Luxottica (LUX) SWOT Analysis / TOWS Matrix / MBA Resources
Retail (Specialty)
Strategy / MBA Resources
Introduction to SWOT Analysis
SWOT Analysis / TOWS Matrix for Luxottica (Italy)
Based on various researches at Oak Spring University , Luxottica is operating in a macro-environment that has been destablized by – banking and financial system is disrupted by Bitcoin and other crypto currencies, talent flight as more people leaving formal jobs, central banks are concerned over increasing inflation, cloud computing is disrupting traditional business models, wage bills are increasing, supply chains are disrupted by pandemic , increasing household debt because of falling income levels,
there is backlash against globalization, competitive advantages are harder to sustain because of technology dispersion, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that Luxottica can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Luxottica, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Luxottica operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Luxottica can be done for the following purposes –
1. Strategic planning of Luxottica
2. Improving business portfolio management of Luxottica
3. Assessing feasibility of the new initiative in Italy
4. Making a Retail (Specialty) sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of Luxottica
Strengths of Luxottica | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Luxottica are -
Effective Research and Development (R&D)
– Luxottica has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – Luxottica staying ahead in the Retail (Specialty) industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Successful track record of launching new products
– Luxottica has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Luxottica has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Digital Transformation in Retail (Specialty) industry
- digital transformation varies from industry to industry. For Luxottica digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Luxottica has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Innovation driven organization
– Luxottica is one of the most innovative firm in Retail (Specialty) sector.
High switching costs
– The high switching costs that Luxottica has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
High brand equity
– Luxottica has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Luxottica to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Low bargaining power of suppliers
– Suppliers of Luxottica in the Services sector have low bargaining power. Luxottica has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Luxottica to manage not only supply disruptions but also source products at highly competitive prices.
Diverse revenue streams
– Luxottica is present in almost all the verticals within the Retail (Specialty) industry. This has provided Luxottica a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Sustainable margins compare to other players in Retail (Specialty) industry
– Luxottica has clearly differentiated products in the market place. This has enabled Luxottica to fetch slight price premium compare to the competitors in the Retail (Specialty) industry. The sustainable margins have also helped Luxottica to invest into research and development (R&D) and innovation.
Learning organization
- Luxottica is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Luxottica is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at Luxottica emphasize – knowledge, initiative, and innovation.
Training and development
– Luxottica has one of the best training and development program in Services industry. The effectiveness of the training programs can be measured in – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Superior customer experience
– The customer experience strategy of Luxottica in Retail (Specialty) industry is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Weaknesses of Luxottica | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Luxottica are -
Low market penetration in new markets
– Outside its home market of Italy, Luxottica needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Capital Spending Reduction
– Even during the low interest decade, Luxottica has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the Retail (Specialty) industry using digital technology.
Employees’ less understanding of Luxottica strategy
– From the outside it seems that the employees of Luxottica don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Compensation and incentives
– The revenue per employee of Luxottica is just above the Retail (Specialty) industry average. It needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Luxottica is slow explore the new channels of communication. These new channels of communication can help Luxottica to provide better information regarding Retail (Specialty) products and services. It can also build an online community to further reach out to potential customers.
Workers concerns about automation
– As automation is fast increasing in the Retail (Specialty) industry, Luxottica needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
Lack of clear differentiation of Luxottica products
– To increase the profitability and margins on the products, Luxottica needs to provide more differentiated products than what it is currently offering in the marketplace.
Increasing silos among functional specialists
– The organizational structure of Luxottica is dominated by functional specialists. It is not different from other players in the Retail (Specialty) industry, but Luxottica needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Luxottica to focus more on services in the Retail (Specialty) industry rather than just following the product oriented approach.
Products dominated business model
– Even though Luxottica has some of the most successful models in the Retail (Specialty) industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. Luxottica should strive to include more intangible value offerings along with its core products and services.
Ability to respond to the competition
– As the decision making is very deliberative at Luxottica, in the dynamic environment of Retail (Specialty) industry it has struggled to respond to the nimble upstart competition. Luxottica has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
High cash cycle compare to competitors
Luxottica has a high cash cycle compare to other players in the Retail (Specialty) industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Luxottica Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of Luxottica are -
Redefining models of collaboration and team work
– As explained in the weaknesses section, Luxottica is facing challenges because of the dominance of functional experts in the organization. Luxottica can utilize new technology in the field of Retail (Specialty) industry to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Manufacturing automation
– Luxottica can use the latest technology developments to improve its manufacturing and designing process in Retail (Specialty) sector. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Building a culture of innovation
– managers at Luxottica can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Retail (Specialty) industry.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Luxottica to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Better consumer reach
– The expansion of the 5G network will help Luxottica to increase its market reach. Luxottica will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Learning at scale
– Online learning technologies has now opened space for Luxottica to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Low interest rates
– Even though inflation is raising its head in most developed economies, Luxottica can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Creating value in data economy
– The success of analytics program of Luxottica has opened avenues for new revenue streams for the organization in Retail (Specialty) industry. This can help Luxottica to build a more holistic ecosystem for Luxottica products in the Retail (Specialty) industry by providing – data insight services, data privacy related products, data based consulting services, etc.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Luxottica can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Retail (Specialty) industry, but it has also influenced the consumer preferences. Luxottica can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Use of Bitcoin and other crypto currencies for transactions in Retail (Specialty) industry
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Luxottica in the Retail (Specialty) industry. Now Luxottica can target international markets with far fewer capital restrictions requirements than the existing system.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Luxottica in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Retail (Specialty) industry, and it will provide faster access to the consumers.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Luxottica can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Threats Luxottica External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of Luxottica are -
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Regulatory challenges
– Luxottica needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Retail (Specialty) industry regulations.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, Luxottica may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Retail (Specialty) sector.
Increasing wage structure of Luxottica
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Luxottica.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Environmental challenges
– Luxottica needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Luxottica can take advantage of this fund but it will also bring new competitors in the Retail (Specialty) industry.
Easy access to finance
– Easy access to finance in Retail (Specialty) industry will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Luxottica can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Shortening product life cycle
– it is one of the major threat that Luxottica is facing in Retail (Specialty) sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Luxottica.
High dependence on third party suppliers
– Luxottica high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Luxottica can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate Luxottica prominent markets.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry to Retail (Specialty) industry are lowering. It can presents Luxottica with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the Retail (Specialty) sector.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Luxottica will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Weighted SWOT Analysis of Luxottica Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at Luxottica needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of Luxottica is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of Luxottica is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Luxottica to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Luxottica needs to make to build a sustainable competitive advantage.
