French luxury goods group LVMH (LVMH.PA) is set to take a stake of up to 10 percent in unlisted Italian glasses-maker Marcolin as it seeks to increase control over eyewear manufacturing for its brands, a source close to the matter said on Thursday.
The move follows rival Kering’s (PRTP.PA) decision to take its eyewear business in house by terminating its Gucci licensing agreement with Safilo (SFLG.MI). It is also part of a wider trend that has seen luxury brands buy their suppliers to have more control over their brand image and boost profits.
It also comes just days after Italy’s Luxottica (LUX.MI) and France’s Essilor (ESSI.PA) agreed a 46 billion euro ($ 48.86 billion) merger to create a global eyewear group.
The eywear market is worth 95 billion euros and is expected to grow at a strong pace in the next few years due to an ageing of the global population and increasing awareness about eye care.
But luxury brands are under pressure as consumers increasingly switch to cheaper products and a growing number of online retailers threaten traditional shop networks.
“LVMH, like other luxury groups, has decided to strengthen its control over eyewear production and is working on a production agreement with Marcolin,” the source said, confirming a report by Bloomberg.
Marcolin, owned by private equity fund PAI partners, declined to comment.
“If confirmed, the deal could mean that LVMH is preparing to integrate vertically in the eyewear business through the acquisition of production capacity from Marcolin as well as a distribution network similar to Kering eyewear,” Luca Solca, luxury goods analyst at Exane BNP Paribas, said.
The reports of LVMH’s interest in buying a stake in Marcolin sent shares in Italian rival and LVMH supplier Safilo down 14 percent. One trader said Safoilo could lose lucrative contracts with Marcolin.
Safilo last month renewed a license agreement with LVMH’s Christian Dior brand until 2020, but said its contract with Celine – another LVMH brand – would end this year.
A recent Mediobanca report estimated that Safilo’s eyewear licenses with LVMH generate annual revenues of 350 million euros for the company, or almost 30 percent of total revenues.
(additional reporting by Valentina za, writing by Silvia Aloisi. Editing by Jane Merriman)