Game over between Safilo and Dior
On Tuesday, the share price for Italian eyewear group Safilo tumbled again on the Milan stock exchange, dropping by over 2% to €0.84. The day before, Safilo’s share price lost nearly 6%, following the news that the licensing contract between Dior and the eyewear group controlled by Dutch investment fund HAL, for the Dior and Dior Men eyeglasses and sunglasses collections, will end on December 31, 2020.
The end of the licence agreement had been on the cards since the creation in 2017 of Thélios, a joint venture between Italian eyewear manufacturer Marcolin and LVMH, the latter being keen to internalise the eyewear supply chain for its many labels. Still, the announcement is remarkable news. Safilo has been producing eyewear for Dior for 23 years. Over two decades, the group sold more than 30 million pairs of Dior eyeglasses and sunglasses worldwide. In 2018, the Dior licence alone accounted for over 13% of Safilo’s total revenue.
“Our company has an 85-year history, an involvement in and a passion for this industry of which we are proud. To strengthen Safilo in the future, we will continue to rely on our human capital, on the solidity of an attractive, well-balanced licence portfolio and on our own exclusive brands, which are growing according to plan,” said in a press release Angelo Trocchia, CEO of Safilo, confident that the group has the ability to revitalise its business.
In the last few years, Safilo’s revenue and profits have been declining, and in 2018 the group generated a revenue of €962.9 million (-7% at current exchange rates), with an adjusted net loss of €26.7 million. Safilo was instead off to a positive start in 2019, with revenue up 3.4% to €247.3 million in the first quarter.
As the leading luxury groups are booming, and are keen to internalise the lucrative eyewear business, the world’s second-largest eyeglasses manufacturers lost several key licences in recent years.
On January 1 2017, the Gucci licence, worth nearly €350 million per year, turned into a four-year production contract, which is expected to end in 2020, like Dior’s. Gucci’s eyewear collections will soon be produced in their entirety by Kering Eyewear, which in the last three years has also taken over the collections by other labels owned by the French luxury group that were previously produced by Safilo (Bottega Veneta, Saint Laurent, Alexander McQueen and McQ).
In December 2017, it was LVMH's turn to deliver a harsh blow to Safilo, by terminating the Celine licence. Celine’s eyewear collections are now produced by Thélios, alongside those of Loewe, Fred, Kenzo and Berluti. The expectation is that LVMH, which owns 51% of Thélios, will not stop at those. After opening a first factory last year, LVMH announced earlier this year that it is building a second factory in Italy with its partner Marcolin. Once this new factory will be fully operational, LVMH will be able to produce over 4.5 million pairs of glasses per year.
Safilo still has three LVMH labels in its portfolio: Givenchy, Fendi and Marc Jacobs. Trocchia however remains optimistic: “We will focus exclusively on our creativity, on our technological know-how and on our personnel, to further broaden our brand portfolio, which has already been boosted by the renewal of licensing agreements with key brands like Kate Spade New York, Tommy Hilfiger, Havaianas and Fossil, and by recently signed contracts for Levi's, Missoni and David Beckham.”
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