Salvatore Ferragamo has decided not to renew its license agreement with Luxottica, with which it had a partnership since 1998, and now will join forces with Marchon. The Italian fashion group signed a five-year worldwide license agreement with the big American eyewear producer. The deal can be renewed for an additional five years under certain conditions.

The license starts on Jan. 1, 2012, and covers the worldwide design, distribution, marketing and sale of women's and men's sunglasses and prescription frames under the Salvatore Ferragamo and Ferragamo names. The deal includes an option for Marchon to obtain another license for swimming goggles or products similar to the ones covered by the contract.

Marchon will pay an 11 percent royalty fee on the first €35 million of net revenues it generates from the sale of the line. The revenues taken into consideration are net of discounts, royalties paid for third-party technology used for the eyewear, value-added taxes, insurance and transport costs. Marchon will pay 10 percent in royalties for sales above €35 million. The company has to guarantee a minimum royalty fee, according to information contained in the prospectus released for Ferragamo's listing on the Milan stock exchange. The stock was scheduled to start trading today. Marchon will also make a one-time payment of €1.5 million and pay a €0.5 million consultancy fee to Ferragamo.

The contract will be renewed if Marchon's net revenues generated from the sale of Ferragamo eyewear reach or exceed €28.1 million in 2014. The deal can be stopped if 50 percent, or more, of Marchon's capital is sold to third parties.

Marchon pledged to spend the equivalent of 8.0 percent of net revenues generated by the license every year in advertising. It has to ensure that its eyewear legally bears the “Made in Italy” label of origin, expect for titanium frames, which have to bear the “Made in Japan” label.

The Italian group expects the deal to strengthen the worldwide presence of its eyewear collection. Ferragamo has aggressive expansion plans and wants to increase its presence in emerging markets, especially in Asia-Pacific and South America. In China, the group will expand in Tier 2 and 3 cities. It is also interested in smaller markets with high growth potential, such as Vietnam and the Philippines, and in taking over mono-brand stores run by third parties. The group had 312 DOS at the end of 2010, while 266 mono-brands were managed by third parties.

Ferragamo will open about 25 stores this year, about 10 of them in China. In the following years, the group intends to open about 30 stores a year, of which 70 percent will be located in Asia.

A financial analyst estimates that the news will have only a marginal impact on Luxottica's results because the license represents less than 1 percent of the eyewear company's turnover. In 2010, Luxottica booked sales of €5.798 billion.

Meanwhile, Safilo and the Valentino fashion house have decided not to renew their license agreement. The partnership started in 1998 and ends on Dec. 31, 2011. The deal is believed to represent 1-2 percent of Safilo's revenues, which totaled €1.08 billion last year. On the other hand, Safilo has extended its global license agreement with Alexander McQueen from the end of 2013 to Dec. 31, 2015. The brand is owned at 51 percent by PPR via Gucci, with which Safilo has a license agreement until 2018.