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Kering Plans Separate Unit To Focus On Eyewear Business; To Exit Royalty Model

French luxury and retail group Kering (PPRUY, PPRUF), previously known as PPR, said Tuesday it is looking to strengthen its eyewear business by creating a separate entity that will fully control the eyewear value chain, from design to product development and supply chain, and from branding and marketing to sales.

The strategic move is aimed at building in-house eyewear expertise for Kering's Luxury and Sport & Lifestyle brands. The business unit will also focus on increasing both wholesale and retail sales as demand for branded eyewear soars.

"The global eyewear market for frames and sunglasses is significant and growing double-digit in the premium high-end segment. The current size of the Kering brands' business is roughly 350 million euros and makes Kering one of the top five players in this industry," the company said in a statement.

The owner of the Gucci and Saint Laurent brands currently manages nine of their eleven brands through license agreements with five different partners. It only receives royalty totaling about 50 million euros on these licenses.

The company now will take back control of their brands by setting up a new business model that will help it gain all the revenues from the sales of their eyewear. It will also have full in-house control of design, development, marketing, distribution and sales of their brands.

The new eyewear focused unit will be managed by a skilled team of experienced professionals under the direction of Kering Eyewear CEO Roberto Vedovotto, who along with his team will be co-shareholders of this new entity. However, the brands will continue to be under the leadership of their respective Creative Directors.

"Eyewear is a strategic category for Kering brands. Through this innovative project, Kering aims at helping them fulfill their full growth potential in this business segment while leveraging the unique appeal of each of them," Vedovotto stated.

As part of the move, Kering and Italian eyewear company Safilo Group SpA have mutually agreed to terminate a Gucci licensing agreement two years ahead of expiry on December 31, 2016. The early termination will see Kering paying Safilo a total compensation of 90 million euros, in three installments between 2014 and 2018.

Kering will then forge a four-year strategic product partnership with Safilo, effective from January 2017, in order to benefit from Safilo's expertise and production capabilities in high quality Italian manufacturing for Gucci brand. The partnership will be renewable upon mutual agreement.

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