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Luxury eyewear industry continues its transformation with LVMH move

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On Wednesday, LVMH signed a joint venture with Italian eyewear manufacturer Marcolin as part of a long-term strategy to tighten control over its licensed brands. The deal, which will see LVMH take a 10 percent stake in Marcolin, follows a string of events that represent an ongoing restructuring of the global eyewear market.

Just last month, two of the largest companies in the industry — Luxottica and Essilor — signed a long-awaited deal with a combined market value of €50 billion. Meanwhile, LVMH rival Kering moved its eyewear brands in-house after terminating its licensing agreement with Safilo in 2014.

“It’s an industry that is going through a process of consolidation that started many years ago, says Mario Ortelli, head of the luxury sector at Sanford C. Bernstein. “It’s going through a transformation and the players in the market are thinking of different strategies.”

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The global eyewear market, which includes frames, contact lenses and sunglasses, was worth $90.3 billion in 2013 and is expected to reach $140 billion by 2020. The increasing demand is thanks to a growing middle class, who are more likely to spend their disposable incomes on entry-level luxury products like eyewear. This represents a wealth of opportunity for global luxury groups to further expand their offering to a wider net of consumers and one that LVMH and Kering are evidently keen to gain further control over.

Control, however, can come at a hefty price. In order to bring its eyewear offering in-house, Kering paid Safilo €90 million to terminate their license agreement two years earlier than expected, sacrificing around €50 million in royalty income.

“The advantage of bringing eyewear in house is that you control distribution more tightly. The disadvantage is that you will operate at a scale disadvantage in physical distribution, sales and manufacturing (assuming you internalise that too) in comparison to major eyewear players like Luxottica,” Solca says.

LVMH’s Marcolin deal will be a blow to the Safilo Group, which currently makes eyewear for LVMH brands Celine and Dior, licences worth €340 million, more than a quarter of its annual sales. Earlier this week, Safilo reported its full year sales fell 1.2 percent, on a like for like basis, as a result of the impact of the brands that it stopped servicing, however the loss of LVMH brands is yet to be reported in results. Marcolin will make eyewear for LVMH brands Celine and Louis Vuitton from 2018, with a longer-term aim to become the luxury goods company’s preferred partner for eyewear.