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Brazil-based ChilliBeans has been expanding into global markets, including the US. (Photo: ChilliBeans)
Wednesday, January 06, 2016
Special Reports

Latin America Eyewear Market: Clear Potential


Latin America’s eyewear industry will likely grow 18 percent annually from 2015 to 2020.

BY ANNA CHENG

In 2015, the eyewear industry in Latin America was valued at US$12.0 billion, recorded a decline of 16 percent, according to market research company Euromonitor International.

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.

Brazil is the single largest market, accounting for 45 percent 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.

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 publicized 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.

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. It 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.

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 eye care 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 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.

LOCAL COMPETITION

Unlike many global markets, domestic manufacturers have a presence alongside international players within Latin American eyewear.

ChilliBeans an eyewear franchise retail brand in Brazil that started in the late 1990s, has gained popularity due to its strong identity and understanding of the local culture. Being a domestic player, while there are no global economies of scale to reap, this has helped ChilliBeans to react to local consumer preferences by introducing new designs on a weekly basis. For example, with football being a national past time in Brazil, ChilliBeans launched its Manto Sagrado eyewear products specifically for the World Cup in 2014. The company also works closely with local designer brands, such as its collaboration with swimwear brand Blue Man, which saw it introduce a line of sunglasses with mirrored lenses.

ChilliBeans positions itself to provide trendy eyewear at affordable prices, targeting low to middle-income consumers. Luxottica’s products, on the other hand, are generally of a higher price point, but to make Ray-Bans more affordable to the masses, Luxottica has introduced an instalment payment plan.

In the area of ophthalmic lenses where entry barriers are higher and product developments are driven by technology rather than fashion and culture, Augen Optics is seen as a quality domestic provider. With a huge distribution network of 18 ophthalmic lens laboratories located in 16 major cities in Mexico, Augen Optics is able to provide time-effective services to local eyecare practitioners. Augen’s research and development department focuses on technology suitable for the middle-income consumer, developing its own high-quality products at competitive and reasonable prices.

Domestic players are country specific, with no regional presence or planned expansion moves in the near term. This indicates an absence of perceived sales growth in the region, especially with a tough competitive landscape that includes well-established and aggressive international players.

For example, ChilliBeans has started global expansion plans outside of the immediate Latin American region. Riding on its success in Brazil, ChilliBeans is looking to expand outside of Latin America through the franchising route. In 2012, Gávea Investimentos, a Brazilian investment fund took up stakes in ChilliBeans; this is expected to fuel its expansion into global markets, including the US.

It is noteworthy that, despite its many years of industry experience in Mexico, Augen expanded into the US in early 2007, but was forced to close shop and focus on the Mexican market in 2009, as it was not able to withstand the US recession.

On the other hand, international players are aggressively expanding their business in this region to offset slower growth in matured markets. According to Euromonitor International, the eyewear industry in Latin America is projected to grow at a CAGR of 18 percent from 2015 to 2020, in current terms. They are able to bank on their vast product portfolios, which are spread across price segments, and their abilities to extend via both backward and forward integration, on top of having access to much deeper financial pockets.

Besides the potential consumer base, which is increasing due to population growth and lifestyle changes, the attractiveness of the region is derived from economic pressure that is likely to see restrictions on trade being lifted, making it easier for international players to enter the region and expand. For example, the 2015 presidential election in Argentina might bring about some positive changes in the region; the newly elected President, Mauricio Macri, has announced plans to build relationships within Latin America and with other countries, which could improve trading conditions.

To conclude, a lack of global experience and low risk tolerance will make it hard for domestic players to expand both regionally and globally and be successful. Within the Latin American market, domestic players will have to contend with the rapid growth and presence of multinational manufacturers and can expect to find the going tough. Based on the historic evolution of the eyewear industry, it is very likely that international players will gobble up smaller players in the region for some time to come. 

Anna Cheng is Eyewear Industry Analyst at Euromonitor International. This article was written for Latinvex. 

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