LUXOTTICA

Business Model Vertical Integration:

One of the competitive advantages underpinning the Groups past and

future successes is the vertically integrated business model that Luxottica
has built over the decades.The Groups present structure, covering the
entire value chain, is the result of a far-sighted choice made by the
Companys founder and Chairman, Leonardo Del Vecchio, who understood
the potential of a vertical integration strategy when he decided to make
entire frames rather than just components. Vertical integration of
manufacturing was gradually accompanied by the expansion of
distribution, rst wholesale and, from 1995, retail and by the creation of a
key presence in the high value-added business of lens nishing.Direct
control of the entire production platform makes it possible to ensure the
highest quality of both products and processes, introduce innovations,
identify synergies and new operating methods and optimize time and
costs.Direct distribution enables Luxottica to offer its products in major
markets and achieve a unique understanding of consumer tastes and
trends. This capability is viewed as a strength by fashion houses that
come to Luxottica to produce and distribute globally their eyewear
collections.

305305445-VerticalIntegration-Luxottica.docx

DESIGN AND PRODUCT DEVELOPMENT

Design is the focal point where vision, creative inspiration and technology
converge. Beginning wth the rst style sketches, the idea quickly takes shape in
the design and development stages. Prototype makers transform designs into
one-off pieces, crafted by hand with meticulous precision and later, the mold
workshop designs and assembles the equipment needed to make the
components for the new model. Designers use 3D technology to print very
unique objects and complex shapes, which were previously difficult to produce
using traditional techniques. At every phase of the process from design to
industrialization Luxottica performs rigorous and accurate quality tests. Every
year the Group adds approximately 2,000 new styles to its eyewear collections,

each frame an expression of Luxotticas DNA: product excellence, commitment to

innovation in technologies, styles and materials and unparalleled craftsmanship.

M A N U FA C T U R I N G
Luxotticas manufacturing operations are located in Italy, China, the United
States, Brazil and India. Italy, with its six italian plants ve in the Northeastern
region and one near Turin, is at the center of Luxotticas luxury eyewear
production, combining the tradition of Italian craftsmanship with the speed and
efciency of modern automation. These factories represent 41% of global
production output. Over the years, the Group has consolidated its manufacturing
processes and allocated specic production roles and technologies to each plant.
This has enabled Luxottica to improve both the productivity and quality of its
manufacturing operations. Since 1997 Luxottica has had a presence in China
through the Dongguan plant in Guangdong province. In 2006, Luxottica
increased local manufacturing capacity through the construction of an entirely
new facility; in 2010, it began producing plastic sun lenses to be paired with
frames that are manufactured in the same location. Soon after, the Company
integrated a new state-of-the-art plant, primarily dedicated to frame details and
decorations. The Foothill Ranch facility in California manufactures highperformance sunglasses, prescription frames and lenses and assembles most of
Oakleys eyewear products. Oakley apparel, footwear and certain goggles are
produced by third-party manufacturers. Luxotticas Campinas plant in Brazil and
a small plant in India serve the local markets. Luxottica is constantly investing in
R&D to improve quality, efficiency and productivity. Over the years Luxottica has
progressively diversied its technology mix from traditional metal, plastic
injection and acetate slabs to include aluminum, wood, die casting, fabrics and
the innovative LiteForce material coming from the aerospace industry.

LOGISTICS
The Groups distribution system, comprised of 18 distribution centers with eleven
in the Americas, ve in Asia-Pacic and two in Europe, is one of the most
advanced and efficient in the industry. It serves both the retail and wholesale
businesses, is globally integrated and fed by a centralized manufacturing
platform. The network linking the logistics and sales centers to the production
facilities in Italy, China, the United States and Brazil provides daily monitoring of
global sales performance and inventory levels to meet local market demand.
There are four main distribution centers (hubs) in strategic locations serving the
Groups major markets: Sedico (Italy) for Europe, the Middle East, Africa, select
US markets and to the Groups distribution centers in the rest of the world;
Atlanta (US) for the North American market; Dongguan (China) for the Asia
Pacic region and Jundiai (Brazil) for the local market. They operate as
centralized facilities thanks to a highly automated order management system,
servicing other Group distribution centers or, in some markets, shipping products
directly to customers, thereby further reducing delivery times and keeping stock
levels low.

WHOLESALE DISTRIBUTION
The wholesale distribution structure covers more than 150 countries, with
approximately 50 commercial subsidiaries in major markets and
approximately 100 independent distributors in other markets. Wholesale
customers are mostly retailers of mid to premium-priced eyewear, such as
independent opticians, optical retail chains, specialty sun retailers,
department stores, duty-free shops and online players. In addition to
giving wholesale customers access to some of the most popular brands
and models, Luxottica provides them with pre- and post-sale services to
enhance their business and maintains close contact with distributors in
order to monitor sales and the quality of the points of sale.

R E TA I L D I S T R I B U T I O N
With a strong portfolio of retail brands, Luxottica is well positioned to
serve every segment of the market with a variety of differentiation points,
including the latest designer and high-performance frames, advanced lens
options, advanced eye care, everyday value and high-quality vision care
health benets. As of December 31, 2015, Luxotticas retail business
consisted of 6,589 stores and 676 franchised locations. Luxotticas retail
stores sell not only prescription frames and sunglasses that the Group
manufactures but also a wide range of frames, lenses and ophthalmic
products manufactured by other companies. In 2015, net sales comprising
Luxotticas proprietary and licensed brands represented approximately
90% of the total net sales of frames by the Retail division.

E-COMMERCE
Oakley, Ray-Ban and Sunglass Hut e-commerce websites serve as
important sales channels that complement Luxotticas retail operations
and wholesale distribution. The websites drive brand awareness and allow
consumers to purchase products efficiently, extending superior customer
service into the digital space. Ray-Ban.com is the place to go for a
premium Ray-Ban assortment, exclusive services and a consumer
experience that is unique to the brand. The path of international ecommerce expansion for the Ray-Ban brand is closely tied to Ray-Ban
Remix, the online customization service launched in 2013. Oakley.com
provides an e-commerce channel across multiple markets. Its online
custom eyewear experience gives Oakley fans the ability to customize
their favorite models selecting frame color, lens tint, personalized etching

and other features. SunglassHut.com has become the digital destination

for consumers looking to nd the latest trends and hottest premium
sunglasses. Luxottica plans to bring its e-commerce strategy to additional
markets as the business matures. For example, the Group formed
strategic partnerships in China to open both Ray-Ban and O stores within
Tmall, the worlds largest local online mall. Acquired in 2014, Glasses.com
continues to serve as an innovation lab focused on improving the eyewear
e-commerce experience for consumers and patients and lending its
capabilities to Luxotticas other retail brands.

US SHOE COMPANY ACQUISITION

A hostile takeover fight for U.S. Shoe Corp. ended peacefully Sunday night when the company
said it agreed to a sweetened, $1.3-billion buyout offer from Italy's Luxottica Group.
The tentative pact was struck after Luxottica raised its bid to $28 in cash for each of U.S. Shoe's
46.7 million common shares outstanding.
Luxottica had on March 3 launched an unsolicited bid of $24 a share, which U.S. Shoe had
rejected as inadequate.
U.S. Shoe's stock closed at $26.50 a share in New York Stock Exchange composite trading
Thursday. (The market was closed Friday.)
Luxottica, a manufacturer of eyeglass frames, said it mainly wants U.S. Shoe's thriving
LensCrafters optical retail business--which has more than 400 outlets nationwide--and probably
would try to sell U.S. Shoe's footwear and women's apparel lines. The apparel division includes
retail outlets such as Casual Corner and Capezio.

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