Luxottica Group S.p.A. (Milan) announced that its 14-year licensing agreement with Giorgio Armani S.p.A. (Milan) is coming to an end and will not be renewed over “irreconcilable differences.”
Armani eyewear represents approximately 7.2 percent of Luxottica's consolidated net sales, but chairman Leonardo Del Vecchio said, “We are currently involved in license negotiations with major worldwide brands that we are confident we can help succeed in a short period of time, just as we did with Chanel. In fact, it took only two years for sales of Chanel eyewear to exceed those of all our other licensed brands, including Giorgio Armani.”
Those irreconcilable differences reportedly included the future design of glasses, distribution and guaranteed minimum turnover. The Armani Group had decided to make major changes to the design of its eyewear collections. Luxottica Group decided that it could not adhere to this change in strategy. In fact, said Luxottica, the shift from a classic product to a trendier version would have made it a niche product and this would have translated into a significant decline in sales for at least three to four years. Luxottica also said it would have had to bear in its entirety the impact of the decline in sales, since the contract with the Armani Group provided for royalty payments on minimum guaranteed revenues, regardless of actual sales.
Regarding the differences in distribution, Luxottica Group explained that Armani requested a material reduction in the number of opticians authorized to sell the licensed products. Meeting this demand, Luxottica Group said, would have meant not only a significant loss of sales but also damage to the company's image, resulting in a negative impact on sales of the 22 brands it sold.
“One of Luxottica Group's most important assets,” said Del Vecchio, “is its relationship with the more than 200,000 opticians with whom the Group works in 120 countries.”
The agreement ends May 31, 2003.
“On the retail front,” Del Vecchio said, “we are evaluating several alternatives and expect to close at least one acquisition within the first half of 2003.”