What Kering's Cartier Deal Means for the Eyewear Market
Kering Eyewear has signed a partnership to develop, manufacture and distribute eyewear for Cartier, its first external deal at a time of radical change in the sector.
LONDON, United Kingdom — On Tuesday, Kering Eyewear announced a strategic partnership with Richemont to handle the development, manufacturing and distribution of Cartier eyewear. The partnership is Kering Eyewear’s first external deal since setting up operations in 2014 to take more control over Kering brands’ eyewear.
The move represents another surprise shift in the rapidly changing luxury eyewear market. In February, LVMH entered into a joint venture with Italian eyewear manufacturer Marcolin, while Luxottica and Essilor signed a €50 billion deal to merge in January.
With the global eyewear market — which includes frames, contact lenses and sunglasses — expected to reach $136 billion by 2021, according to data from Euromonitor, it’s easy to see why luxury companies like LVMH, Kering and now Richemont are keen to cash in on the opportunity and expand their offering to a wider net of consumers. Demand is increasing thanks to a growing middle class of consumers who are more likely to spend disposable income on entry-level luxury products like eyewear.
Under the terms of the agreement, which is subject to clearance from antitrust authorities, Richemont will acquire a minority stake of around 30 percent in Kering Eyewear, which currently handles design and distribution for Kering Group brands including Gucci, Bottega Veneta, Saint Laurent and Alexander McQueen.
“The strategic partnership with Richemont highlights a further step change in the eyewear industry led by Kering, thanks to the introduction of one of the most iconic brands in the whole industry to Kering Eyewear’s portfolio," Kering Eyewear chief executive officer Roberto Vedovotto told BoF. "This enhances Kering Eyewear's unique competitive positioning as the first and only luxury company in eyewear and reinforces our positioning as the most relevant player in the high-end segment," he added.
"We share the same luxury approach to the category and the same values."
The company will integrate Cartier’s manufacturing entity in Sucy-en-Brie, France, which may add to Kering’s production capabilities in the long term, though currently, it will continue to solely manufacture Cartier eyewear collections. The debut of Cartier’s Spring/Summer 2018 collection in early October will mark the official beginning of the partnership.
“The strategic rationale behind the deal is to join forces and to grow in scale," Vedovotto continued. "Above all, we share the same luxury approach to the category and the same values — highest quality standards, selective distribution, etc — and we will leverage on these values in developing our business together."
With Kering Eyewear handling an external brand’s eyewear operations, this could open up new opportunities for the company to take on further licences from Richemont, which also owns Chloé and Dunhill, whose eyewear licenses are currently handled by Marchon and De Rigo Vision respectively.
“This announcement means that both companies are interested in more closely controlling their eyewear business,” said Mario Ortelli, head of the luxury goods sector at Sanford C. Bernstein. “It’s a business in which scale is important and so joining forces together is interesting. Richemont has probably started with Cartier to test out its partnership, and there is the potential in the mid-term for other brands of the Richemont group to join this platform, if it’s successful.”
Earlier this year, Kering managing director Jean-François Palus said Kering Eyewear was on track to post revenues of around €340 million. “We consider our strategy validated not only by the success of our launch, which will now start to bear fruit, but also by the recent changes that are reconfiguring the sector, he said at a press conference on Kering’s full year results in February. “Our growth prospects are considerable in a global market that continues to post double-digit growth.”
"It’s a business in which scale is important and so joining forces together is interesting."
“Results achieved so far have been very solid: sales were in line with targets," said Vedovotto. "We are on track with the expected results and our strategy has also been validated by the recent changes which are affecting the whole industry.” The company recently brought Gucci back in-house, terminating its contract with Safilo two years earlier than expected.
Luca Solca, head of luxury goods at Exane BNP Paribas also believes the move is a positive, particularly for Richemont. “We understand that the Cartier eyewear business (and in particular their factory in France) was losing material amounts of money,” said Solca in a research note.
“We would reckon that Richemont takes a stake in Kering Eyewear at no cash disbursement, but rather in exchange for committing the mega-brand Cartier to the business. We expect Kering Eyewear will pay royalties to Cartier the same way as with their other licenses.”
Long term, the move also creates further opportunity for Kering Eyewear to take on other luxury brands, which could eventually dent the profits of eyewear manufacturing companies like Safilo, whose full year sales fell by 1.2 percent, on a like for like basis, as a result of the brands that it stopped serving in 2016.
“With Kering Eyewear opening its platform to another brand, we may potentially see in the future other moves from independent brands like Prada, Armani and Chanel to consider switching their agreement with their current licensers,” said Ortelli. “First of all we have to see how they manage their business, and right now it’s a total work in progress.”
However Kering Eyewear still has its work cut out if it plans to tackle bigger players in the market. “The really interesting part of this eyewear business is how these companies will build up their distribution platforms,” said Ortelli.
“It will be interesting to see if the biggest company in the world for eyewear —Luxottica — will somehow will open its distribution platform to the brands that are producing outside its group,” he continued. “So if Kering Eyewear is able to make an agreement with another big player for its distribution, this may be an advantage, otherwise building a distribution platform can take time.”