For the global eyewear sector, the past three years have perhaps been some of the most turbulent in recent memory. The creation of Kering Eyewear, the planned merger between Luxottica and Essilor and the new joint venture between fashion house Moët Hennessy Louis Vuitton (LVMH) and Marcolin have all been making the headlines. The world’s second largest manufacturer, Safilo, has been part of the news, but has not been setting the agenda. The company lost several licences to Kering Eyewear in 2015, most notably Gucci at the end of 2016, the effects of which are starting to be felt.
While the news of mergers and brand moves may have been a surprise to some, to Safilo CEO Luisa Delgado, it was very much on the cards and fully accounted for. ‘Our 2020 plan was designed after a very, very careful analysis of the industry and insights, with trained projections and scenarios,’ she says. ‘The fact that one day Essilor and Luxottica would try to merge did not come out of the blue as rumours were circulating for several years. The fact that LVMH or Kering might want to get a foothold in eyewear is also understandable, as eyewear was one of the few remaining untapped licence areas within the two major luxury conglomerates. Therefore, it was not a surprise that the LVMH scenario recently turned into something similar to that of Kering.’
These recent events have created another pillar to its 2020 plan and an opportunity for the company, says Delgado. Independence is at the fore of optical business owners’ thinking and the Safilo chief says the market is looking for an alternative: ‘I think people want a supplier who looks to be a partner who gives choice, who gives flexibility.’
Criticism from within the industry has been levelled at Essilor for being what people see as a competitor as well as a supplier, something which Delgado recognises. ‘It’s the same strategy as Luxottica,’ she says. ‘What an independent really wants to manage and lead the business is choice of brands, of labs, of lenses, of insurance. They do not want to be told what to do or face not getting the brands they want to stock. ‘We’re seeing exactly that and we’re making a strategic play to precisely foster choice. Our Smile system, for example, is an automatic replenishment category management system, but it doesn’t tell the optician to buy our brand. It tells the optician to analyse the brands that sell better, that fit with the consumer. They may be ours, they may be somebody else’s,’ says Delgado.
‘When I arrived in this industry, I was rather surprised about the lack of transparency in commercial conditions. Safilo spends a lot of time in creating clarity on our terms, so whether you are a large or small customer, you will be clear on what prices to use and how we invest in you.
‘If I was an optician, I would want to know that if I buy a product from a company, where else is it distributed? Not that you tell me where it should be distributed, but I should have the assurance and the trust that whoever sells this to me, does so at a fair price, with fair conditions and transparency,’ she says.
Optician asks whether Delgado and Safilo are concerned about the planned merger between Essilor and Luxottica. ‘We are not worried. Our customers are worried,’ she says. ‘We are constantly looking and are already in many countries collaborating on alliances with lens manufacturers. We can actually do that very easily because we’re a company that’s very agile. We don’t need huge mergers – instead continue to invest heavily in research, development and innovation.’
The most recent landmark eyewear sector could also present a problem to Safilo’s operations. Luxury fashion house and a licence partner of Safilo’s, LVMH, signed a joint venture agreement with Italian eyewear producer, Marcolin. The two companies said the first products were expected in 2018 from Céline brand, which until recently, was in the hands of Safilo. Marcolin also aims to be the preferred partner of LVMH in the eyewear sector in future.
‘Let me be very clear on the issue of LVMH, says Delgado. ‘Safilo works and works very well with four LVMH brands currently. Dior until 2020, Givenchy until 2021, Fendi until 2022, and Marc Jacobs until 2024. We didn’t renew Céline. We are very proud but also very committed to serve these brands to their very, very best, and I think the industry will recognise that just how well Dior has performed in eyewear over the past two or three years. Why did Safilo not form a joint venture with LVMH? Because we believe that wouldn’t have been right for Safilo, which is a bigger company than the competitors, much bigger. A joint venture, which in 10 years becomes a spinoff, is not part of our plans.’
Time for change
Delgado joined the board at Safilo in 2012 as non-executive director, where she spent a year before her appointment as CEO. She spent over 20 years at Procter & Gamble (P&G), where she worked in several local and international roles based in Portugal, the UK, Belgium, Switzerland and Sweden. In her last role at P&G as vice-president and CEO for Nordic region, she was credited for the turnaround of the company’s fortunes in that territory.
‘My initial time on the board gave me a good strategic understanding of the market and the industry as well as Safilo’s role within it. It was clear that Safilo was dependent on too many things.
‘We were too dependent on licences – 60/40, 70/30, even 80/20 splits between licenced and our own house brands at certain times. Within these licences, we were also too dependent on two groups, Kering and LVMH, which wasn’t a good idea.’
From a pure product perspective, Delgado says Safilo was also far too invested in sun frames when she arrived, working on a 60/40 split, while much of the market working at around 30/70.
Over-dependence on certain territories was another problem at the time, with an onus on Italy, North America and Spain instead of what Delgado describes as a ‘world view.’
‘We were not managerially integrated globally. We were great in product but lacked in business management ability. There was a declaration from Safilo, that if it wanted to grow and become more profitable, it had to change fundamentally. That’s why I was brought into the company.’
Day zero
Delgado quickly rang the changes, some of which she describes as painful. ‘We want to catch up on the last 20 years. Your readers will know full well it was in the past two decades that modern multinationals and multiples were built. Luxottica was made in the past 20 years, not before. During that time, Safilo went into a sleep-like state and we are dealing with the consequences of that now.’
At leadership level, the top 25 positions were restructured. Half were asked to leave, replaced by new recruits and promotions within the company.
‘When Safilo introduced this strategy, its underlying message was “We want to become again who we were,” because we invented the eyewear industry in 1878, and we will always want to be an independent company in charge of its own destiny. We have five very strong in house eyewear brands that today account for sales of over 10m units, which is four-fifths of our nearest competitor,’ says Delgado.
The company had made a choice to be independent but build a portfolio of in-house brands that represented almost half of its business. ‘We also made a play to say that licences are important for us, but they’re an add-on, they’re not the core. They also need to be diversified so that at no point are we dependent on any single group,’ she says.
‘When you are in the licence business, it’s important to understand that every agreement has a beginning and an end,’ she continues. ‘Safilo over the years has had Ralph Lauren and it came and went. Armani came and went. Licences rarely go because of performance issues. They normally go because somewhere at corporate level, some new alliance was built or something else that requires it to happen.’
While core brands are important to the company, it has remained proactive in licensing, with five agreements in the past three years. However, Delgado says the company’s approach to selecting them has changed: ‘All were from diversified consumer segments, which is very important because we don’t want to reduce our dependency on certain product types. We now have active gear, outdoors and fashion luxury. Within those, we have signed diverse brands that all have potential, but are all different and have varied origins geographically.’
Realising potential
Maximising existing licences has also been a Safilo focus. One example Delgado uses where every ounce of potential is being realised from a license deal is Max Mara. ‘Throughout my career, I had never seen a brand decline for seven consecutive years – either someone would have been questioned or the brand would have been discontinued,’ she says.
Questions on how brands were being managed needed to be asked. ‘When I arrived, I went to a Max Mara brand meeting, and there were all these male brand managers sitting around the table the presentation focused on Max Mara being for the mature woman.’ Safilo’s treatment for Max Mara was quickly changed and the aim was to lose no money whatsoever after the first full year.
Delgado quickly leveraged the 350 Max Mara stores around the world, where Safilo was not even selling product, and sat down with the owner and rethought product concept. ‘We said, “What is the eyewear equivalent of the popular Max Mara coats? If we work that out and then interpret it again and again, we have a winner.”
‘Since then, effectively year zero, the brand had grown year on year. This shows you the power of existing brands. That there’s still huge potential to be extracted.’ Polaroid and Smith have both been earmarked for growth, Smith is looking to build on its popularity in North America with growth in Europe.
Acquisitions present major manufacturers like Safilo with an alternative, more secure model to licensing, so is Safilo keen on expanding its portfolio of acquired brands? ‘We’re very active in acquisitions and have been very public about that. We have a brilliant balance sheet so we have the money, but we’re not buying for the sake of it. We’re very deliberate about brands and about capabilities that will accelerate our overall strategy,’ says Delgado.
For today’s Safilo, acquisition extends beyond brands. The acquisition of Italian lens manufacturer Lenti last year shows the company is committed to purchasing additional technological capabilities too. The fruits of this acquisition are beginning to be seen in new collections, with patterned graphical sun lenses and triple colour schemes, which Safilo hopes will set it apart from others in the sun sector.
The past two years have seen a €45million investment in its manufacturing plants, chiefly in Italy. ‘All of our plants were working at 50% capacity and part of an Italian government solidarity business scheme when I joined the company,’ says Delgado. In Italy, metal and acetate production capacity has doubled, while in China, more and more product is in-sourced to its plant to allow full control over the Made in China collections. Manufacturing output has also been diversified, with the introduction of Atelier Division that will focus on limited run, handcrafted products that fill a gap in the group’s portfolio.
The future
When it comes to the modernisation of optics, Delgado says the most meaningful changes are yet to come. ‘I believe that our industry needs to become more consumer-focused, transparent and agile, and needs to ensure consumers have access to our products in a way that engages them, that makes them feel it’s transparent. Today, particularly with optical frames, it’s a hard shopping experience for the consumer. I am committed to ensuring Safilo gets to and remains at the forefront of modernising the shopping experience and the role of the optician,’ she says.
A bugbear for many opticians in recent years has been the prominence of set price ‘all in one’ suppliers on the internet. Optician asks Delgado if this is something that worries a company such as Safilo? ‘I think the problem that the optician has is my problem too. I have all problems they have. I consider them my problems because if they’re not successful, I’m not successful. I have an inclusive view of the industry.’
There is a caveat, however. ‘I think the disruption in our industry will come from anything that is digitally enabled and therefore creates additional transparency and simplicity. Of course, that may have an impact on the price. Although that model is only sustainable if it has good product. So far, we haven’t seen that, because getting good product at high quality with a supply chain that is robust enough is, in our industry, difficult. That’s why we believe we have such a right to be successful.’
Enabled technology is another area in which Safilo is looking to become a leader, says Delgado, who believes there hasn’t yet been a digitally enabled eyewear product that has improved life for the wearer. ‘We, like many others, were contacted by Google a long time ago when they first started, and it was strange because the proposal was all about creating something to put technology on and for us, that was never the point of wearables.’
Safilo’s first foray into smart eyewear has come in a somewhat unexpected form, through a partnership with Canadian technology firm Interaxon. The Lowdown sunglass from Smith Optics has been designed to enhance mental focus and uses electroencephalogram technology within the cavities of the frame. These sensors measure brain activity during meditation. When using it the wearers can get live feedback on their brain activity from an accompanying app, which automatically adjusts the theme of the meditation depending on the brain’s meditative state.
Optician tried the Lowdown at Mido and first impressions were very good, more so than Google Glass. Delgado says the product was very well received at the Las Vegas Consumer Electronics Show at the beginning of the year. ‘Sports Illustrated told us that we’ve done such a brilliant job in combining a normal object and technology – probably the best example of the show. By working with apps and mindfulness, we have captured the zeitgeist of today as well as the needs of society today.
