6Vision Insurance - EyeMedNot only did Luxottica have a stronghold on the product side of the industry, it also had a position in the vision care space. EyeMed, the second largest vision benefits company in the United States, was wholly owned by Luxottica, and helped to drive new customers to its retail locations, which primarily sold their products.18Since Luxottica owned and controlled every component in the value chain, it was able to add a significant markup at every step, passing the costs along to the consumers who had very few alternatives. Exhibit 2shows the eyewear industry value chain. This final link in the chain solidified Luxottica’s control of the eyewear market. EyeMed customers were required to visit in-network doctors who directed them to Luxottica-owned retail locations with shelves stocked with Luxottica frames, which proved to be extremely lucrative for the company. According to a 2010 article featured in the Wall Street Journal, “Luxottica...makes a gross profit of 64 cents on each dollar of sales. Even after deducting sales and advertising costs, overhead and brand licensing royalties it's still making 52 cents.” 7
Warby Parker OverviewWarby Parker was founded in 2010 by four students from the Wharton School of Business at the University of Pennsylvania -- Neil Blumenthal, Andrew Hunt, David Gilboa, and Jeffrey Raider. The initial problem that sparked the idea for Warby Parker stemmed from glasses being too expensive. During a backpacking trip, one of the students lost their glasses and the cost of replacing them was so high the student spent a painful semester without them, squinting and complaining. Similar predicaments were shared by numerous students: “Why was it so hard to find a great pair of glasses that didn’t break the bank?”8The culprit turned out to be a single company, Luxottica, that dominated the eyewear industry and has been able to command artificially high prices and receive high profit margins from customers who have no alternate options.8The idea to create an alternative originated when Blumenthal, who had previously run VisionSpring, a nonprofit that trains women in the developing world to give eye exams and sell glasses, wondered “why weren’t glasses sold online?”9After Blumenthal emailed three friends (Gilboa, Hunt, and Raider) with the idea, the four hashed out their business plan and created the fledgling company in the Wharton School’s Venture Initiation Program, a business incubator for students. Shortly thereafter, the group received a $2,500 seed award that was crucial to the initial success of their venture.10The fundamental approach of the company was to circumvent traditional eyewear channels by designing/producing glasses in-house and directly engaging with customers in order to offer high-quality frames at a fraction of the current price.
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