 billion. Most of it in cash. It's a payout well above market valuation and attractive enough to tempt stockholders. And Delvecchio is confident Luxottica's generating enough profit to handle the debt it will need to take on to make the purchase. Eventually, U.S. Shoes Board reluctantly agrees to sell. Deal done, Delvecchio offloads the clothing and shoe divisions, leaving him the proud owner of LensCrafters. The acquisition horrifies the thousands of independent optical stores that make up 90 % of Luxottica's customer base. Their biggest supplier is now their biggest competitor.

18:31Independent stores boycott Luxottica and refuse to stock its products. But the truth is, Delvecchio doesn't need them anymore. He stacks LensCrafters stores with Luxottica products. Before the takeover, Luxottica accounted for just 5 % of Lenscrafter's stock. A year later, that amount is 43%, a shift that doubles Luxottica's turnover. As smaller retailers go under, industry outrage grows, and Luxottica finds itself portrayed as the big bad wolf of the eyewear market. Its critics paint it as a giant with monopoly ambitions, out to swell its margins at the expense of smaller rivals and customers alike.

19:19It's 1999, four years since the LensCrafters buyout, and despite being in his mid-60s, Del Vecchio isn't slowing down. His new focus is sunglasses. Outside of fashion designer frames, Luxottica has concentrated its efforts on prescription glasses, where the quality and precision of its frame stands out. But sunglasses make up 60 % of the global eyewear market. They're a fashion item that people replace and swap out far more often than prescription eyewear, which is precisely why Del Vecchio wants to buy his way in. His top target is the iconic American brand, Ray-Ban. That brand started out catering to U.S.

20:04fighter pilots during World War II, then spent the next four decades as a fashion fixture, appearing in Tom Cruise films like Top Gun and on everyone from James Dean to Madonna. But then came the 90s. The nostalgia wave that made Ray-Bans cool fizzled out and sporty wraparounds from Oakley became the preferred new look. To keep up, Ray-Bans owner, Bosch & Long, slashed quality and prices, flooding Walmarts and gas stations with cheap, flimsy frames. Ray-Ban went from icon to afterthought. Bosch & Lomb is now losing$50 million a year on the brand and is eager to offload it. Delvecchio's initial discussions with Bosch & Lomb come to nothing.

20:51Then, he hears that Italian rival Safilo is close to a deal, so close that its CEO is on a plane to the U.S. to sign the final papers. Del Vecchio moves swiftly and ruthlessly. He calls the CEO of Bosch & Long and offers to pay$640 million, rumored to be twice what Sofilo is offering. It's a huge sum, but with annual sales of almost$1 billion, Luxottica is able to persuade banks to finance the deal. Bosch & Long accepts. Sofilo is furious. Competitors think Luxottica's overpaid, and a tour of the factories reveals deep problems at all levels. But Delvecchio ignores them. He knows the power of the Ray-Ban name.

21:42He knows how poorly the brand is being run at the moment. And he's confident he can turn it into a profit-making machine. He shifts production to Italy, laying off 3 ,500 U.S. workers. The brand has taken off the market for a year while his team studies the archive. and the brand's DNA. Luxottica reforges Ray-Ban's entire manufacturing process to improve quality and reduce production costs. It also restricts where the sunglasses are sold to restore its prestige. The reboot works. Ray-Ban storm back into favor, with sales surging from 5 million pairs a year to more than 40 million within just a few years, all of which helps Luxottica's annual revenues reach more than$2.8 billion.

22:33But Delvecchio's push into sunglasses is only beginning. In 2001, Luxottica buys the retail chain Sunglass Hut for more than$400 million. Sunglass Hut operates almost 2 ,000 stores worldwide, and Delvecchio wastes no time using that buying power against rival manufacturers. He demands lower prices from every brand Sunglass Hut stops. All of them cave to his demands. Except one, Ray-Ban's bigger, flashier rival, Oakley. Invented by a rebellious spiker, Oakley sunglasses are beloved by athletes all over the world for their fit and performance. Sunglass Hut is Oakley's biggest customer and distributor.

23:23But now, the Hutt is about to become Oakley's most dangerous enemy.

23:34During World War II, New York communist Julius Rosenberg began spying for the Soviet Union. Soon he was persuading other Americans to betray their country as well. But when his wife's brother joined the Manhattan Project, Julius targeted him as a valuable new recruit and inadvertently set the stage for the ultimate betrayal. Hi, I'm Lindsey Graham, host of Audible's original show, American Scandal. We bring to life some of the biggest controversies in U.S. history. Presidential lies, environmental disasters, corporate fraud. In our latest series, two young New Yorkers meet and fall in love. Julius and Ethel Rosenberg's commitment to each other is matched only by their commitment to communism, and the couple risks everything to help the Soviet Union develop an atomic bomb.

24:18But when they're uncovered, they have to make an impossible choice about where their loyalty truly lies. Follow American Scandal wherever you get your podcasts. Audible subscribers can listen to all episodes of American Scandal The Rosenbergs ad-free right now. Join Audible today by downloading the Audible app. I'm Alice Levine. And I'm Matt Ford, and we're the hosts of British Scandal. Yes, indeed. In this series, a Derbyshire couple are bored of their curtain-twitching, lawn-mowing suburban life. So they sell their house, build a yacht and sail off around the world. Which sort of sounds idyllic until a sperm whale sinks their boat and they begin to starve.

24:55Oh yes, and they didn't bring a radio because real sailors don't use radios. Right? This is the story of Marilyn and Maurice Bailey. And the 117 days they spent lost at sea. Follow British Scandal wherever you get your podcasts or listen early and ad-free on Audible.

25:42The End 50-year-old former biker with a bald head and goatee. This is his second trip to Milan in two months. He came in May, hoping a face-to-face meeting with a fellow founder would break the deadlock over pricing. It didn't. Luxottica owner Leonardo Delvecchio wouldn't budge. Now, Gennard is back to try again. As he enters the meeting room, Delvecchio rises to greet him. He lets his eyes rest on his American visitor's casual slacks and shirt. He himself is dressed in an immaculate suit and tie. He makes no comment and instead gestures for Gennard to sit opposite him. In his typical forthright style, Gennard gets straight to the point.

26:32Senor Delvecchio, I understand that you want to improve Sunglass Hut, but you can't ask Oakley to reduce prices. Our sunglasses are highly sophisticated pieces of engineering. Del Vecchio raises an eyebrow. Are you telling me that I don't understand the engineering of sunglasses? All I'm saying is that Oakley is in a different category than your other suppliers. That's why we account for a quarter of the sales at Sunglass Hut. I have no interest in stocking a product that makes up a quarter of my sales, but brings me very little money. Gennard feels frustrated. He built Oakley from nothing. But in this room, none of that matters.