Luxottica, Currency Exchange Rates, and Economic Factors
Luxottica and Brand Licensing
Luxottica owns Ray-Ban outright, meaning they have complete control over the brand. Other brands, like Versace and Gucci, operate under licensing agreements with Luxottica.
With Ray-Ban, Luxottica handles all aspects of design and manufacturing without paying royalties for the brand name. In contrast, for brands like Gucci, Luxottica designs the glasses with input from the brand, which is typical of a licensing agreement.
Luxottica designs glasses with input from the licensed brands.
Owning a brand outright is more profitable. It would be detrimental to Luxottica if brands decided to move their licensing agreements elsewhere.
The Role of Licensing Agreements
High-fashion designers often lack expertise in designing and manufacturing sunglasses. Since Luxottica excels in this area, brands like Chanel enter into licensing agreements to leverage Luxottica’s expertise.
From Chanel’s perspective, a licensing agreement simplifies the process. They avoid manufacturing concerns and receive royalties on every pair of sunglasses sold by Luxottica. However, licensing agreements can lead to a loss of control and potential damage to the brand’s image if quality is compromised.
Brand owners can extend their profits by entering into licensing agreements with experts in specific areas.
The downside of licensing agreements includes potential carelessness and quality control issues, which can damage the brand’s reputation.
Currency Exchange Rates
Factors Influencing Currency Value
Who benefits from a high dollar? Businesses involved in importing. A stronger Canadian dollar allows them to buy imports more cheaply.
To buy goods from other countries, you must purchase their currency (e.g., Euros in France).
High demand for Canadian exports increases demand for Canadian dollars, driving up its value.
A lower Canadian dollar makes our exports more attractive.
Strong demand for our products puts upward pressure on the Canadian dollar.
Relative Economic Performance
Stronger demand for Canadian products strengthens the Canadian dollar.
Relative Inflation Rates
High inflation decreases the purchasing power of a currency.
Foreigners need to buy our currency to purchase our goods.
Stable politics also attract investment. Investors in unstable countries seek stable economies like the U.S., considering inflation rates to preserve their money’s value.
Relative Interest Rates
Higher interest rates attract foreign investment. For example, if Australia sets interest rates at 5% and Canada at 10%, investors will move their money to Canadian banks to earn the higher return. This requires buying Canadian dollars, increasing its value.
Political unrest in other countries can also strengthen our dollar as investors seek safer havens.
Canada’s Productivity Record
A productive country generates more wealth, strengthening its currency. Producing more value with fewer resources strengthens the economy and the dollar.
Trade and Current Account Balances
If imports exceed exports, more Canadian dollars are used to buy foreign currencies, weakening the Canadian dollar.