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 – there is increasing trade war between United States & China, banking and financial system is disrupted by Bitcoin and other crypto currencies, geopolitical disruptions, technology disruption, talent flight as more people leaving formal jobs, increasing commodity prices, cloud computing is disrupting traditional business models,
central banks are concerned over increasing inflation, increasing household debt because of falling income levels, 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 -
Ability to recruit top talent
– Luxottica is one of the leading players in the Retail (Specialty) industry in Italy. It is in a position to attract the best talent available in Italy. The firm has a robust talent identification program that helps in identifying the brightest.
Highly skilled collaborators
– Luxottica has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive Retail (Specialty) industry. Secondly the value chain collaborators of Luxottica have helped the firm to develop new products and bring them quickly to the marketplace.
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.
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.
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.
Analytics focus
– Luxottica is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the Retail (Specialty) industry. The technology infrastructure of Italy is also helping it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
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.
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.
Organizational Resilience of Luxottica
– The covid-19 pandemic has put organizational resilience at the centre of everthing Luxottica does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
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.
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.
Weaknesses of Luxottica | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Luxottica are -
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.
High bargaining power of channel partners in Retail (Specialty) industry
– because of the regulatory requirements in Italy, Luxottica is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the Retail (Specialty) industry.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Luxottica supply chain. Even after few cautionary changes, Luxottica is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Luxottica vulnerable to further global disruptions in South East Asia.
High operating costs
– Compare to the competitors, Luxottica has high operating costs in the Retail (Specialty) industry. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Luxottica lucrative customers.
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.
Need for greater diversity
– Luxottica has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
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.
High dependence on Luxottica ‘s star products
– The top 2 products and services of Luxottica still accounts for major business revenue. This dependence on star products in Retail (Specialty) industry has resulted into insufficient focus on developing new products, even though Luxottica has relatively successful track record of launching new products.
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.
Skills based hiring in Retail (Specialty) industry
– The stress on hiring functional specialists at Luxottica has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Luxottica Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of Luxottica are -
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.
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.
Developing new processes and practices
– Luxottica can develop new processes and procedures in Retail (Specialty) industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing 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.
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.
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.
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.
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.
Leveraging digital technologies
– Luxottica can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
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.
Loyalty marketing
– Luxottica has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
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.
Buying journey improvements
– Luxottica can improve the customer journey of consumers in the Retail (Specialty) industry by using analytics and artificial intelligence. It can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Threats Luxottica External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of Luxottica are -
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.
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.
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.
Consumer confidence and its impact on Luxottica demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in Retail (Specialty) industry and other sectors.
Technology acceleration in Forth Industrial Revolution
– Luxottica has witnessed rapid integration of technology during Covid-19 in the Retail (Specialty) industry. As one of the leading players in the industry, Luxottica needs to keep up with the evolution of technology in the Retail (Specialty) sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
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.
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.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Luxottica in the Retail (Specialty) sector and impact the bottomline of the organization.
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.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Luxottica in Retail (Specialty) industry. The Retail (Specialty) industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Luxottica business can come under increasing regulations regarding data privacy, data security, 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.
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.