Luxottica Winning Licence War as Safilo Tries to Repair Damage
Luxottica Group SpA and Safilo Group SpA dominate spectacle frames and sunglasses globally. Both companies offer comprehensive portfolios of licensed brands, making renewals and new partnerships vital in terms of retaining leadership. However, Luxottica managed to outshine Safilo in terms of portfolio changes over the review period, thus weakening the latter’s global position in spectacles.
Importance of Licences
Luxottica’s top two proprietary brands, Ray-Ban and Oakley, accounted for over 40% of the company’s sales in 2012. Although licensed brands are important to Luxottica’s portfolio, proprietary brands often determine annual growth rates.
Evolution of Two Portfolios
Since 2008, Safilo has terminated licensing agreements with several renowned brands across apparel and personal accessories. The departures of Diesel (2010) and Armani Group (2012) are expected to have the greatest negative impact on Safilo’s global sales.
Changes in Safilo’s Portfolio over the Review Period
Source: Safilo Financial Reports
Although they command significant sales individually, the growth of relatively new brands Tommy Hilfiger, Céline and Fendi is unlikely to make up for the loss of Armani Group over the 2013 calendar year.
Changes in Luxottica’s Portfolio over the Review Period
Source: Luxottica Financial Reports
Armani Group’s collection of spectacles switched licensee from Safilo to Luxottica in 2013, representing the biggest gain for Luxottica’s licensed portfolio since 2008. While Luxottica has lost a few brand licences as well, the addition of fast growing spectacle collections such as Coach and Tory Burch have helped offset the loss caused by Salvatore Ferragamo, Anne Klein and others.
Opportunities for Safilo over the Forecast Period
Safilo’s portfolio strategy over the forecast period should include the renewal of its licensing agreements with key brands Tommy Hilfiger (2015), Dior (2017) and Gucci (2018). The company also has opportunities to add to its portfolio as several brands in competitor Marcolin’s licensed portfolio are near expiry. Among these are Timberland (2013), Kenneth Cole (2014) and Roberto Cavalli (2015). Safilo is the existing licensee of some of PPR’s (Kering) biggest brands, and a long-term plan for growing the former’s licensed portfolio might entail overlying agreements with more apparel and personal accessories conglomerates. Some of the potential targets include Inditex (brands include Zara, Pull & Bear and Massimo Dutti), LVMH (brands include Louis Vuitton, Bvlgari and Donna Karan) and Richemont (brands include Cartier, Montblanc and Chloé). The benefits of such a strategy are evident in Luxottica’s portfolio, with both Prada and Dolce & Gabbana groups being significant contributors to annual revenue.
On the other hand, a rapid expansion of Safilo’s proprietary brand portfolio might require the company to undertake a substantial merger or acquisition over the forecast period. One company which matches Safilo’s requirements for established proprietary brands is De Rigo. While its wholesale proprietary brands include Police and Lozza, the group also operates optician chains in multiple European markets (including Boots Opticians in the UK and General Optica in Spain). Thus, Safilo needs to explore both organic and inorganic growth opportunities in order to provide effective global competition to Luxottica over the forecast period.
Note: (Year) indicates the year in which the licensing agreement expired / will expire. Review period refers to 2008-2013 while forecast period refers to 2014-2018.